Now occupying an estimated 15-20% of Seattle's office space, late last year Amazon opened it's 37-story skyscraper adjacent to the already famous geodesic biodomes, soon to encompass 40,000 plants.
The erection of such edifices is hardly unprecedented. “This is what rich, wealthy and powerful
individuals have done since the Pharaohs built the pyramids — you build a building that projects power to the world,” said Louise Mozingo, an
urban-design professor at the University of California, Berkeley, who
wrote a book on corporate campuses.
In a recent Wall Street Journal piece, regular contributor and former hedge fund manager Andy Kessler says the stock market reaching dizzying heights has him focusing on the toughest decision for investors: when to sell a stock. According to Kessler, Wall Street's most successful players get ahead of the news, understand a CEO's mind, and figure out where the company is going. To this end, he often uses the "HQ indicator", which is for those playing long ball, not day traders. Simply put, when a company announces it is moving its executives into a lavish palace, it's often time to get out.
He wryly notes that Salesforce (CRM) will soon relocate to the 1.6 million-square-foot Salesforce Tower, just a few short blocks from where Mel Brooks filmed the Hitchcock "Vertigo" spoof "High Anxiety". The company's new headquarters building will be the tallest in San Francisco and the second tallest building west of the Mississippi.
Kessler goes on humorously yet ominously to recount notorious examples of the HQ indicator in recent years.
In 2007, InterActiveCorp. (IAC) , owners of CollegeHumor and Tinder, moved into Frank Gehry-designed, deconstructivist-style IAC Building in Manhattan. IAC stock promptly deconstructed itself, going from around $40 in 2007 to under $15 two years later, though rebounding since.
Also in 2007, after almost 100 years on West 43rd Street, a location so iconic that Times Square is named after the paper, the New York Times (NYT) moved into a more lavish setting on Eighth Avenue. In 2003 when construction started on the new location, the stock traded around $45; when the daily took occupancy in 2007 the stock was at half that price and now trades around $14.
In 2003, Time Warner (TWX) opened the $1.7 billion Time Warner Center, a "city within a building", overlooking Manhattan's Central Park. Time Warner's stock was $45 at the time, hit $68 in January 2007 and then dropped to $17 two years later. It didn't reach $45 again until 2012.
In 2002, Bear Stearns moved into 383 Madison Ave., which covered a full New York City block. A lot of the expansive space went into mortgage origination, packaging, collateralization and trading - activities at the core of the 2008 Financial Crisis. Bear Stearns common peaked at $171 in January 2007 but J.P. Morgan agreed to buy the company in a fire sale for $2 a share in March 2008 (subsequently renegotiated to $10).
In 1984, AT&T (T) took occupancy of the postmodern "Chippendale" Building at 550 Madison Ave., just before finding itself in a premodern price war with MCI and Sprint over long-distance telephone rates. Eight years later AT&T was out and Sony moved in. If its pending merger with Time Warner goes through, however, it will gain custody of Time Warner Center.
Why does the HQ indicator work? Kessler answers his own question:
Investors in public companies have no control and are at the whims of management. Are a company's leaders frugal, or do they spend shareholders' money like drunken sailors? Are they modest or do they have the hubris that leads to an edifice in honor of the CEO's greatness and legacy? Will management be tempted to rush to fill the huge swaths of new empty headquarters space, often taking on questionable businesses?
Since there are exceptions that prove the rule, Kessler cautions that this shouldn't be an investor's only filter. Five-and-dime store operator F.W. Woolworth moved into the gilded neo-gothic Woolworth Building in 1912 and had a nice run until the 1980s. Your grandpa would have lost a ton if he got out before the world wars, Kessler observes. Alas, time marches on and the building is now luxury condos.
The latest trend marks a stark departure for the tech industry, which typically has steered clear of the edifice complex reflected in the corporate palaces of banks and oil & gas multinationals. Tech companies generally have occupied unremarkable, low-slung office buildings like those on Apple’s existing campus. Even headquarters viewed locally as lavish — like former Sun Microsystems Inc.’s Silicon Valley campus — had relatively restrained designs and looked so much like a prison it was dubbed Sun Quentin.
Google (GOOGL) never built a headquarters but in 2003 took over the complex built for Silicon Graphics. The latter company's stock peaked within nanoseconds of signing a lease for the Mountain View, Calif., campus it never occupied. The former company recently filed plans for a transparent scalloped canopy over 600,000 square feet of office space including a public "Green Loop" through the first of four domes. "We aim to blur the distinction between our buildings and nature," said the company.
Since early March, the so-called FAANG stocks - Facebook (FB), Amazon, Apple, Netflix (NFLX) and Google - have gained approximately $260 billion in value, while the other 495 companies in the S&&P 500 have lost the same amount. Since early 2015, the total market capitalization of the S&P 500 has risen from $19.5 trillion to $21.3 trillion. Notably, the "Big 5" NASDAQ stocks, the FAANGS ex-Netflix plus Microsoft account for 56% of the $1.8 trillion gain. Breaking it down, the combined market cap of the NASDAQ Big 5 has soared from $1.9 trillion to $3 trillion since early 2015, or by 55%. That compares to just a 4.5% gain in the aggregate market cap of the other 495 S&P 500 stocks during that period. This pronounced narrowing of market drivers has drawn comparisons to the Nifty Fifty scenario of the early 1970s, which was followed by a major, prolonged downturn in equities.
Shareholders have no direct input on decisions to construct arguably extravagant corporate headquarters but that's a topic for another day. But, hopefully, the spate of erecting lavish headquarters for some of today's most prominent market-movers is not the harbinger of a similar down leg in valuation for these companies - and for the market as a whole.
Robert Stead
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