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Why? I seriously don't understand this investment. Can someone here explain?

encryptluks2 5y ago
I agree. Sounds like a terrible investment. For that price they could literally give over 2000 employees a million dollars or hire 5000 new employees in other remote locations.
- rmah 5y ago
  A real estate purchase is not a normal expense (on the income statement) the way paying employees is. Assuming it's a cash purchase, it's a balance sheet transfer from cash asset to a real-estate asset. If debt financing is used to pay for it, while the interest expenses would appear on the income statement, the loan itself would also show up on the balance sheet as a debt. In short, a building purchase has minimal to no impact on profits (i.e. the net income on the income statement) and if purchased with debt, minimal impact to the cash flow statement.
t0mbstone 5y ago
These companies just can't seem to grasp the idea that remote work is viable
- lexapro 5y ago
  They are probably measuring output and concluded that office workers are more productive.
  - w0m 5y ago
    If I was still in my 20s and single; I'd likely strongly consider working in a Manhattan Google office building. That just sounds awesome. X years past that phase - I'd rather not. That it doesn't fit me (anymore) doesn't mean it's not enticing to others though.
- w0m 5y ago
  Some people can't grasp the idea that remote-work isn't the answer for everyone in all positions.
- lbotos 5y ago
  There are many types of remote work: - Remote Only - Remote First - Remote Optional, Office First - No Remote, Office Only Companies (especially large ones) are not gonna just go from No Remote or Remote Optional to Remote Only. Change takes time even in the face of a shock to the system like COVID-19.
lbotos 5y ago
Strong Assumptions include: 1. They think that in-person work still has value. 2. They want a physical presence in a world-class city. 3. They think the property will appreciate in value to sell later 4. They intend to rent it out and generate income that way.
- nerdponx 5y ago
  If they are buying real estate now, I suppose it means they are not expecting rents to fall soon. Right now, the city government seems very happy with the fucked up real estate market and the continued gutting of city centers, so maybe they are correct. Reversing this trend is one of the most important things New Yorkers can do to ensure the long-term health of their city. It's already been bled out pretty badly by the real estate investment vampires.
  - rmah 5y ago
    For a variety of real-estate industry/finance specific reasons, commercial rents in NYC are very "sticky". Many building owners would rather space sit empty for years rather than rent the space at lower rents (for various degrees of lower). In short, both the near-term and long-term future outlook would have to be quite bleak before we see a broad and substantial lowering of commercial rental rates in NYC.
    - nerdponx 5y ago
      I guess that's kind of my point. Google clearly doesn't anticipate either a natural change in the economic situation or regulatory intervention. The latter is what I find disturbing, that they're so sure they're willing to bet $2bn on it.
ibn-python 5y ago
Respectfully, what is there not to understand? They’re expanding their footprint in NYC due to increased demand. I’ve heard here and there that headcount at Google NYC has always been tight, so this should alleviate some of that. Facebook and Amazon have also committed to massive leases in NYC within the past few years as well. Besides that, these companies wield so much cash it seems like a safe bet to park a couple billion in. NYC real estate is arguably one of the safest bets in the modern era
- rrdharan 5y ago
  > headcount at Google NYC has always been tight, I think you mean desk space at NYC has always been tight? Assuming so, yes can confirm.
  - Arainach 5y ago
    I assume OP meant headcount, not desks. Talking to recruiters, NYC always seemed like one of the toughest offices to get into - presumably due to much greater demand than available space to put devs.
- traceroute66 5y ago
  > NYC real estate is arguably one of the safest bets in the modern era Uh huh. That's what they all said about commercial property in Western city-centres before the pandemic ... "a sure bet" they said .... "rents only going up" they said.... Now you walk through all these CBDs and they are shadow of what they were before because people discovered working from home either full-time or near enough (3-4 days a week) and the need for large chunks of commercial property is now being brought into question.
  - ibn-python 5y ago
    I generally agree that this is probably the fate for many American cities, but NYC seems to be in a league of its own compared to the other cities in North America. I feel like a better comparison is something like London, Rome, Mumbai, Beijing. These are cultural epicenters that are more resilient (but not immune) to economic downturns. Yes things might get tough for a bit but they're the place you want a multi bullion dollar investment to live when the goings get tough.
dudus 5y ago
Google purchased the port authority building in NY for 1.8B on 2010 [1]. They also made a ton of real estate investments in CA and UK. I imagined that with the pandemic and prospects of less employees in the office things would slow down. But someone at Google is betting on a rebound after covid of office space demand, company growth or just real estate appreciation. 1: https://www.nytimes.com/2010/12/03/nyregion/03building.html https://www.nytimes.com/2010/12/03/nyregion/03building.html
- dleslie 5y ago
  Is it a pure bet, or part of a strategy? With their control of the YouTube algorithm, search result suggestions, Google News curation, and dominance of ads, Google doesn't lack for ability to manipulate public opinion. Edit: if I were Google, and I existed in the present absence of serious regulation, I would wield the ability to manipulate opinion in the favour of my business strategy. I'm not sure if that's an offensive notion, and that's why this comment is controversial?
coliveira 5y ago
Companies like Google, MS, Apple, etc., make huge amounts of money, and they need to put some of that money in tax advantaged investments. Real estate for offices is one of the easiest ways to do this. They can also use this to say that they're investing billions in the US, when in fact the investment is just on existing buildings.
- manquer 5y ago
  That isn't as bad as you make it sound . Even if google is not directly building new , the cash they are paying will directly or indirectly fuel additional real estate investment in new buildings by the seller or reduce their debt load enabling them to invest in new development in the future etc .
davey48016 5y ago
This is space they already lease, so it's not just a speculative real estate play. If they plan on continuing to use the space long term, then the total cost of renting it might be higher than owning it. To the extent that investors use EBITDA to evaluate stocks, getting rent off the books is probably good, too.
tw04 5y ago
Just look to Kmart? Somehow the entire company sold for less than their real estate was worth and the entire deal was paid for by the acquiring company taking out loans against their real estate. Another example would be Sun, I think Oracle sold off their Boulder campus for nearly what they paid for the entire company.
rmah 5y ago
What's not to understand? Presumably, Google's bean counters think the cost of capital necessary to purchase the building plus any real estate value appreciation will be lower than the cost to lease the building. That part seems pretty strait-forward. Or are you not understanding why they don't "just" have everyone work remotely? If that's the case, then try to understand that despite what you may see online, it may be that many people don't want to work remote all the time. Moreover, working remotely will have deleterious effects on managerial promotion as that is heavily influenced by interpersonal relationships. And higher level managers are the ones that make such decisions. Even if remote work is better for the bottom line, remember that people make decisions to benefit themselves (across a variety of dimensions and timeframes), not their organization.
vmception 5y ago
A lot of tech companies are real estate companies.
- cronix 5y ago
  And fast food. McDonald's holds over $30B in real estate. https://www.business.com/articles/mcdonalds-business-model/ https://www.business.com/articles/mcdonalds-business-model/
edwnj 5y ago
Google is sitting on bags of cash and those bags are being devalued like we live in Venezuela (40% of all dollars printed in the last 2 years!). So if you're a cashcow like Google, you want your bags in anything and everything except dollars. And buying commercial real estate in New York in the midst of lockdowns and remote work while the city is going through a commercial real estate market crash.. is good.

