By Jim Finkle and Noel Randewich
SAN FRANCISCO (Reuters) - Web-based software maker Salesforce.com Inc's cancellation of plans to build a massive office complex in San Francisco has puzzled investors and city officials.
The pioneer in cloud computing said on Monday it would no longer go ahead with a project to build a sprawling new headquarters in San Francisco's up and coming Mission Bay neighborhood.
Bruce Francis, chief messaging officer for Salesforce.com, said the decision to instead lease space downtown was based solely on logistics.
"We are growing now faster than we were growing at the time when we originally made the decision to build the campus. We are going to need space faster than we could build it. That's why we decided to suspend development of the campus," he said. "We decided that the best long term solution is to sign long term leases in the downtown area."
Suspending the high-profile project surprised members of the financial community. Some expressed skepticism with the company's reasoning for pulling the plug after spending $278 million to buy the 14-acre plot of land, hiring architects and landscapers and releasing designs for the project.
"How does a huge expansion negate building a new plant? I am confused," said Cowen & Co analyst Peter Goldmacher. "Surely Salesforce.com can't hire more employees than 14 acres can hold."
"It just doesn't sound true," said Kim Forrest, a senior analyst with the Fort Pitt Capital Group investment firm. "What you would probably do is increase the size of the buildings if that were the fundamental reason."
Once mostly railway yards, warehouses and toxic land, Mission Bay is being developed with swanky condominiums, restaurants and R&D facilities.
The University of California, San Francisco, has opened a medical research hospital there, helping attract over 40 life sciences companies to the area that is fast becoming a biotechnology hub.
City officials involved in the Mission Bay development as well as executives at two major real estate investment firms told Reuters they were also surprised at Salesforce's decision.
Salesforce said about 3,000 of its nearly 7,700 employees work in its downtown San Francisco headquarters.
Last month, the software maker agreed to lease another 400,000 square feet of office space, which could accommodate another 2,000 workers. At the time it said that lease was in addition to its planned campus at Mission Bay.
"The mayor was informed yesterday. He understands they're still committed to San Francisco and he's committed to supporting Salesforce in any way as they reassess their needs," Mayor Ed Lee's spokeswoman, Christine Falvey, told Reuters.
Kelley Kahn, the city official in charge of developing the neighborhood, was disappointed but said Mission Bay would hardly miss a beat.
"There are a lot of biotech companies looking for space and Mission Bay offers a streamlined entitlement process and the kind of space these companies need," she told Reuters.
Salesforce.com started out more than a decade ago developing software to help sales people manage their contacts, and has increased its sales to over $2 billion a year offering programs to manage customer service, analyze market data and foster collaboration among employees.
Asked if the company was halting construction of the campus because of mistakes in growth projections when it did its original analysis of its real estate needs, Salesforce's Francis said that was not the case.
"I wouldn't characterize it that way at all," he said. "What has changed here is faster growth than we would have anticipated. That is something that is good for San Francisco and our shareholders."
He also said that the Salesforce.com intended to bring more jobs to San Francisco than it had previously projected.
"We are doubling down on our commitment to San Francisco by saying we will be bringing more jobs and taking more space in the city where we were born and we love and will be happy to grow."
(Reporting By Noel Randewich, Additional reporting by Ilaina Jonas in New York; Editing by Richard Chang)