An odd rumor that circulated in late October has now been confirmed. Search and advertising giant Google is getting into real estate, signing a contract to buy an extremely large office building in New York City for about $1.9 billion.
Google's already a tenant in the building, but this move isn't a simple "why rent when you can buy?" scenario. Google only occupies perhaps 500,000 square feet, and Peter Grant, who was first to confirm the deal, noted, "The deal for the massive 2.9-million-square-foot property at 111 Eighth Avenue is the biggest for a single building in the U.S. this year."
So it looks like Google is going to let the building's other occupants (including Barnes & Noble, Nike, Time Warner, Universal Music Group, Washington Mutual, and WebMD) stay on and pay it rent.
It looks like Google will make a fair amount money in the process, too. Grant reported, "At a value of $1.9 billion, the building at 111 Eighth Avenue produces an initial yield of about 5%, the people familiar with the matter said."
Investors should be hard-pressed to complain, then, even if this development is yet another step into a "non-core" field. Better to earn higher returns than just let Google's massive cash reserves collect dust.
Google's already put a deposit down, by the way, and everything should be finalized by the end of the year.
UPDATE, 12-22: Google's closed the deal.