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updated 8/1/2005 12:38:43 PM ET 2005-08-01T16:38:43

Silicon Valley search engine company Google Inc., which added more than 700 employees worldwide in its second quarter alone, is probing development of a million-square-foot headquarters-type campus.

Based on a ratio of roughly 300 square feet per employee, that would be enough space to house nearly 3,500 workers.

Representatives for Google have talked to the city of Mountain View and NASA/Ames Research Park about developing in those locations, according to executives affiliated with both. But nothing has been put in writing and no specific square footages discussed.

"They are looking for ways to expand, and we are trying to accommodate them," says Ellis Berns, economic development manager for the city of Mountain View. "Their queries involve such things as allowable development densities" on commercial property in Mountain View.

At the same time, Google founders Sergey Brin and Larry Page this fall visited the NASA Research Park to explore the possibility of locating there, says Michael Marlaire, director of external relations and development at Moffett Field.

NASA/Ames straddles the Mountain View-Sunnyvale border but is federal property and not part of either city. The research park consists of 213 acres approved for development of 4 million square feet of offices and research and development buildings. The park is less than a mile from Google's Mountain View headquarters, Mr. Marlaire says.

The park functions as a public-private R&D cluster where the close proximity of higher education, private companies and NASA workers allows innovation and collaboration in such areas as information technology, biotechnology and nanotechnology, he says. Thirty companies and 11 universities, including Stanford and Santa Clara, already are at the park in leased facilities.

"The type of research and development that Google is doing really fits nicely," Mr. Marlaire says. "We are very interested in advances in supercomputing, and they are really one big supercomputer over there."

Google declined comment, saying through a spokesman that it had "no plans to announce about additional facilities in any location." It also declined to reveal how many of its more than 4,100 full-time employees worked in Silicon Valley or what percentage of those hired this spring were working in the valley.

However, the company's highest-ranking executives made clear in a July 21 conference call with analysts that hiring engineers for research and development and investing in real estate to house them are Google priorities.

Capital expenditures in the second quarter rose to $158 million from $142 million in the first quarter and less than $100 million a year ago, Chief Financial Officer George Reyes said. He attributed the rise to investment in "global infrastructure and real estate."

At the same time, R&D expenditures rose to $96 million in the second quarter from $79 million in the first quarter of 2005, he said. He linked the rise to "strong hiring efforts."

"We are pleased to have many new talented engineers joining us this summer," Mr. Reyes said. "We echo our comments of last quarter where we said great engineering is the foundation upon which we have built Google. So you should fully expect to see continued growth in this expense line in the coming quarters."

He also warned that the new hiring, as well as other factors, could cause the company's operating margins, now at about 34 percent, to narrow.

Record revenue
The company reported record revenue of $1.384 billion for the quarter, up 98 percent from the same time a year ago.

Google leases in excess of a million square feet in Mountain View in what is known as the Shoreline area northeast of Highway 101, according to a leasing history provided by a local brokerage which requested anonymity.

Roughly half of that is the former Silicon Graphics Inc. campus, which Google occupies under a nine-year sublease signed in mid-2003. It has two, five-year renewal options on that lease and an option to buy the SGI campus next year for $172.4 million, or $341 a rentable square foot, according to public record.

In the past 18 months, the company has been on a real-estate acquisition frenzy. It signed six leases for roughly 400,000 square feet last year, all in the Shoreline neighborhood.

In March of this year, it leased an additional 120,000 square feet from the valley's Peery/Arrillaga, again in the same vicinity.

Meanwhile, in the past several months, it sought unsuccessfully to buy 726,800 square feet from Equity Office Properties Trust of Chicago, again in the Shoreline area, according to a source with inside knowledge of the deal. The buildings ultimately went to Slough Estates of Britain.

Google is now said to be in discussions to buy holdings from Menlo Equities of Palo Alto and Divco West Properties of San Francisco, each of which owns multiple properties in the Shoreline area. Neither company would confirm such talks.

Meanwhile, valley commercial real estate circles are rife with talk of Google's hunt for a million square feet in the valley.

"I have heard that rumor, too," says real estate director Janelle McCombs of the San Jose Land Co., in a statement repeated nearly verbatim by no less than a half dozen real estate brokers and regional real estate executives when asked if they knew of the proposal.

It is a piece of information of potentially deep interest to Ms. McCombs.

Despite the sea of vacant commercial real estate in Silicon Valley, locating a million square feet in a single campus is probably impossible, meaning that any company with that need would likely have to build.

San Jose Land is part of SJW Corp., better known for its ownership of the San Jose Water Co. Last year, San Jose Land secured entitlements or rights from the City of San Jose to develop more than a million square feet of offices and retail shops as well as 325 new homes on nine-acres on The Alameda across from the HP Pavilion.

She has had no discussions with Google about the property, Ms. McCombs says.

That property is one of only a handful of sites in the valley with entitlements in place for such large-scale construction. Getting entitlements is a time-consuming and expensive process, giving holders something of considerable value. Other valley sites include land at Woz Way and Almaden Boulevard owned by Boston Properties and a Coyote Valley parcel owned by Divco and partners and once slated for a new Cisco Systems Inc. campus.

Neither Boston Properties nor Divco would comment for this story.

© 2007 Silicon Valley/San Jose Business Journal

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