In an incredible announcement over the weekend, Apple has gone public with its plans to create a $304 million dollar campus for more than 3,600 people in Austin, Texas. This is on the heels of their $500 million dollar Cupertino, CA campus that is now under construction. Wow, hope they sell a gazillion iPad 3s.
The Cupertino building famously looks like a space ship. It will be interesting to see if Austin gets in on the “space” program as well. (Has the Eagle landed in Austin?).
Dan Whisenhunt, Apple’s Director of Real Estate and Facilities, must be the busiest real estate professional in America. I imagine Dan in his weekly meeting telling his staff, “Ok, we’re going to keep the existing global portfolio growing, build this building in
Cupertino on time and on budget. Oh, by the way, we’re also going to build another campus in Austin at the same time.” "Hey, let's FOCUS people." “Pass me another protein bar and a Mountain Dew, please.”
The combined $800 million in construction projects makes Apple the most active company in the world in the construction of new real estate facilities. Dan is indeed the man in corporate real estate these days. At least he can look at the plans in amazing clarity on his new iPad.
It's Not Just Apple
Our team is currently representing two clients in the creation of three ground up construction opportunities. The insurer Primerica is building a 345,000 square foot campus just outside of Atlanta. They were able to create huge efficiencies by going from 10 separate buildings to one campus. This facility will deliver in the Spring of 2013 and among other fabulous features, will have a state of the art facility for Primerica sales people to learn about the culture of the company and its products.
Porsche Cars North America is creating an approximately 175,000 s.f. corporate headquarters, training facility, and customer experience center adjacent to the world’s busiest airport in Atlanta. Customers will be able to come from all over the world and experience a little “every day magic” on the Porsche handling circuit. This project will deliver at the end of 2013 and be a huge boost for Atlanta's international reputation.
In addition to the Atlanta facility, Porsche announced at the 2011 Los Angeles Auto Show that it will break ground in the spring of 2012 on a second US Porsche Experience Center in Carson, California. The centerpiece track (like Atlanta) will include encounters with rain and man-made snow, as well as an off-road course.
If tooling around a winding track in Southern California in a seventh-generation Porsche 911 isn't your idea of ecstasy, there will also be a "Porsche Human Performance Center," with a sports-science laboratory to "maximize personal fitness, wellness and athletic performance." As my Southern Grandmother would say, "oh my, that's better than a blueberry pie."
But There is so Much Vacancy….
Why would anyone build now? How can senior leadership justify spending capital on creating new product when the national office vacancy rate is at nearly 17%? Ahhh, no matter the real estate cycle, projects like these can and will happen.
Here are 8 reasons why major user might consider “campus consumption” as a way to solve their real estate challenges in 2012.
1) Talent Cost and Availability
Yes, I know that the headlines still consistently discuss the masses of unemployed Americans. The reality is many companies are struggling with retaining talent in top executive positions and highly technical positions. Apple is creating talent diversity in its expansion to Austin. The labor market for techies is tough in Austin, but nothing compared to Cupertino and the Silicon Valley.
2) Cash or Credit
With the spring thaw in real estate finance in motion, more corporations can get funds, if needed, to build campuses. Both lenders and equity investors have a growing appetite to do deals again (finally!). The reality is that many companies have huge troves of cash and some of them will invest this cash in dirt and buildings. Besides, you can always get the cash back out vis-a-vis a sales leaseback, should that become necessary.
3) Space Efficiencies
In the recent great recession, companies would do anything to cut cost. Real estate is usually the second largest item in the budget after payroll, so “densification” of employees became a major initiative for many real estate departments. What many large users are finding now is that expansion is difficult to accommodate. In addition, rethinking the architectural program can yield significant space efficiencies. Also, like Primerica, some users find themselves in multiple buildings with the requisite inefficiencies.
4) Point of Friction
Sometimes companies simply get too big to fit into existing product. While many major metro areas still have large holes and lots of space, mega requirement of 250,000 square feet and greater have a difficult time making existing buildings work. The “friction” that results can hatch a new campus.
Communities in the Southeast and Southwest United States are getting increasingly aggressive with inducements. The electorate is telling politicians with one voice – we want jobs! The politicians are tossing around cash, free land, tax breaks and all manner of incentives to land the next big one. Economic development organizations in many communities are becoming very sophisticated in their marketing efforts, and as a result, they are scoring some big wins for constituents.
6) Building Cost
Commodity prices seem to be fluctuating all over the place, but the cost of construction is still a bargain principally because of labor cost. General contractors are reporting increased activity, but the sub trades are still willing to make great deals to get work. So are architects, environments experts and many other consultants.
It's not new news that taxes are high in the gateway cities of San Francisco, LA and New York. These areas are simply very expensive places to do business. When companies layer in the significantly reduced tax burden in other places, the campus concept can get a major boost.
As we experienced ourselves with Porsche and Primerica, iconic brands sometimes need iconic campus environments in order to market themselves both internally and externally. I’m sure Apple is creating great excitement internally for their employees. The Apple marketing guys are going to have a field day when Cupertino and Austin deliver. They will get millions of dollars in “free” PR for their company through the announcement and completion of these facilities. Sometimes the real estate math is just one small part of the evaluation model.
Build it and they will Brand
Campuses don’t work for many. Heck, they don’t work for most. I once had a senior telecom executive tell me that their industry changes too fast to even consider the campus option. He pointed out that there are many former telecom campuses around the United States. He’s certainly correct that the ultimate “exit” out of a campus can be difficult. Long after the ribbon cutting, selling or repositioning campus facilities can be a tremendous challenge.
However, as the economy improves, you will see more announcements of big, shiny new campus projects. Apple may be the biggest in this game, but they are certainly not the only player. As the economy two-steps into a recovery – Austin and elsewhere, more and more companies will evaluate campus solutions. If you check the right boxes and carefully analyze the alternatives, you might be surprised what a brand statement wrapped in real estate can do for your company.