Dropbox subleases S.F. HQ to second biotech firm, reports nearly $400 million loss on real estate

Biotech growth in the 750,000-square-foot property, branded as the Exchange, has helped boost its value to lofty heights. Owner Kilroy Realty is in contract to sell the building for $1.08 billion this month, the second-largest sale of a single property in San Francisco history.

The biotech sector is hungry for lab space and offices, in contrast to tech companies that are giving up their workplaces, in a positive sign for a Bay Area economy in turmoil. Life science is classified as an essential business and many tasks require in-person work, fueling the demand for real estate.

BridgeBio’s lease was signed in October and confirmed by the company this week. Occupancy began in February. The company will have space for 358 employees. BridgeBio has around 400 total employees. The company focuses on rare genetic diseases and operates a portfolio of subsidiaries that research drugs.

Dropbox appears to be taking a loss on its subleases to both BridgeBio and Vir.

BridgeBio signed a five-year sublease with minimum rent of $11.2 million, according to a Securities and Exchange Commission filing.

That comes out to $42 per square foot annually, less than what Dropbox is paying in its original lease for the building, according to corporate filings. Vir is paying $47.44 per square foot in base rent with 3% annual escalations.

Dropbox’s 2017 lease requires rent payments of $848.3 million over 15 years, with starting annual rent of $62 per square foot that escalates to $93.78 at the end of the lease.

“We do not expect to recover the full value of our lease obligations,” said Tim Regan, Dropbox chief financial officer, on a February earnings call. The company reported a loss of $398 million in the fourth quarter related to its shift to remote work and subleasing its real estate. That could rise by another $50 million this year, Regan said.

Dropbox’s lease is subject to additional costs including taxes, insurance and maintenance, according to corporate filings. BridgeBio and Vir’s subleases are structured in the same way, known as a triple net lease, according to a person with knowledge of the deals.

In January, Dropbox had 315 layoffs, or 11% of its workforce, to streamline its teams, including consolidating product development, technology and market teams. Olivia Nottebohm, Dropbox chief operating officer, also left the company.

“Last spring I made a commitment to all of you to preserve job security through 2020, and it was important to me that we honored that promise,” CEO Drew Houston said in a public memo to employees. “But looking ahead at 2021 and beyond, it’s clear that we need to make changes in order to create a healthy and thriving business for the future.”

BridgeBio also leases 3,900 square feet at its Palo Alto headquarters, a 10,000-square-foot office and 10,500-square-foot office in San Francisco, and a 20,000-square-foot Montreal facility.

Tech and biotech companies are increasingly becoming neighbors.

Earlier this month, medical genetics company Invitae leased around 40,000 square feet of lab and office space at 444 De Haro St. in Potrero Hill, about a half-mile west of the Exchange.

The building is also the headquarters of fast-growing messaging software company Discord.

Roland Li is a San Francisco Chronicle staff writer. Email: roland.li@sfchronicle.com Twitter: @rolandlisf

Article source: https://www.sfchronicle.com/business/article/Dropbox-subleases-S-F-HQ-to-second-biotech-firm-16047909.php

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