Tech gi­ant chang­ing fu­ture of down­town

The Mercury News - - Front Page - By Ge­orge Ava­los gava­[email protected]­yare­anews­

SAN JOSE >> Even be­fore Google has be­gun con­struc­tion on its pro­posed mas­sive tran­sit vil­lage in San Jose, the search gi­ant’s prop­erty pur­chases have helped cat­alyze a frenzy of de­vel­op­ment plans that could dra­mat­i­cally re­shape the city’s down­town.

Most strik­ing is the dra­matic surge in pro­posed down­town San Jose of­fice space: from no new of­fice de­vel­op­ment pro­posed in 2016 — be­fore Google be­gan snap­ping up prop­er­ties for its project — to

more than 1 mil­lion square feet pro­posed in 2017 and an ad­di­tional 4.3 mil­lion square feet pro­posed in 2018, ac­cord­ing to a sur­vey of city plan­ning doc­u­ments through mid-De­cem­ber by this news or­ga­ni­za­tion.

With all those new work­ers po­ten­tially head­ing down­town — Google’s project alone calls for as many as 20,000 em­ploy­ees — hous­ing and re­tail pro­pos­als have blos­somed.

“My fam­ily has been down­town for­ever, and this is the strong­est I’ve ever seen it,” said John DiNapoli, pres­i­dent of J.P. DiNapoli, a vet­eran de­vel­op­ment firm. “This is the most ac­tiv­ity I’ve seen.”

The cas­cade of in­ter­est sug­gests that down­town San Jose could fi­nally be on the verge of a trans­for­ma­tion that could land the city some of the Sil­i­con Val­ley mojo that has brought jobs and wealth to neigh­bor­ing cities such as Moun­tain View, Palo Alto and San Fran­cisco.

“The eco­nomic up­turns in the Bay Area by­passed down­town San Jose,” said Bob Staedler, prin­ci­pal ex­ec­u­tive with Sil­i­con Val­ley Syn­ergy, a land-use and plan­ning con­sul­tancy. “Down­town has al­ways needed a push. Google is pro­vid­ing that push, is caus­ing more ve­loc­ity, and mak­ing more peo­ple look at the down­town.”

The de­vel­op­ment rush is hap­pen­ing as Google plans for 6 mil­lion to 8 mil­lion square feet of of­fice space, re­tail and hous­ing on a 240acre site near the Diri­don Sta­tion. Google, di­rectly or through an in­vest­ment part­ner­ship, has bought 51 parcels, pay­ing a com­bined $310.1 mil­lion and now owns a swath of land stretch­ing from north of the SAP Cen­ter south­ward to an old Or­chard Sup­ply Hard­ware store near In­ter­state 280.

“The amount of money and in­vest­ment pour­ing into the down­town is the high­est it’s ever been. It’s at an in­sane level,” said Nick God­dard, a vice pres­i­dent with the Col­liers In­ter­na­tional com­mer­cial real es­tate firm. “Com­pa­nies like Google and Adobe are look­ing at their long-term growth. They re­al­ize that traf­fic is only go­ing to get worse. So they want to move staff up and down the Cal­train line, and even­tu­ally up and down the BART line.”

As of­fice plans have mul­ti­plied, hous­ing pro­pos­als for the area also have surged, from 954 res­i­den­tial units pro­posed in 2016 to 3,848 units in 2018. Down­town re­tail-de­vel­op­ment plans have soared too, from 6,900 square feet in 2016 to 101,000 square feet in 2018.

Younger tech em­ploy­ees’ shift­ing at­ti­tudes about where they want to work and live ap­pear to be adding some mo­men­tum to down­town’s de­vel­op­ment.

“Maybe the tide is fi­nally chang­ing,” said Jerry Strangis, prin­ci­pal ex­ec­u­tive with Strangis Prop­er­ties. “Maybe that kind of work­force that has been miss­ing down­town is fi­nally here. The mil­len­nial gen­er­a­tion of 20-some­things wants to ex­pe­ri­ence and en­joy a down­town scene and an ur­ban set­ting.”

De­vel­op­ers of­ten re­fer to the real es­tate im­pact from Google’s plan as “the Google ef­fect.” But while the tech­nol­ogy gi­ant is a key fac­tor be­hind the surge in ac­tiv­ity, there are other in­gre­di­ents fu­el­ing the boom, in­clud­ing plans for more tran­sit links, pro-de­vel­op­ment poli­cies, ris­ing prop­erty val­ues and Bay Area job growth.

“Google is very help­ful, but they are only part of the story,” San Jose Mayor Sam Lic­cardo said. “We have had decades of poli­cies de­signed to build more tran­sit, develop more high­den­sity res­i­den­tial, more of­fice build­ings, more restau­rants, more ameni­ties in down­town San Jose.”

Diri­don Sta­tion — al­ready a hub for light rail, Cal­train, Am­trak, the Capi­tol Cor­ri­dor line and the ACE Train — is poised to be­come a fu­ture Bay Area Rapid Tran­sit sta­tion.

“If down­town San Jose were a liv­ing or­gan­ism, the tran­sit sys­tem is the skele­ton,” said Carl Guardino, pres­i­dent of the Sil­i­con Val­ley Lead­er­ship Group, which has pushed for nu­mer­ous tran­sit fi­nanc­ing mea­sures for the Bay Area and the South Bay. “The mus­cles will be the jobs com­ing down­town.”

Ris­ing prop­erty val­ues for of­fices, hous­ing and ho­tels also have made de­vel­op­ment projects more at­trac­tive, while fed­eral tax cuts have spurred busi­ness in­vest­ments.

