Square Feet

After spending nearly two years working to entitle 7 acres of commercial property in West San Jose for housing, Silverstone Properties came up a vote short in the city council. The council voted this past week 6-5 against the rezoning of the property from its current office/industrial use to residential.

The mayor and the city have recently taken an increasingly firm line against rezoning of commercial land to residential use. During the past several years, land all across the valley was being rezoned to residential at a fast clip as the residential market outperformed the commercial market. Land owners sought to take advantage of the hot housing market by converting lands to residential use to increase the value of their property.

Once land is converted from commercial use to housing, particularly for sale housing, it is very unlikely that it will be converted back to office or residential. For that reason, there is a need to preserve commercial lands where possible. This particular property though, located on South Monroe Street is a property which I personally believe should have gone housing. The site doesn’t have great access and visibility, and it is currently surrounded by a park and other residential housing units, making it a great residential site rather than an office or industrial site.

To balance commercial land preservation while providing adequate housing stock, the city should look instead to encourage higher density mixed-use developments (commercial+residential) nearby and along major arterials, public transportation lines, freeways, and other sites where traffic impacts are minimized. Some progress is being made in North San Jose, but there are other areas of the city which could benefit from this same approach. This is of course a simplification of a complex problem, but the point is that there is a way to balance housing requirements while preserving commercial lands, and the two uses need not always be at odds with each other.

Centex has sold approximately 8,500 residential lots and units to Farallon Capital Management, RSF Partners, and Greenfield Partners. Part of the sale, which came in at an effective $455 Million after factoring in tax refunds back to Centex, included the Plant51 project in San Jose. According to the Business Journal, Centex did not even sell a single unit in the 265-Unit historic rehab project after spending in excess of $100M over the course of the past four years developing the project. The project is still only 70% done.

The deal as structured still gives Centex a 5% stake as well as earnouts depending on the financial performance of the deal. The book value of the properties which were sold was in excess of $520M.

On a side note, something which I found pretty humorous was the home page of RSF Partners’ web site, where they indicate that they have “over $.5 billion in assets”. Normally people say $500 Million, or perhaps even “half a billion” under management, but this $.5 business just seems silly…were they hoping somebody wouldn’t see the decimal place?

KT Properties has acquired the property locatd at 1 South Market St in Downtown San Jose from Haury Properties. Plans for the site include high-rise condominiums but could be changed to office if the demand materializes. KT and its partners are currently developing the AXIS residential condo project located at Santa Clara and N Almaden Boulevard.

Haury originally had been holding the site for office development but later changed those plans into residential as the office market cooled.

The city seems to prefer that the 1 S Market site go office but it doesn’t make any sense at current rents Downtonw. Legacy is in the process of building the second tower at RiverPark on W San Carlos, and the BEA building is up in the air now that Oracle is acquiring them. In addition, Boston Properties and Barry Swenson control land downtown at a lower cost basis which could go office.

Over the past five years, a group of developers which included Shapell, Citation, and Keenan have been funding the planning process for Coyote Valley in South San Jose. The Coyote Valley has over the past two decades been considered as a place where companies could build additional campuses, with the latest campus plans belonging to Cisco Systems. Those plans fell apart in 2000, along with another Fremont campus Cisco had planned, after economic conditions changed.

Since then, developers have been funding the planning process to the tune of $17M. Another $2.5M was due to be funded, but in the light of the current housing and economic conditions the project is for now being put on hold because it is not economically viable.

The Coyote Valley plan called for as many as 25,000 housing units along with commercial space for 50,000 jobs. Because the city of San Jose requires that staff time be reimbursed, the developers have been footing much of the bill.

The developers will undoubtedly resurface once housing conditions stabilize, and possibly sooner if a large campus user is able to step up and commit to occupying a large campus in Coyote Valley, but for the time being, either scenario seems to be unlikely anytime soon.

Federal Realty, the owners of Santana Row have announced plans to build a 5-story office and retail project on a one-acre site within the complex.

The building will feature 4-stories of office in a 15,000 SF floor plate above 15,000 SF of ground floor retail. The steel construction building is estimated to cost approximately $42M and is anticipated to be complete by the end of 2009. The parking is already tight in Santana Row so FRIT (Federal Realty) has intentions to add a 90 car parking garage to what will likely be exclusive parking for the office tenant(s).

Rents have not yet been announced but based on the construction costs, it can be safe to assume that office lease rates will likely be at or north of $3.50 NNN.

We previously wrote a short piece on Vietnam Town’s troubles back in November about the work stoppage at the site and the lender halting payments.

It seems financial problems continue to affect the development now that some of the sub-contractors have filed to seek foreclosure of the site to satisfy monies they are owed for work.

There is no indication as to what exactly the issue is with the development, but a number of parties have not been paid and to date only one of those has filed to seek foreclosure. TWN Investments also represents some of the investors in the Vallco Mall project which has seen its own share of problems. Vallco has recently gone through a restructuring seeing some of the assets being sold to Orbit Resources and Fred Chan.

The California High Speed Rail Authority has voted to include San Jose on the San Francisco-to-Los Angeles High Speed Rail that it is planning. The 200MPH rail was voted to travel through San Jose’s Diridon station which at some point is slated to become a stop for VTA, CalTrain,AltaMont, and BART trains.

The cost of the project is $30B and will include $10B of funding coming from state issued bonds which will likely go up for vote in 2008.