SAN FRANCISCO —Zynga Inc., a San Francisco-based online gaming company whose products include Words With Friends and FarmVille, has entered into an agreement to buy its corporate headquarters for $228 million. The office building, which is located at 650 Townsend St. in San Francisco, spans approximately 670,000 square feet.
Zynga (NASDAQ: ZNGA) plans to close the transaction in the second quarter. Founded in 2007, the company refers to itself as the world’s leading social game developer with 240 million average monthly users in 175 countries.
The seller and current owner of the office property is 650 Townsend Associates, a Delaware-based limited liability company and affiliate of TMG Partners. Zynga will deposit $25 million in escrow in connection with the transaction, which can be retained by the seller if closing conditions are satisfied and Zynga fails to close the transaction. The escrow will be established through Oakland, Calif.-based Chicago Title Co.
Zynga currently leases approximately 65 percent of the building. According to the purchase agreement, the office lease with the seller will either terminate or be assigned to an affiliate of Zynga’s at the close of the sale.
The seller has retained Jones Lang LaSalle for brokerage services in the transaction, while the buyer has retained Colliers International.
The San Francisco office market is among the best performing markets in the country, thanks in no small part to the highly active technology sector. Tech companies like Zynga have absorbed much of the vacant space in the San Francisco metro area, such as Twitter leasing 205,903 square feet at 1355 Market Street last year.
The vacancy rate for the San Francisco office market is 11.4 percent, down from 15.2 percent a year ago, according to Cushman & Wakefield. Meanwhile, rents are rising. Asking rents are hovering around $42.61 per square foot, up more than 24 percent from $34.25 per square foot this time last year. Cushman & Wakefield forecasts overall vacancy to dip below 10 percent by 2014. The brokerage giant also projects that Class A rental rates will exceed $50 per square foot during that same period.
The purchase agreement comes on the heels of J.P. Morgan Securities downgrading the company from “overweight” to “neutral,” which caused Zynga’s stock to drop more than 6 percent on Monday to close at $13.73 per share. However, Zynga’s stock price ticked up and closed at $14.06 per share on Tuesday. The company’s stock price made its debut at $9.50 per share when the company went public on Dec. 16, 2011.
— John Nelson