Google effect unleashes San Jose property boom

Planned tech campus spikes values downtown

The Mercury News

SAN JOSE, Calif. — Google’s effort to acquire a broad swath of downtown San Jose properties for a massive new tech campus is triggering a sharp jump in selling prices for commercial real estate in the area.

The internet search giant’s plan to expand into San Jose with a new campus employing up to 20,000 Googlers near the Diridon train station and SAP Center sports arena could take years to become a reality — if the company moves ahead with plans to build.

But Google and its development ally Trammell Crow have paid an average of 37 percent more to acquire properties near Diridon Station for the planned Google village than Trammell Crow paid two years ago for a large property deal in the area, a Mercury News analysis of county property records shows.

Those prices are far beyond what some sellers ever dreamed.

Peggy Schlosser’s family pocketed $1 million this year — roughly $177 per square foot — by selling a 5,663-square-foot property to TC Agoge Associates, a Trammell Crow affiliate that is buying parcels for the Google project. That price is about 21 times higher than the property’s last assessed value earlier this year of $8.50 a square foot.

“Heavens no, we never expected to sell our property for as much as we did,” Ms. Schlosser said. “It’s crazy that property values are so high.”

The rise in prices began in September 2015, when a large property sale in the area established a new base price of $162 per square foot. Trammell Crow paid $58.5 million for the 8.3 acres.

Jim Wagner, principal owner of Kearney Pattern Works and Foundry, later agreed to sell his property to the same Trammell Crow entity that bought the Schlosser family parcel.

The jump in property values didn’t come as a total shock for him because of Trammell Crow’s 2015 purchase of the acreage, located a short distance from the Kearney site.

“What we agreed to with Google and Trammell Crow is a bit more than what we would have expected,” Mr. Wagner said. “We knew that Trammell Crow had bought the property on the other side of Los Gatos Creek from us, so that established the price.”

Today, Google and Trammell Crow are paying an average price of $221 a square foot, 37 percent more than Trammell Crow paid in 2015 for a parcel that included parking lots and some small facilities. That represents an eye-popping four-fold increase from previously assessed values in the area.

Since December 2016, Google and Trammell Crow have spent at least $141.7 million for properties. The assessed value of the properties before the realty shopping spree averaged $67.54 a square foot, Santa Clara County property records show.

To some extent, the chasm between previously assessed values and recent sale prices has emerged because of the effects of Proposition 13. California voters approved Prop. 13 in 1978 to combat skyrocketing property taxes, which some residents believed had ousted them from their homes.

The measure limits property taxes to 1 percent of a parcel’s assessed value, and that value can’t increase by more than 2 percent a year, unless the property changes hands.

Since numerous properties in the Diridon Station area haven’t been sold in decades, their assessed values are considerably below the market rate.