OpenAI meltdown prompts questions about startup’s SF footprint

Could internal turmoil impact the firm’s newly signed sublease for 480K sf of offices?

OpenAI Meltdown Prompts Questions About Firm’s SF Footprint
Sam Altman and Emmett Shear with 1455 and 1515 Third Street (SHoP, Getty)

What to do when you’ve rented 486,600 square feet of offices in San Francisco, then 91 percent of your workers threaten to follow your CEO out the door? 

That’s the question in the high-stakes drama at OpenAI, the city’s largest artificial intelligence firm with its newly signed sublease at 1455 and 1515 Third Street, the San Francisco Business Times reported.

The future looked promising for the locally based startup last month when the creator of ChatGPT subleased two buildings at Uber’s headquarters in Mission Bay, the largest lease in San Francisco since 2018. Terms of the deal were not disclosed.

Then in riveting slow motion, the promising AI firm fueled by a $13 billion investment from Microsoft imploded.

The OpenAI board on Friday fired its charismatic CEO Sam Altman. Within hours, OpenAI President Greg Brockman and three senior researchers quit in protest. Microsoft hired the firm’s top executives. 

Then 702 of OpenAI’s 770 workers, including those in the top ranks and a founding board member, signed a letter threatening to jump over to Microsoft unless Altman was reinstalled as commander.

The chaos raises doubts about OpenAI’s real estate footprint in San Francisco.

Such internal conflicts, like an executive exit or mass employee resignations, aren’t a legal reason for a commercial tenant to terminate an office lease, Tony Natsis, a Los Angeles-based partner at Allen Matkins, told the Business Times.

“In a well-written lease, they’d have no rights at all,” he said. “The landlord doesn’t underwrite losing rent or losing the lease because the tenant might have an issue.”

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Some office tenants negotiate clauses allowing them to end a lease or shrink an agreed-upon footprint before signing a lease, added Julian Freeman, an Irvine-based partner at Cox Castle who has negotiated leases for more than 20 million square feet of commercial space.

But the attorney said it’s not likely OpenAI would have been able to link such a clause to its well-publicized internal divisions.

“For example, if Tesla had a clause saying they could terminate their lease if Elon Musk left the company — that would be a massive risk to the landlord,” Freeman told the Business Times. “They would never accept that.”

Beyond its new offices in Mission Bay, OpenAI leases 37,000 square feet for its headquarters at 3180 18th Street. It also leases 100,000 square feet of offices at 575 Florida Street.

In the fallout of Altman’s firing, it could declare bankruptcy, which would allow it to exit obligations like leases, according to the Business Times. But it would be rare for a private company to take such a step instead of seeking fresh investment or a sale to a competitor.

OpenAI could also decide to place some of its office space up for sublease. But numerous unidentified sources with knowledge of San Francisco’s office market said it was too early to say what might happen to the company’s real estate holdings.

— Dana Bartholomew

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