The sublease is co-terminus with Gap's master lease, which runs into 2010, according to the source. The short-term commitment is expected to be followed by a long-term commitment, possibly for one of the new office buildings planned for Mission Bay or the south Financial District. Like Yahoo and Microsoft before it, Google is said to be accommodating workers who live in San Francisco proper and don't like riding Google's free shuttles to its Mountain View headquarters every day.

Hills Plaza is a two-building office development on 3.5 acres of waterfront along the Embarcadero. In addition to 345 Spear St., built in 1989, the property also holds 2 Harrison St., built in 1925 as the original Hills Brothers Coffee factory. The property is owned by Morgan Stanley Real Estate's Prime Property Fund, which paid $197 million for it in mid 2004, when it was 98.5% leased. The seller, a fund managed by Shorenstein Co., acquired the asset 10 years earlier for $120 million.

One of Google's neighbors will be Sharper Image, which relocated its headquarters to 345 Spear St. in February 2006. The retailer leases 75,000 sf formerly occupied by Internet company Critical Path. Other tenants at Hills Plaza include Gensler Architecture, Babcock & Brown and Bridge Housing.