Tesla Motors San Jose Land and Factory Deal: Thanks Government!
September 17, 2008
Tesla has signed a lease for 89 acres of land in North San Jose off Zanker Road north of highway 237. Tesla is proposing to build a 600,000 square foot headquarters and factory facility. From what is being reported, it seems Tesla got a great deal.
Tesla signed a 40-year lease, of which the first ten years rent will be abated. The next 10 years has Tesla paying $1.5 Million per year ($.03 per square foot, per month), and the next 10 will continue the same schedule except that rent will increase annually at a rate of 2%.
In contrast, the Google ground lease at NASA was at a much higher rate of $.16 per square foot per month, and other ground leases in Santa Clara/San Jose for office development have historically been done at the $.14-.15 per square foot per month rate. In fact, Great America is even paying more for its 181-acre ground lease which was signed in 1989 - nearly $.06 per square foot, per month. On top of that, Great America thinks it’s such a great deal that in their negotiations with the 49ers, they are asking $110M for the park, with much of the value likely being attributable to the leasehold interest they have.
Granted the land is a “bit out there”, but if the city was looking to lure jobs, it could essentially do the same thing by ground leasing the land away to developers at these same give away rents and allow them to build Office, R&D, or BioTech buildings on them with the condition that any company leasing space at the project has to be a transplant from another city. In addition, those companies could be required to be “green” companies - making the whole site as “green”, if not more “green” than the Tesla Motors project. With the developer’s land costs being essentially zero, they would be able to deliver new Class A product at rates far below competitors anywhere up and down the Peninsula and South Bay. It would likely piss off other developers for sure, but it would accomplish the goal of luring companies from other areas. In fact, if you figure that on the 89 acres you could very easily accomodate 1,000,000 square feet of office development, then that would translate to roughly about 4,000-5,000 jobs, compared to the 1,000 that the city is celebrating this deal for.
On top of that, you have to remember that of the 1,000 jobs that are expected, many will be manufacturing jobs with average incomes nearly a third of what the jobs in the nicer office building will likely be paying and jobs which Tesla has said would stay on the Peninsula or South Bay even if they planted the factory elsewhere.
In addition, Tesla was able to arrange so that the state buys $100M worth of equipment and leases it back to Tesla so as to avoid sales tax, but it is unclear what will happen if Tesla goes under and the taxpayers are stuck with $100M of what will likely be worthless equipment.
The best part of the deal is Mayor Chuck Reed’s quote about what happens if Tesla doesn’t make it:
“If they don’t make it, we’ll have our land back and probably a pretty nice building on it”.
By building, he means the special purpose electric car factory that probably will be functionally obsolete the second Tesla leaves. And don’t forget the city wouldn’t have collected any rent for the first ten years anyways to help it recover any of its costs.
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Tags: Chuck Reed, City, Google, Government, Ground Lease, NASA, San Jose, Santa Clara, Tesla Motors
As is typical in San Jose they will shove this deal down the throats of the taxpayers and hear nary a whimper. On top of that developing an auto manufacturing plant right next to the North San Jose redevelopment corridor and 10,000+ units of housing is idiocy. Granted the zoning is M1 but these are autos not bicycles and will have all sorts of hazardous materials involved in their assembly. Who wants to rent or buy next to an auto plant?
Never commented on this blog, but I really agree with you on this and feel that the city is risking way too much to attract Tesla Motors.
If anything, the city should have given Tesla the last 10 years free and even then I still don’t think they should pay the city so little.
Wow. WTF. This is the most shocking deal to me that mayor Reed has done since the Vietnam Town/Little Saigon fiasco. That is some ridiculously low rent that mayor Chuck Reed has decided to hand out to Tesla. The first ten years free of rent and then 3 cents for every square foot after that? And what’s up with having the state buying $100M worth of equipments then lease it out to Tesla?
Tesla is at best an electric car company that’s exploiting the “GREEN” fad that’s making everyone in the Bay Area going ga-ga. They’ll have basically zero investments risk whatsoever in infrastructure. California and San Jose residents and going to pay for this BIG TIME. There’s no such thing as a free meal. Someone will have to pay for this.