I agree. Sounds like a terrible investment. For that price they could literally give over 2000 employees a million dollars or hire 5000 new employees in other remote locations.

rmah 5y ago
A real estate purchase is not a normal expense (on the income statement) the way paying employees is. Assuming it's a cash purchase, it's a balance sheet transfer from cash asset to a real-estate asset. If debt financing is used to pay for it, while the interest expenses would appear on the income statement, the loan itself would also show up on the balance sheet as a debt. In short, a building purchase has minimal to no impact on profits (i.e. the net income on the income statement) and if purchased with debt, minimal impact to the cash flow statement.

t0mbstone 5y ago

These companies just can't seem to grasp the idea that remote work is viable

lexapro 5y ago
They are probably measuring output and concluded that office workers are more productive.
- w0m 5y ago
  If I was still in my 20s and single; I'd likely strongly consider working in a Manhattan Google office building. That just sounds awesome. X years past that phase - I'd rather not. That it doesn't fit me (anymore) doesn't mean it's not enticing to others though.
w0m 5y ago
Some people can't grasp the idea that remote-work isn't the answer for everyone in all positions.
lbotos 5y ago
There are many types of remote work: - Remote Only - Remote First - Remote Optional, Office First - No Remote, Office Only Companies (especially large ones) are not gonna just go from No Remote or Remote Optional to Remote Only. Change takes time even in the face of a shock to the system like COVID-19.

lbotos 5y ago

Strong Assumptions include: 1. They think that in-person work still has value. 2. They want a physical presence in a world-class city. 3. They think the property will appreciate in value to sell later 4. They intend to rent it out and generate income that way.

nerdponx 5y ago
If they are buying real estate now, I suppose it means they are not expecting rents to fall soon. Right now, the city government seems very happy with the fucked up real estate market and the continued gutting of city centers, so maybe they are correct. Reversing this trend is one of the most important things New Yorkers can do to ensure the long-term health of their city. It's already been bled out pretty badly by the real estate investment vampires.
- rmah 5y ago
  For a variety of real-estate industry/finance specific reasons, commercial rents in NYC are very "sticky". Many building owners would rather space sit empty for years rather than rent the space at lower rents (for various degrees of lower). In short, both the near-term and long-term future outlook would have to be quite bleak before we see a broad and substantial lowering of commercial rental rates in NYC.
  - nerdponx 5y ago
    I guess that's kind of my point. Google clearly doesn't anticipate either a natural change in the economic situation or regulatory intervention. The latter is what I find disturbing, that they're so sure they're willing to bet $2bn on it.

