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SAN FRANCISCO-Fox Interactive Media Inc. is tripling its leasehold at 625 Second St., a 140,000-square-foot converted warehouse in San Francisco’s South of Market district. The company currently has its MySpace and Photobucket operations in 35,000 square feet there on a sublease but will expand to 105,000 square feet under a seven year lease that begins in early 2010 and is guaranteed by its parent, Rupert Murdoch’s News Corp.

The additional space will be used to house IGN Entertainment, which News Corp. bought in 2005 and merged into Fox Interactive. IGN operations include the gaming portal IGN.com as well as GameWeb, Planet Network, Rotten Tomatoes, FilePlanet and AskMen.com and others. The companies are currently housed at 8000 Marina Blvd. in Brisbane, which sits on the Bay just south of San Francisco.

The MySpace sublease at 625 Second is from LookSmart, a publicly held online advertising and technology company that inked a 10-year lease for the entire building in November 1999 before suffering setbacks during the dot-com crash. LookSmart is currently paying approximately $40 per square foot for the brick-and-timber building, occupying about 20,000 square feet while subletting much of the remainder for about half that rate, according to local sources.

KBS REIT’s lead leasing broker for the building, Mark Trovato of Cornish & Carey Commercial tells GlobeSt.com that Fox Interactive subleased the 35,000-square-foot top (fourth) floor of the building from LookSmart 18 months ago and agreed with KBS to go direct for an additional five years beyond the end of at LookSmart’s master lease. Earlier this year, with IGN Entertainment’s lease in Brisbane also nearing expiration, Fox began negotiating with Trovato to consolidate IGN into 625 Second.

As part of the larger deal, completed Dec. 30, the 35,000-square-foot lease was extended by an additional two years so it will be co-terminus with the 70,000-square-foot, seven-year expansion lease that commences April 2010. As a result, Fox Interactive will occupy the top three floors of the building. Fox Interactive’s negotiated lease rate reportedly starts at approximately $40 per square foot on a full-service basis.

In addition to LookSmart, a couple of its sublease tenants, Microsoft and the online free gaming community iWin.com, will vacate their spaces to make way for Fox Interactive’s expanded presence, says Trovato, who negotiated the lease for KBS with his partner, Donnette Clarens. Jerry Igra of Grubb & Ellis represented Fox.

“Microsoft had a couple of 40,000-square-foot requirements in the market for a couple of companies they bought but there was no guarantee we would get them,” Trovato says. “Fox Interactive was much further along [in the decision process] and News Corp. guaranteed the lease.”

The 31,000-square-foot ground floor of the building is subleased from LookSmart by Zoom Systems (15,000 square feet) and Rapt (10,000 square feet). The space is currently on the market as available come December, Trovato says, but he is hopeful that the two existing tenants can be retained.

If kept, the building would have only 10,000 square feet of availability–a 7% vacancy rate–in a Downtown market that saw occupied space decrease by 1.3 million square feet in the fourth quarter, pushing vacancy to 12.6% or 10.4 million square feet. The sublease market totals approximately 1.7 million square feet; about half of that space is unoccupied, according to Colliers International.

“The blue skies we saw in the past two years of soaring rental rates and low vacancies have become cloudier,” Colliers San Francisco managing director Thomas Lawwill commented recently. “However, I believe what we’re experiencing is simply commerce’s adjustment from inflated highs to a realistic basis. This is undoubtedly an excellent time for tenants, but this market also creates opportunities for landlords to secure strong tenants.”

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