It has been shrinking its way out of the City for years. And it’s not the first major company to make the move.
By Wolf Richter for WOLF STREET.
“As we’ve said previously, our strategy is to maintain our headquarters in San Francisco, where the firm was founded,” said a Charles Schwab spokeswoman in December 2016. The company had threatened to leave San Francisco in an arm-twist tactic with its landlord as its office lease was coming up for renewal. It worked apparently, and Schwab renewed the lease on its 417,000 square feet at 211 Main St. for another 10 years, and San Francisco breathed a sigh of false relief.
At the time, it had already made the decision to build a new campus in Westlake (northwest of Dallas-Fort Worth Airport), Texas. In October 2018, it filed plans to more than double the office space at the Westlake campus to 1.16 million square feet to accommodate up to 7,000 worker bees.
Regardless of the official rhetoric, the company has long been moving operations to Colorado and more recently to Texas: In 2014, it opened a 650,000-square-foot office in Denver to accommodate up to 4,000 employees. In May 2018, it opened a 469,000-square-foot office in Austin, Texas, to accommodate about 1,900 employees.
In 2015, Schwab still had 2,040 employees in San Francisco. By now, that has shrunk to 1,200.
So the writing was on the wall, when in May 2019, Charles Schwab himself indicated that moving the company’s headquarters out of San Francisco is being kicked around.
“We’re pretty much a national company now,” he told the San Francisco Business Times. He was “not sure” the company would remain in San Francisco. “We’ll continue looking at that as a possibility,” he said. “The costs of doing business here are so much higher than in some other place.”
And so now it got serious.
In the announcement this morning, Schwab confirmed rampant rumors that it would acquire TD Ameritrade for $26 billion. Part of the deal was the decision that the combined company would “eventually” move the new corporate headquarters to Westlake:
As part of the integration process, the corporate headquarters of the combined company will eventually relocate to Schwab’s new campus in Westlake, Texas. Both companies have a sizable presence in the Dallas-Fort Worth area. This will allow the combined firm to take advantage of the central location of the new Schwab campus to serve as the hub of a network of Schwab branches and operations centers that span the entire U.S., and beyond. Any additional real estate decisions will be made over time as part of the integration process.
With Schwab having shed jobs in San Francisco for years, the move of its headquarters will more or less continue the process, with a difference: Now the top folks will be moving, not just the underlings:
A small percentage of roles may move from San Francisco to Westlake over time, either through relocation or attrition. The vast majority of San Francisco-based roles, however, are not anticipated to be impacted by this decision. Schwab expects to continue hiring in San Francisco and retain a sizable corporate footprint in the city.
The assertion that only “a small percentage” would move to Texas and the assertion that it would “continue hiring in San Francisco” are as subject to change as Schwab’s assertion in December 2016 that “our strategy is to maintain our headquarters in San Francisco.”
Schwab is not the only company to move its headquarters out of one of the most expensive office markets in the US, one of the most expensive housing markets in the US, one of the most congested cities in the US with daunting commutes for employees who cannot afford to live in the city, with a homelessness problem that has spiraled out of control, and with a particularly tough nut to crack in terms of taxes.
On top of California’s corporate income tax rate of 8.84%, there is San Francisco’s tax on gross receipts and payroll. And then there is the new thingy whose opposition Charles Schwab funded with a personal donation of $100,000: Proposition C, which voters approved in November 2018, which raised the gross receipts tax on companies with revenues over $50 million to help fund San Francisco’s services for the homeless.
Texas has a 1% gross receipts tax on corporate income over $1 million, and Westlake has no additional corporate taxes, according to Westlake’s director of communications and community affairs, cited by the San Francisco Chronicle. But of course, Texas and municipalities have to collect money somehow, and they do it via property taxes.
Schwab is one of the bigger corporate names in San Francisco, and despite the shrinkage still the fourth largest finance company behind Wells Fargo, First Republic Bank, and what’s left in the City of Bank of America, whose headquarters was moved from San Francisco to Charlotte, North Carolina, following its merger with NationsBank in 1998.
Other biggies have recently decided to bail out, including in 2018 McKesson Corp., the biggest pharmaceutical distributor in the US by revenue, which said it would move its headquarters to Las Colinas, Texas; and engineering and construction giant Bechtel, which said it would move its headquarters to Reston, Virginia.
House-hunters who’ve been worn out by the prices in San Francisco are going to get frustrated further: In Westlake the median price of a house is $1.8 million, according to its director of communications and community affairs, which is a notch higher than in San Francisco. But much cheaper homes and rents are available in other parts of the vast Dallas-Fort Worth metro.