ibn-python 5y ago

Respectfully, what is there not to understand? They’re expanding their footprint in NYC due to increased demand. I’ve heard here and there that headcount at Google NYC has always been tight, so this should alleviate some of that. Facebook and Amazon have also committed to massive leases in NYC within the past few years as well. Besides that, these companies wield so much cash it seems like a safe bet to park a couple billion in. NYC real estate is arguably one of the safest bets in the modern era

rrdharan 5y ago
> headcount at Google NYC has always been tight, I think you mean desk space at NYC has always been tight? Assuming so, yes can confirm.
- Arainach 5y ago
  I assume OP meant headcount, not desks. Talking to recruiters, NYC always seemed like one of the toughest offices to get into - presumably due to much greater demand than available space to put devs.
traceroute66 5y ago
> NYC real estate is arguably one of the safest bets in the modern era Uh huh. That's what they all said about commercial property in Western city-centres before the pandemic ... "a sure bet" they said .... "rents only going up" they said.... Now you walk through all these CBDs and they are shadow of what they were before because people discovered working from home either full-time or near enough (3-4 days a week) and the need for large chunks of commercial property is now being brought into question.
- ibn-python 5y ago
  I generally agree that this is probably the fate for many American cities, but NYC seems to be in a league of its own compared to the other cities in North America. I feel like a better comparison is something like London, Rome, Mumbai, Beijing. These are cultural epicenters that are more resilient (but not immune) to economic downturns. Yes things might get tough for a bit but they're the place you want a multi bullion dollar investment to live when the goings get tough.

dudus 5y ago

Google purchased the port authority building in NY for 1.8B on 2010 [1]. They also made a ton of real estate investments in CA and UK. I imagined that with the pandemic and prospects of less employees in the office things would slow down. But someone at Google is betting on a rebound after covid of office space demand, company growth or just real estate appreciation. 1: https://www.nytimes.com/2010/12/03/nyregion/03building.html https://www.nytimes.com/2010/12/03/nyregion/03building.html

dleslie 5y ago
Is it a pure bet, or part of a strategy? With their control of the YouTube algorithm, search result suggestions, Google News curation, and dominance of ads, Google doesn't lack for ability to manipulate public opinion. Edit: if I were Google, and I existed in the present absence of serious regulation, I would wield the ability to manipulate opinion in the favour of my business strategy. I'm not sure if that's an offensive notion, and that's why this comment is controversial?

coliveira 5y ago

Companies like Google, MS, Apple, etc., make huge amounts of money, and they need to put some of that money in tax advantaged investments. Real estate for offices is one of the easiest ways to do this. They can also use this to say that they're investing billions in the US, when in fact the investment is just on existing buildings.

manquer 5y ago
That isn't as bad as you make it sound . Even if google is not directly building new , the cash they are paying will directly or indirectly fuel additional real estate investment in new buildings by the seller or reduce their debt load enabling them to invest in new development in the future etc .

davey48016 5y ago

This is space they already lease, so it's not just a speculative real estate play. If they plan on continuing to use the space long term, then the total cost of renting it might be higher than owning it. To the extent that investors use EBITDA to evaluate stocks, getting rent off the books is probably good, too.

tw04 5y ago

Just look to Kmart? Somehow the entire company sold for less than their real estate was worth and the entire deal was paid for by the acquiring company taking out loans against their real estate. Another example would be Sun, I think Oracle sold off their Boulder campus for nearly what they paid for the entire company.

rmah 5y ago

What's not to understand? Presumably, Google's bean counters think the cost of capital necessary to purchase the building plus any real estate value appreciation will be lower than the cost to lease the building. That part seems pretty strait-forward. Or are you not understanding why they don't "just" have everyone work remotely? If that's the case, then try to understand that despite what you may see online, it may be that many people don't want to work remote all the time. Moreover, working remotely will have deleterious effects on managerial promotion as that is heavily influenced by interpersonal relationships. And higher level managers are the ones that make such decisions. Even if remote work is better for the bottom line, remember that people make decisions to benefit themselves (across a variety of dimensions and timeframes), not their organization.

vmception 5y ago

A lot of tech companies are real estate companies.

cronix 5y ago
And fast food. McDonald's holds over $30B in real estate. https://www.business.com/articles/mcdonalds-business-model/ https://www.business.com/articles/mcdonalds-business-model/

edwnj 5y ago

Google is sitting on bags of cash and those bags are being devalued like we live in Venezuela (40% of all dollars printed in the last 2 years!). So if you're a cashcow like Google, you want your bags in anything and everything except dollars. And buying commercial real estate in New York in the midst of lockdowns and remote work while the city is going through a commercial real estate market crash.. is good.