By Marisa Kendall, mkendall@bayareanewsgroup.com
04/30/2016
PALO ALTO -- Silicon Valley's most secretive startup is quietly taking over downtown Palo Alto.
While tech giants such as Apple and Uber make a public show of opening new Bay Area headquarters, Palantir Technologies -- a software company known for mining confidential data for the National Security Agency, FBI and CIA -- is leasing building after building with little fanfare.
Ranked as the third most valuable private company in the United States, Palantir rents about 20 downtown Palo Alto buildings. As the $20 billion company expands, it has brought legions of techies to downtown restaurants and coffee shops. But what one local investor dubbed the "Palantirization" of Palo Alto also has sparked concerns that the big-data giant has left little room for smaller startups.
"They own Palo Alto," said local entrepreneur Joe Beninato, founder of Internet startup S8. "There are Palantir people all over the place in Palantir shirts and hoodies. It's kind of like downtown is their office."
Launched in 2004 by a team that includes PayPal founder Peter Thiel, Palantir makes data analysis software that is rumored to have helped U.S. forces track down and kill Osama bin Laden and prosecutors convict Ponzi schemer Bernie Madoff. The company's products, named Gotham and Metropolis, comb through massive amounts of information to find connections between data points. Since much of that data is highly confidential, Palantir is notoriously tight-lipped about its work.
But its popularity among government agencies and law enforcement has led to booming growth. Palantir employed 1,800 people last year and pulled in $1.5 billion in revenue -- showing more than 100 percent revenue growth over the year before, according to PrivCo, which aggregates and analyzes private company data.
Palantir declined to comment.
People line up to have their identities verified before entering the Palantir cafeteria at 542 High Street in Palo Alto, Calif., Thursday morning April 23, 2016. (Karl Mondon)
Unlike other fast-growing companies such as Apple, Google and Facebook, which consolidate employees in massive campuses, real estate experts say Palantir seems committed to making a long-term home in downtown Palo Alto. The private company hasn't released details about its office spaces, but information from researchers such PrivCo, real estate advisers, the city and Palantir's many landlords paints a picture of the company's expansion strategy. PrivCo reports that the company currently rents more than 250,000 square feet in downtown Palo Alto. That's about 12 percent of all available commercial space in the downtown area, based on data from Jones Lang LaSalle, a Chicago-based commercial real estate services firm.
A sign for Palantir is visible at their headquarters at 100 Hamilton Ave Thursday morning April 23, 2016, in Palo Alto, Calif. (Karl Mondon)
Palantir's empire starts with its headquarters, a stately brick building on Hamilton Avenue. Employees eat at the company cafeteria around the corner on High Street, and some work in smaller offices scattered throughout downtown. Palantir rents additional special event space, kitchen space, and residential units to house visiting employees -- mostly within a half-mile radius of Hamilton Avenue. Recently, the company leased even more room in a historic building on the corner of Hamilton and Ramona Street.
To protect clients' sensitive information, Palantir also needs special high-security facilities that can't be penetrated electronically or physically by eavesdroppers, the company wrote in a 2009 blog post. These spaces, called Secure Compartmented Information Facilities, are fitted with shields that block cellphone reception, public Internet access and all other outside signals. If Palantir has such a facility in Palo Alto, it's keeping it low-profile. But that's the point, said Baltimore-based SCIF expert James Wallace of Gensler, an architecture firm.
"From the outside you would not be able to tell," he said.
For the Coupa Cafe, across the street from Palantir's new building, the company's expansion is both a blessing and a curse. The new office will bring in hundreds of potential customers, said owner Jean Paul Coupal, but it also contributes to rising rents.
"Palo Alto will become a town that serves $8 lattes," he said.
The company has made an effort to be neighborly, hosting coding classes for high school students and using its software to support a county effort to house the homeless.
Palantir, which reportedly signed a lease lasting more than 10 years for its new building, appears to be hunkering down just as other tech companies are leaving downtown Palo Alto. SurveyMonkey outgrew its Palo Alto headquarters and announced a move to San Mateo last summer. Pinterest moved to San Francisco in 2012. Smartwatch-maker Pebble and mobile marketing startup Kahuna moved to Redwood City last year. And Facebook, which had 10 buildings in downtown Palo Alto, moved into the Stanford Research Park in 2009 before ultimately settling in at its Menlo Park campus.
"They've gone a completely different route than what most companies have done," PrivCo analyst Evan Danckwerth said of Palantir.
There are plenty of benefits to a downtown campus. Easy access to Caltrain and restaurants, coffee shops and bars makes the location a boon for current employees and a handy recruiting tool. But it's getting more difficult for large startups to grow in Palo Alto. Average yearly rents for commercial spaces downtown have jumped from $71 per square foot to $102 in the past five years, according to JLL. Meanwhile, availability hit a seven-year low last year, dropping to less than 3 percent. The space crunch isn't likely to ease soon. The city recently limited development of new offices and some other commercial spaces to 50,000 square feet per year downtown, in the California Avenue area and along the El Camino corridor.
Palantir is planning for future growth by leasing some spaces that are larger than it needs, and subleasing to other businesses, said Bradley Van Linge of commercial real estate advisory firm Newmark Cornish & Carey.
Michael Evans, founder and CEO of Palo Alto-based Flosstime, partly attributes ballooning rent prices to Palantir's large presence. Flosstime, which makes a smart dental floss dispenser, can't afford to move out of the space it has outgrown in the garage behind Evans' house. But, he said, Palantir's expansion is part of the Silicon Valley cycle -- companies move in, grow, drive up prices and, in some cases, move on.
"I don't see that as negative," Evans said. "I see it as what downtown Palo Alto's about."
Marisa Kendall covers startups and venture capital. Contact her at 408-920-5009. Follow her at Twitter.com/marisakendall.
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