January 28, 2015

This Morning with Silicon Valley Developers

The market is strong, but there are still major challenges slowing progress. That's the consensus of a star-studded developer panel at Bisnow's Silicon Valley Construction & Development event this morning at the San Jose Hilton.

Republic Family of Cos president and CEO-West Coast Michael Van Every says underwriting is not any easier than it was during the recession, but banks are doing a better job than during the last bubble, when it was somewhat a "free-for-all." He says one barrier to entry for financing is San Jose's perception as an unsexy town, especially from East Coasters who don't visit often. Michael, a San Jose native, offers them a driving tour and says more mixed-use projects in places like Santa Clara would help the area.

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Essex Property Trust EVP John Eudy, whose Bay Area portfolio is 97.5% occupied, says the cost of capital is the lowest he's ever seen, but deals are still hard to get done in part because of financing hurdles. John calls the reports there are 200,000 units under construction in the Bay Area false, counting only 25,000 to 30,000. The others are "hopes and dreams" that are currently "parking lots that could become deals." In his current projects he's installing infrastructure to house more electric cars for when the trend revs up.

Barry Swenson Builder president Case Swenson has high goals, wanting San Jose to be the next S.F. But that would take major moves, like when Adobe planted its HQ in town and brought 1M SF of space with it. His firm is a big proponent of multifamily high-rises, currently doing the 396-unit Centerra. Case says if some fees were lifted, more multifamily units could come to San Jose--and that would create more income for the city long term.

Calvano Development principal Mark Calvano reinforces how great times are, pointing out that VC funding is near an all-time high and Apple's stock was up almost 10% this morning. What's next? Michael has an eye on emerging Central Valley cities poised to become job centers with urban amenities, such as Stockton and Fresno. For Case, his firm's No. 1 focus is San Jose, though he sees Santa Cruz and Monterey County as appealing locations. 

San Jose planning director Harry Freitas says for every 100 employed residents in San Jose, there are 79 local employees, meaning the population dips during the day as workers leave the city. He's continuing to push incentives and programs trying to get people to invest in downtown. He says an area to focus on for future development is Edenvale, where there's a lot of land. Development opps are out there, he says; last year, San Jose produced 6,000 housing units and there are currently 12,000 entitled.

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Tarlton Properties has purchased a 217k SF distribution facility occupied by OfficeMax in Menlo Park for $36M. The two-story structure at 1315 O'Brien Dr was built in 1987 by and for Boise Cascade Office Products. (Boise Cascade was then sold to OfficeMax, which recently merged with Office Depot.) Tarlton plans to transform the property into a 140k SF Class-A life science facility that will be built out to include dramatic architecture, abundant natural light, indoor and outdoor amenity space, topped by a rooftop terrace and conference center, as well as a 70k SF Class-A distribution facility. Above, CEO John Tarlton, who completed an insane 3,000-mile bike race last year.

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Where are the next hotspots for development in San Jose? tierney.plumb@bisnow.com