Af­ter Google’s tran­sit vil­lage plan was an­nounced, Adobe Sys­tems, the first ma­jor tech com­pany to place its head­quar­ters in down­town San Jose, an­nounced it has de­cided to “dou­ble down” on the down­town by adding a fourth of­fice tower to its cam­pus on the banks of the Guadalupe River.

“As an early pi­o­neer to down­town San Jose, we con­tinue to see op­por­tu­nity for in­no­va­tion and in­vest­ment in the area,” said Jonathan Fran­com, an Adobe vice pres­i­dent of em­ployee and work­place so­lu­tions. “We will be ex­pand­ing in down­town San Jose, which will pro­vide ca­pac­ity to roughly dou­ble our current head­quar­ter em­ployee pop­u­la­tion.”

Prop­erty buy­ers also have jumped into the fray. Over the 12 months that ended in Septem­ber, tech com­pa­nies and realty in­vestors mounted a $1.43 bil­lion shop­ping spree for down­town prop­er­ties, far out­pac­ing the $484 mil­lion buy­ers spent on down­town prop­er­ties over the prior one-year pe­riod that ended in Septem­ber 2017.

Perhaps the most iconic prop­erty ac­quired in the current buy­ing binge is the Fair­mont San Jose ho­tel, an 805-room dou­ble tower that an East Bay in­vest­ment group bought for $223.5 mil­lion in Jan­uary.

So­brato Or­ga­ni­za­tion, a de­vel­oper, has be­gun con­struct­ing of­fices for Santa Clara County agen­cies; Bos­ton Prop­er­ties has in­quired about build­ing three of­fice tow­ers; TMG Part­ners and Val­ley Oak Part­ners are con­tem­plat­ing 1 mil­lion square feet of of­fices near tran­sit.

At Park Avenue and South Al­maden Boule­vard, a long-stalled de­vel­op­ment has gained new life with a

“Google is very help­ful, but they are only part of the story. We have had decades of poli­cies de­signed to build more tran­sit, develop more high-den­sity res­i­den­tial, more of­fice build­ings, more restau­rants, more ameni­ties in down­town San Jose.” — Sam Lic­cardo, San Jose Mayor

pro­posal from the DiNapoli firm for a sleek 20-story of­fice tower to­tal­ing 740,000 square feet.

Mu­seum Place — a mixed-use project of of­fices, ho­tel rooms, hous­ing and an ex­pan­sion of the Tech Mu­seum of In­no­va­tion — has been re­vived with a fresh in­vest­ment led by Gary Dil­l­abough, who also has made a splash with plans for a high-profile ren­o­va­tion of the land­mark Bank of Italy build­ing and up­grades of other older build­ings down­town.

“We have the Google ef­fect on the west side of the down­town and the Dil­l­abough ef­fect on the east side,” said Mark Ritchie, pres­i­dent of the San Jose­based Ritchie Com­mer­cial realty firm.

The changes can un­leash far-reach­ing trans­for­ma­tions in an of­fice mar­ket like down­town San Jose be­cause it is so com­pact, Ritchie said.

Bro­ker­age com­pa­nies es­ti­mate that down­town San Jose’s of­fice mar­ket to­tals 10 mil­lion square feet com­pared with Oak­land, which has about 14 mil­lion square feet of of­fice space, or down­town San Fran­cisco with 72 mil­lion square feet.

“When change hap­pens in a down­town as small as San Jose’s, it will be felt much more greatly and more quickly,” Ritchie said.

Some small-busi­ness ex­ec­u­tives down­town wel­come the changes, such as Joe Hor­ri­gan, gen­eral man­ager of San Pe­dro Square Mar­ket.

“I think the Google project is great for down­town,” Hor­ri­gan said. “I go to Moun­tain View for the movies, and Google has cre­ated a lot of walk­a­ble places around its head­quar­ters. The same thing can happen here with the train sta­tion. San Pe­dro Square con­tin­ues to grow. You have all of these res­i­den­tial projects like Sil­very Tow­ers right be­hind us. You have Google, Ama­zon, Adobe all ex­pand­ing here.”

Dil­l­abough, how­ever, has some reser­va­tions.

“It’s al­most as if the hype over Google is driv­ing too much spec­u­la­tion in the mar­ket­place,” Dil­l­abough said. “We are ac­tu­ally start­ing to back away from some prop­er­ties. Own­ers have got­ten too en­thu­si­as­tic about what they can sell their build­ings for.”

To be sure, the suc­cess — or even con­struc­tion — of these down­town projects is far from cer­tain. A job slump or a cool­ing com­mer­cial real es­tate mar­ket could hob­ble new de­vel­op­ment ac­tiv­ity.

Al­ready, the boom in prop­erty val­ues has alarmed Sil­i­con Val­ley Ris­ing, a coali­tion of com­mu­nity groups. The or­ga­ni­za­tion is pres­sur­ing Google and San Jose city leaders to en­sure that Google’s planned ex­pan­sion will ben­e­fit mid­dle- and low-in­come work­ers, not dis­place them.

“The Google project would af­fect the en­tire city of San Jose,” said Ben Field, ex­ec­u­tive of­fi­cer of the South Bay La­bor Coun­cil, which is part of Sil­i­con Val­ley Ris­ing. “The com­mu­nity wants Google to come to down­town San Jose, but only if they pro­vide the com­mu­nity ben­e­fits to pre­vent peo­ple from be­ing evicted and be­com­ing home­less.”


Down­town San Jose could look quite dif­fer­ent in the com­ing years.

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