Brocade Gets $4M To Stay in San Jose, But I Smell a Fish
December 22, 2008
Chris O’Brien, in a Mercury News’ business article yesterday wrote that the city council approved a $4M expenditure on Tuesday to finance equipment purchases for Brocade (BRCD: 5.60 +7.90%) as an incentive for the company to keep its headquarters in the city. This is very odd to begin with since Brocade has already acquired the site and construction is already underway for their new headquarters.
…But the article gets even more intriguing. According to the article,
But about the same time Reyes [the former CEO of Brocade] was on trial in August 2007, San Jose-based Brocade was looking for a new home elsewhere in the South Bay. In November 2007, Brocade Chief Executive Michael Klayko offhandedly mentioned the pending move at a luncheon to San Jose Mayor Chuck Reed.
The mayor asked Klayko for a chance to make a case for the city. Six months later, Brocade announced it would spend $224 million to build a corporate campus in North San Jose, the biggest since in that part of town Cisco Systems’ went up in the 1990s.
Remember the timeline, August 2007. The article goes on to discuss how the city helped Brocade find the site they eventually acquired. The article goes on to mention that
The Brocade folks had said they couldn’t find a chunk of land in San Jose that fit their needs. So San Jose identified a 14-acre piece of land at the southeast corner of Hwy 237 and North First Street that would be ideal.
The North First Street site was at one time owned by Palm but had been sold several years ago and was slated for another project. While it wasn’t on the market, the city got the developers and Brocade talking and a relatively quick deal was struck.
Now this is where things get diagnostic. First off, how does a company like Brocade, with a 400,000-500,000 square foot requirement not know about the former Palm site (which was owned by Cupertino’s Hunter Storm Development) to begin with? Brocade was represented by Studley (somebody told us in the comments of another post) so this claim by the “Brocade folks” indicates that either their real estate representation was eminently ignorant or this was a flat out lie. This statement alone should have raised the city’s eyebrow because from what I know, Studley is a decent group and the Palm site wasn’t any mystery – it is on the highly visible corner of First and 237 after all.
Secondly, and perhaps even more interesting is the fact that the article goes on to say that the property wasn’t even on the market. Well, perhaps it wasn’t on the market for sale in August of 2007, but it was on the market. I first saw flyers for the project in May of 2007 depicting both the retail and office component of the project, which is well before the November 2007 conversation between Brocade CEO Klayko and San Jose Mayor Chuck Reed.
Draw your own conclusions, but it looks like the taxpayers just got bilked for $4 Million. The amount is simply too small to sway a $2B company with $700M in the bank to acquire and build a $250M campus and move 2,000 employees to a site they weren’t going to anyways.
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- Brocade In Talks to Lease @First Office Park at First & 237
- Tesla Motors San Jose Land and Factory Deal: Thanks Government!
Tags: @First Office Park, Brocade, City, City Council, Hunter Storm, San Jose, Studley
This is the same kind of bilking going on with the proposed Tesla deal. The mayor and city council are far too generous with the purse strings when it comes to corporate welfare. These same folks refuse to do anything about the rising crime rate in North San Jose but will hand millions of taxpayer dollars to convicted swindlers.
The Tesla deal should (IMO) go nowhere…they (Tesla) just want someone else to pay for it. The BRCD deal is a little different though. What hasn’t been mentioned in any article as far as I can see (apart from this blog) is that there is a retail component to this project. This will benefit everyone … the BRCD workers (plus Foundry now), the city of San Jose (tax revenue) and the local NSJ residents who have limited options within the city limits. $4 million is not that much considereing what they throw around on downtown projects.
The retail was originally anchored by a Target. My understanding is that BRCD didn’t want that and made it a condition of the deal that Target be nixed from the project. That would have brought in massive amounts of sales taxes considering the average Target does about $100M in revenue.
Instead, it appears Target found a new home a bit farther north at 880/Dixon Landing …. in Fremont!
I don’t blame BRCD for demanding that the Target be nixed, although I can’t believe they (the city and/or Target) couldn’t find anywhere else around the 237/Zanker/North First area…there are a lot of houses being planned for that general area that would support retail IMO.
Agreeing to nix Target just goes to show that the leaders of San Jose are not responsive to their constituent’s demand for retail in North San Jose (who now drive to Milpitas to spend their dollars – goodbye sales tax revenues) but to the fat cats and swindlers who line up at the local version of the bailout trough.
Brocade had been negotiating with sites in Santa Clara, and Milpitas, so maybe the claim that San Jose did not need to intervene are misplaced. If conspiracy theory is your thing, then keep up the good work. If not, relax and enjoy the holidays….the world is not that sinister
Listen, I’m glad SJ got to keep Brocade, but I’m just pointing out the discrepancy in the story given to the Mercury News and expressing my personal opinion that the $4M probably wasn’t necessary to keep Brocade. The fact that Brocade says they didn’t know about the Palm site should have at least raised an eyebrow as to the validity of other things Brocade was saying (like moving to Santa Clara).
The real price tag to taxpayers was $4M, plus the marginal sales taxes a Target would have brought in.
I don’t recall reading anything about this $4M subsidy until this past week, so I would say that if anything is misplaced, it is the timing of that news.