Since late 2011, Silicon Valley developers and urban planners have been awaiting details on how the City of San Jose plans to implement a wide-ranging vision for creating 70 urban villages by 2040. At stake? A future San Jose stuck in suburban sprawl or a city that becomes the southern urban anchor that Silicon Valley lacks. That tension was on display Tuesday at a city council study session that revealed financial impediments that could make it difficult for public sector planners and private developers to see eye to eye on an urban future for the South Bay City.
An example: the former Cheim Lumber Co. site included in plans for a West San Carlos Street urban village, where land is currently valued at about $1 million per acre. City consultants said Tuesday that figure would likely jump to about $3.4 million per acre if converted into a strictly residential development. With a mix of residential and retail, the value drops to $2.7 million. With office, retail and residential, consultants pegged the estimated property value at $1.1 million per acre. The three-hour urban village meeting on Tuesday comes as both city planners and developers flirt with urban design emphasizing dense, mixed-use development and better access to public transit. Meanwhile, as Silicon Valley rides a wave of economic prosperity, the region's real estate market has become frenzied, with costs for housing and office space both rising quickly. The city is interested in bolstering its tax base by attracting new corporate tenants — and the affluent tech workers some of them employ — to calm San Jose's financial turmoil and boost public services that have been pared back. That goal may frustrate the desires of some developers, who want to capitalize on an extremely tight housing market by building more residential projects — some dense, some not. That leaves San Jose with quite a dilemma when weighing future revenue and current market openings. “Housing doesn’t really seem to attract jobs," said San Jose Mayor Chuck Reed at the city study session. "Otherwise San Jose would be booming.” San Jose's shrinking job lands The relationship between jobs and housing in Silicon Valley is complicated. In compact, affluent cities on the Peninsula such as Palo Alto, a mismatch between a large number of job opportunities and a lack of housing options has resulted in all sorts of tangential complications, such as monster commutes from far-away suburbs and traffic gridlock. But San Jose has chosen to be suburban for decades. As a result, the city is home to over 314,000 housing units, about a third of which are in multifamily developments, according to U.S. Census data last updated in 2010. Still, housing costs in the area have risen sharply in the last year, prompting concern about unaffordability and the problems it causes Silicon Valley companies looking to lure talent from cheaper markets. While San Jose rents and single-family home prices are still generally lower than notoriously expensive cities like Palo Alto, costs of living still far exceed average wages for many area workers. On top of those chaotic housing dynamics, San Jose has struggled to add to its roster of large local employers in recent years. A mysterious 2 million-square-foot office project is currently being fast-tracked through the planning process, but Reed has so far refused to name a tenant. As of 2013, San Jose's top five employers— Cisco System's Inc, eBay Inc, IBM Corp, Hitachi Ltd. and Adobe Systems Inc. — employed 26,570 people. But all of those companies have leased real estate in the city for a decade or more. Meanwhile, younger but rapidly-expanding Silicon Valley employers like Google Inc. and Facebook Inc, among many others, have opted to grow in cities farther up the Peninsula. Even deeper into the South Bay, cities including Sunnyvale and Santa Clara have seen an influx of large, high-end office projects. At the study session, Jeff Berkes, West Coast president of Federal Realty Investment Trust, said San Jose should play to its strengths as a residential hub in its quest to lure corporate tenants. But he also encouraged new approaches to development. His company's Santana Row complex is one urban village area that city staffers said holds potential for both more jobs and more housing. "One of the most important things for creating jobs in Silicon Valley and San Jose is having a wide variety of housing stock that’s relatively affordable," Berkes said, though questions were also raised Tuesday about what really constitutes affordability for workers in such an expensive area. He added that "placemaking," or encouraging amenities like entertainment options near new development, is one way to generate interest in new commercial office projects. “There’s obviously a mix of things that make office space successful,” Berkes said, praising San Francisco, downtown Mountain View and Palo Alto as “places that deliver a life for the people in the buildings.” Reed insisted that "90 percent" of the 200-plus CEOs he has talked to about locating in San Jose aren't interested in urban amenities. "Are we chasing the smallest piece of the market with this?” he said. Who pays to make San Jose hip?
San Jose's urban village plan is not designed for overnight implementation and will instead be driven largely by market demand, city officials have said. Mark Tersini, a senior vice president at KT Properties, questioned whether San Jose can realistically support 70 niche urbanized areas. He cited Santana Row, the South San Jose Hitachi redevelopment site, the Cambrian Park area and West San Carlos Street as the most viable options. The Santana Row area is one example of how a new Federal Realty lease has pushed the city to consider broader urban planning goals in the area. San Jose city staffers are also focusing on the West San Carlos urban village proposal as a sort of pilot for other urban village locales. Early plans for the West San Carlos area would include an estimated 1,245 housing units and 980 new jobs in 295,000 square-feet of new development. The project would likely require $15-$31 million worth of infrastructure and placemaking upgrades. Individual developer agreements, impact fees, Business Improvement District (BID) pay-ins and more experimental Public Development Rights (PDR) systems are all on the table ( read much more about those proposals here, starting on page 17 of the city presentation). Developers at the meeting on Tuesday expressed concerns about increased building costs with any new fees but said that cost predictability in any financing scheme is one major overarching factor when evaluating new projects. "Every urban village area will be different,” city spokesman David Vossbrink told me, explaining that financing and scope of projects undertaken will likely vary by location. “A lot of this stuff is going to be driven by the economy. We’re not marching down the road saying, 'We need to create 70 urban villages over the next 5 years.'” The city does not currently have another major study session on the urban village topic planned. Rather, there are several more specific meetings planned to evaluate targeted sites near Diridon Station, The Alameda and other areas. With many questions left to be answered, one theme is clear; City planners and developers alike are racing against speculation about how long Silicon Valley's current tech boom will last. "The capital formation in the market is extraordinary," said Mike Kim, chief investment officer for Simeon Commercial Properties. "How much runway do we really have in this economy?”
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