Spa Gone. Now Workers Too. LendingClub Joins Bay Area Exodus

Scott Sanborn, chief executive officer of Lending Club Corp., listens to a question during a Bloomberg Technology interview in San Francisco, California, U.S., on Tuesday, Aug. 8, 2017. Sanborn discussed the company's path to recovery and bringing investors back to the platform. Photographer: David Paul Morris/Bloomberg

LendingClub Corp.’s downtown San Francisco headquarters once featured many of the lavish perks booming tech companies use to attract workers and keep them happy once they’re hired: kitchens stocked with snacks, mini-golf, a Foosball table, an in-house spa.
Now the online-lending pioneer is cutting back on the amenities, and the workforce too. It will move 350 jobs to Utah, including customer-support staff, as a cost-saving measure, the company announced this week. The cuts will help it reduce its office footprint in the city by more than 40%, the latest victim of the city’s out-of-control real estate costs.

“Growing exclusively in San Francisco simply doesn’t make financial sense,” Chief Executive Officer Scott Sanborn explained in a memo to staff, citing the skyrocketing cost of office space in the city. “As difficult as the decision is, it’s absolutely the right thing for the company and our shareholders.”

Hand-wringing by corporate directors and executives over the price of doing business in the Bay Area has been mounting for years and in the past few, the pace of announcements that jobs are moving to lower-cost locales has accelerated. While San Francisco’s concentration of highly educated workers makes it a key location for many employers, companies are looking to other cities for operational jobs that can be done from anywhere.

Charles Schwab Corp., the discount brokerage that’s called San Francisco home since the 1970s, has relocated thousands of jobs out of the area. Drug distributor McKesson Corp. decamped to Texas, relocating its headquarters from San Francisco to the Dallas area last month. Even tech giants like Apple Inc. and Amazon.com Inc. that are still adding employees in the Bay Area are also looking to cities including Nashville and Austin for part of their expansion.

The real estate savings from slimming down in the Bay Area can be significant. Average office rents in San Francisco have climbed 172% to a record $82.88 a square foot since 2010, according to real estate services firm CBRE Group Inc. In the Salt Lake City region, where LendingClub is expanding, they’ve risen just 16% during that period to $23.45 a square foot.

Bigger Savings

But an even bigger factor for many companies moving out of San Francisco is the cost of employing people in one of the most expensive housing markets in the country, said Colin Yasukochi, director of research for the western region at CBRE. Average wages for sales, operations, administrative or marketing staff are about $47,000 a year in the Salt Lake City region, 36% less than in the Bay Area.

San Francisco has “really become much more of a high-value innovation-type capital for these companies,” Yasukochi said. It’s a “costly proposition” to have employees in the city who are doing jobs that could be easily filled elsewhere.

Even with the departures, demand for offices in San Francisco remains robust and vacancy rates are near decade lows. A local cap constrains the number of new offices developers can build in the city, while homegrown companies such as Uber Technologies Inc. and Airbnb Inc. have a voracious appetite for what’s available. At the same time, Silicon Valley tech giants including Facebook Inc. and Google parent Alphabet Inc. are increasing their presence in the city to attract top talent.

So plenty of companies will likely line up to take the offices LendingClub vacates. San Francisco still has one of the deepest pools of talent in many of the essential jobs tech companies need to fill in engineering and software development, said Robert Sammons, head of Northern California research for broker Cushman & Wakefield.

Tech HQ

“Will the headquarters of tech remain in the Bay Area? Absolutely,” he said. “Will the wealth be spread to other parts of the country? Definitely.”

Even tech companies need to be profitable. Moving operations and administrative staff to other areas can be part of the solution, Sammons said.

LendingClub is a case in point. The company pioneered an online model for matching borrowers with investors who wanted to fund their loans, growing quickly into one of the dominant financial-technology firms. When it sold shares to the public in 2014, its valuation briefly soared to more than $10 billion.

But less than two years later, its founder and CEO Renaud Laplanche resigned amid an internal investigation into a botched loan sale that revealed flaws in the company’s controls. The stock is down about 80% since the share offering and the company hasn’t turned an annual profit since.

Last year, LendingClub undertook a “simplification initiative,” streamlining its headquarters to focus on the perks that employees really cared about, said Anuj Nayar, a spokesman.

The spa was out. The free LaCroix stayed.

Companies have had to rationalize operations in expensive cities before. In the 1980s, financial services firms moved many back office operations out of New York to save money.

In San Francisco, a wave of non-tech firms started moving jobs away two decades ago, said Chris Roeder, an international director for real estate brokerage Jones Lang LaSalle Inc. in the city. As companies mature, there’s a natural progression when they start to figure out where they need space and how they can be more efficient, he said.

“Our firm is helping a lot of these companies sort out” these questions, Roeder said. “It’s something everyone is talking about.”

Published May 2, 2019, 10:23 am, by Noah Buhayar (Bloomberg)

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