Dolby to follow Twitter, buys big Mid-Market building for HQ

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June 26, 2012
San Francisco Business Times
Dolby to follow Twitter, buys big Mid-Market building for HQ

Pioneering San Francisco audio innovator Dolby Laboratories (NYSE: DLB) is moving its headquarters from the South of Market to the Mid-Market, joining companies like Twitter and Yammer in the migration of technology firms to the rapidly improving stretch of central Market Street.

Dolby is buying 1275 Market St., a 385,000-square-foot building that was left vacant when the State Compensation Insurance Fund vacated it last year. The seller is a partnership between DivcoWest and TMG Partners. The two real estate investment firms purchased the building in October of 2011 for $44 million, or about $115 a square foot.

The purchase price for the Property is approximately $109.8 million, of which approximately $5.5 million was deposited into escrow following the execution of the purchase agreement and is generally non-refundable, according to an SEC filing.

Dolby is currently located at 100 Potrero Ave., and occupies several other buildings in that inner Potrero neighborhood.

Founded in San Francisco in the 1960s, Dolby became a household name with its noise reduction technology, a form of audio compression that reduces background hiss in tape recordings. Today Dolby technologies can be found in recording studios, video games, laser discs, CVCs, mobile media, digital broadcast TV, digital cable, and satellite systems. Recently, the company has been having strong success with its 3D sound technology, which is used in box office hits like Pixar's current movie, Brave.

For fiscal 2012, Dolby is now targeting revenue of $910 million to $960 million.

TMG Partners President Michael Covarrubias recently spoke about ongoing efforts to reposition 1275 Market St. with a revamped lobby and elevators and seismic upgrade. "It has 13 decks and amazing views of downtown and the ballpark and nobody knows it because it has never been for lease," said Covarrubias.

The owners had been negotiating a lease with the city of San Francisco, but that deal fell apart because the city wanted an option to buy the building for less than TMG and DivoWest were willing to sell it for, according to real estate sources.

The renaissance of the Mid-Market (as described in this week's San Francisco Structures) has been a centerpiece of Mayor Ed Lee's tenure in office. In addition to Yammer and Twitter, companies taking space in the district include One King's Lane, ZenDesk, Zoosk, Benchmark Capital, and CallSocket. In addition, more than 1,500 housing units are in the works in the neighborhood with developers like Trinity Properties, AvalonBay, Crescent Heights, and Emerald Fund all either under construction or in the planning phases.

The 1275 Market St. building is not located within the boundaries of the Mid-Market payroll tax exclusion zone the city established last year. "A payroll tax exemption was not part of our motivation -- we just believe in the neighborhood," said Ramzi Haidamus, executive vice president of sales and marketing for Dolby.

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