Microsoft to buy Safeco's Redmond campus

Microsoft Corp. is significantly boosting its presence in the Seattle region with an agreement to pay $209.5 million for most of Safeco Corp.'s campus in Redmond.

Safeco disclosed the purchase-and-sale agreement in a Securities and Exchange Commission filing Wednesday morning. Microsoft had been widely considered a likely buyer of the property since Safeco decided last year to consolidate its operations at its headquarters in Seattle's University District.

Microsoft's acquisition of the property is due to close "in the latter part of 2006," Safeco's SEC filing says. However, the purchase is contingent upon the progress of Safeco's separate expansion plan in Seattle. According to the filing, both companies have the option to terminate the agreement if that project misses certain milestones.

Safeco announced in April that it would move its 1,350 Redmond-based employees to an expanded Seattle headquarters by 2008.

The insurer's Redmond property, just north of Microsoft's headquarters, would be a sizable addition to the software maker's Seattle-area real estate holdings. Safeco's campus contains six main buildings with more than 750,000 square feet of office space, plus warehouse space and parking garages, property records show.

Microsoft says it currently owns and leases about 9.8 million square feet in the Seattle region, home to more than 30,000 of its 63,500 worldwide employees. Most of the company's space in the region is on its main Redmond campus.

The possible impact of the acquisition on Microsoft's separate growth plan in Issaquah wasn't immediately clear. In 2004, the company scaled back the potential size of its Issaquah campus to 63 acres, from the previous 151 acres, but it said at the time that a campus there remained a part of its long-term growth options.

One provision of the Safeco deal gives Microsoft a quick outlet for expansion, even before the sale is complete. Microsoft will be able to lease a 218,500-square-foot building on Safeco's campus beginning Feb. 1, according to Safeco's SEC filing.

A Microsoft spokesman, Lou Gellos, confirmed the purchase agreement but declined to detail the company's plans for the Safeco campus. Microsoft hasn't yet submitted any proposal to Redmond officials outlining what it would do with the property, said Rob Odle, the city's policy planning manager.

Gellos described the acquisition as "consistent with Microsoft's long-standing interest in preserving future growth options in the Redmond-Overlake area" and with a long-term Redmond expansion plan unveiled by the company last year. As part of that plan, Microsoft received approval from the city to redevelop large portions of its existing campus to accommodate expected growth over the next 10 to 20 years.

Microsoft has been steadily expanding in the area around its main Redmond headquarters, buying the headquarters of Eddie Bauer, Spacelabs Medical and others.

At the same time, Safeco's overall departure from the Redmond property would not be immediate. After the completion of the sale, Microsoft would lease nearly 550,000 square feet of office space and more than 70,000 square feet of warehouse space back to a Safeco subsidiary, General America Corp., for up to three years.

According to the SEC filing, the purchase would not include a portion of the property containing a Safeco data center. Safeco says it would realize a pre-tax gain of $29 million if the sale goes through.

Safeco's former life and investments unit, which was sold and renamed Symetra, has moved from Seattle-based insurance company's Redmond complex to downtown Bellevue, leaving about a quarter of the space in the complex vacant. That is the space to be leased by Microsoft beginning next month, said Safeco spokesman Paul Hollie.

Hollie said Safeco has "complete confidence" that the required milestones in the company's Seattle expansion project can be met to satisfy the timing laid out in its purchase-and-sale agreement with Microsoft.