Gilead pays roughly $120M for 12-acre site: Biotech giant officially closes on Chess-Hatch property in Foster City

However, according to documents filed with the San Mateo County Recorder’s Office and sources familiar with the sale, Gilead will pay a hefty price for the site that comes with enticing city approvals through a long-term development agreement.

The complex spanning 1155-1191 Chess Drive currently boasts about 190,000 square feet of single-story office buildings. However, the city agreed to the site being redeveloped into 600,000 square feet of office space spread between two buildings. In total, the properties come with entitlements for nearly 800,000 square feet of building space as well as two parking structures. The five-year development agreement secured in 2014 also provides a five-year extension, said Jeff Birdwell, president of commercial division for Sares Regis Group of Northern California.

Gilead bought the Chess Drive site from Northwestern Mutual Life and Sea Cliff Properties and the pre-approvals, which took nearly 10 years to plan, added significant value to the property. Sares Regis helped broker the transaction and worked closely with the former owners to secure entitlements to the site, Birdwell said.

“It’s tough in this built-out Peninsula environment to find land to create a project this scale,” Birdwell said. There’s value added “related to the entitlements and the certainty of being able, as a tenant, to control your destiny and know what the rules are. A development agreement secures the rights over a much longer period of time than a normal use permit, so there’s certainty and predictability.”

The biopharmaceutical giant, best known for developing a drug that can cure Hepatitis C, has been headquartered in the city since its inception nearly 30 years ago. Touted as one of the fastest growing companies in the country, Gilead is in the midst of a massive expansion at its 72-acre office campus located a few blocks from its newly acquired parcel. That campus was approved in 2013 to allow for 2.5 million square feet of building space roughly bordered by Vintage Park, Lakeside Drive and Velocity Way.

Gilead reported annual revenue of $24.9 billion in 2014, has nearly 7,500 employees across six continents and anticipates bringing 5,000 new employees to its Foster City campus.

Gilead had no comment on the purchase or its plans for the site. If it opts to build what’s already been approved, it need only seek building permits from the city. However, if the biotech giant decided the pre-approved office space wasn’t suitable for its needs, it would have to return to the city and undergo public hearings.

Vice Mayor Gary Pollard said Foster City having the headquarters of major companies like Visa Inc. and Gilead is exciting. But ultimately, he hopes the company and its employees contribute to the community.

“We like the fact that they’re investing in Foster City,” Pollard said. “All I hope is that they become partners in the community, not just a business. … I think everyone could do more in the community where you spend most of your time at work.”

Pollard said he hopes new employees shop local and consider getting involved with various local organizations as most people spend a large portion of their lives in the city in which they work.

Northwestern Mutual originally sought to secure a tenant prior to constructing the project itself, however, Gilead purchasing the site turned out to be a better deal for all, Birdwell said.

Gilead significantly added to its Foster City real estate portfolio through Tuesday’s deal and outside of its campus, also owns several other properties nearby. They include a collective 13.5 acres spread across several sites on the 300 block of Vintage Park, about 2.5 acres at 100 Foster City Boulevard and another 2.5 acres at 110 Marsh Drive, according to city officials.

With developments popping up along the Peninsula and space for large-scale projects growing scarcer, Birdwell said the Chess-Hatch property marks a significant sale.

“I think this is clearly a major transaction. It’s transformative, I think, of the landscape along the 92 corridor in San Mateo County. I think we always hoped it would go to a large user or maybe two,” Birdwell said. “It’s really going to change the market dynamic in a significant way for the large-user category, there’s very few of those sites up and down the Peninsula.”

Birdwell noted other major projects in neighboring San Mateo and State Route 92 include buildings currently being constructed by Hines off Concar Drive, new space at the 22-acre San Mateo Executive Park — home to GoPro and Solar City — as well as the first office developments underway at Bay Meadows. SurveyMonkey recently announced it would lease a 210,000-square-foot site at Bay Meadows.

Gilead’s newly purchased complex is now occupied by a variety of smaller tenants and it’s not completely clear what the future holds for the site. However, Birdwell notes the purchase offers options for the growing biotech company.

“I’m sure it just fits into their long-term strategy plan,” Birdwell said. “I think they own up to 100 acres in Foster City. It’s such a key gateway location for the city and their campus, that I think it makes a lot of sense.”

samantha@smdailyjournal.com

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Note to readers: This article has been changed. It was originally reported that Gilead paid $31.5 million for the entire Chess-Hatch site. That was incorrect. Gilead paid about $31.5 million for a portion of the site and another approximately 90 million for the remainder, according to the recorder's office and those familiar with the transaction.