Sometimes, no news is good news. For example, you may have recently heard or read that tech company Google is pausing work on its San Jose mega-campus, Downtown West. Upon reading the news about its project, Google and San Jose’s mayor assured everyone that Google’s commitment to its billion-dollar project hasn’t wavered and is, to quote The Mercury News, as “solid as ever.”
Google remains “fully committed to San Jose in the long term, and San Jose is fully committed to Google,” San Jose Mayor Matt Mahan said during a meeting with the media last week. Mahan continued: “We’re very excited about future prospects.”
Just this week, it became public that the company has occupied two office buildings in North San Jose totaling nearly 370,000 square feet. The properties are part of Google’s four-building Brokaw Campus, which was “bustling with tech workers,” the Mercury News reported. A nearby parking garage serving the campus was “packed with vehicles,” a reporter at the newspaper said after walking around the site.
The latest from Google on Downtown West is that it plans to continue moving forward with its 10-year, $19 billion build-out that would redevelop 80 acres surrounding Diridon Station, one of the nation’s largest transit hubs. The company has city approvals to transform that land into up to 7.3 million square feet of offices, 4,000 housing units, 15 acres of parks and open space, and other uses.
“While we’re assessing how to best move forward with Downtown West, we’re still committed to San Jose for the long term and believe in the importance of the development,” a Google spokeswoman wrote in a statement to CoStar News.
Google said in a February earnings call that it would close some offices to align its office portfolio with its “adjusted global headcount look,” to quote the company’s chief financial officer. Of them, we speculate that the majority are leased to rather than owned by Google, based in part on the company’s plan to primarily exit space it has yet to occupy. Although the Mercury News reported that Google is expected to exit some of its offices in the Bay Area, we speculate that most of the ones it shutters aren’t in Silicon Valley, the site of its global headquarters.
Google’s efforts to exit office leases are “fundamentally distinct” from its San Jose plans, the company told the Mercury News earlier this year. And while Google told CoStar News that Downtown West’s original timeline might not begin as planned, that doesn’t surprise us. Google crafted its timeline for the project before it found itself in a “different economic reality,” to borrow a phrase the company used in a January blog post. Unless Google started listing all or part of its Downtown San Jose real estate holdings for sale, we have no reason to doubt its plans for the area.
In 2020 and 2021, Google increased its total headcount by 16 percent, to 156,500 employees, according to data analytics company GlobalData. That makes the company’s 12,000-person layoffs — which it disclosed in January — seem small by comparison, especially because Google and its subsidiaries are laying off only 1,500 or so jobs in Silicon Valley. To put that number of Silicon Valley jobs into context, Google has just over that number of open positions on its online “Careers” page.
Just like every other company in America, Google is assessing its office needs not just in Downtown San Jose but across the board. That will probably take some time to complete because Google occupied about 20.5 million square feet of commercial space just in Silicon Valley last year, according to Colliers data.
By the way, let’s not forget that Google has been one of the more active office developers in Silicon Valley over the past couple of decades. The company completed four ground-up development projects in Silicon Valley just last year, representing nearly 2.3 million square feet of office space, JLL data show. Despite the enduring adoption of remote and hybrid work models, Google’s decision to forge ahead with those projects shows how much it values physical workplaces.
We understand that San Jose stakeholders want to see Google put shovels in the ground and cranes in the sky for Downtown West as soon as possible. Although we want to see that happen as much as anyone, we haven’t lost sight of how long projects of Downtown West’s scale take to build.
The city’s development agreement with Google, ratified in 2021, gives the company 10 years to complete 2 million square feet of the project’s offices and another decade to construct that same amount of space to comply with the agreement. Therefore, the company has plenty of time to remain compliant and build the most ambitious mixed-use development San Jose has ever seen.
Moreover, Google received approvals from the City of San Jose in 2021, and we know from experience that these types of approvals typically last for only four years. Logically, it makes sense for Google to start vertical construction on some components of Downtown West before mid-2025.
Before the city approved Downtown West in 2021, Google went above and beyond when it met with the San Jose community to get feedback on its project plans. Then, the company used those responses to craft a community benefits plan that some of the development’s harshest early critics praised. We expect Google to show that same level of professionalism in the coming months as it keeps us all in the loop on the status of its San Jose project.
Like Google, we're committed to Downtown San Jose and seek to bring a mix of property types to the area. Contact us today to learn more about our development projects and how to become an investor in Urban Catalyst Opportunity Zone Fund II.
Credit for the rendering we used in the above graphic is SITELAB urban studio.
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The contents of this communication: (i) do not constitute an offer of securities or a solicitation of an offer to buy securities, (ii) offers can be made only by the confidential Private Placement Memorandum (the “PPM”) which is available upon request, (iii) do not and cannot replace the PPM and is qualified in its entirety by the PPM, and (iv) may not be relied upon in making an investment decision related to any investment offering by an issuer, or any affiliate, or partner thereof ("Issuer").
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With respect to any performance levels outlined herein, these do not constitute a promise of performance, nor is there any assurance that the investment objectives of any program will be attained. All investments carry the risk of loss of some or all of the principal invested. Assumptions are more fully outlined in the Offering Documents/ PPM for the respective offering. Consult the PPM for investment conditions, risk factors, minimum requirements, fees and expenses and other pertinent information with respect to any investment.
These investment opportunities have not been registered under the Securities Act of 1933 and are being offered pursuant to an exemption therefrom and from applicable state securities laws. All offerings are intended only for accredited investors unless otherwise specified.
Past performance are no guarantee of future results. All information is subject to change. You should always consult a tax professional prior to investing. Investment offerings and investment decisions may only be made on the basis of a confidential private placement memorandum issued by Issuer, or one of its partner/issuers. Issuer does not warrant the accuracy or completeness of the information contained herein. Thank you for your cooperation.
Real Estate Risk Disclosure:
- There is no guarantee that any strategy will be successful or achieve investment objectives including, among other things, profits, distributions, tax benefits, exit strategy, etc.;
- Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
- Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
- Potential for foreclosure – All financed real estate investments have potential for foreclosure;
- Illiquidity – These assets are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.
- Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
- Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits
- Stated tax benefits – Any stated tax benefits are not guaranteed and are subject to changes in the tax code. Speak to your tax professional prior to investing.
Opportunity Zone Disclosures
- Investing in opportunity zones is speculative. Opportunity zones are newly formed entities with no operating history. There is no assurance of investment return, property appreciation, or profits. The ability to resell the fund’s underlying investment properties or businesses is not guaranteed. Investing in opportunity zone funds may involve a higher level of risk than investing in other established real estate offerings.
- Long-term investment. Opportunity zone funds have illiquid underlying investments that may not be easy to sell and the return of capital and realization of gains, if any, from an investment will generally occur only upon the partial or complete disposition or refinancing of such investments.
- Limited secondary market for redemption. Although secondary markets may provide a liquidity option in limited circumstances, the amount you will receive typically is discounted to current valuations.
- Difficult valuation assessment. The portfolio holdings in opportunity zone funds may be difficult to value because financial markets or exchanges do not usually quote or trade the holdings. As such, market prices for most of a fund’s holdings will not be readily available.
- Capital call default consequences. Meeting capital calls to provide managers with the pledged capital is a contractual obligation of each investor. Failure to meet this requirement in a timely manner could elicit significant adverse consequences, including, without limitation, the forfeiture of your interest in the fund.
- Opportunity zone funds may use leverage in connection with certain investments or participate in investments with highly leveraged capital structures. Leverage involves a high degree of financial risk and may increase the exposure of such investments to factors such as rising interest rates, downturns in the economy or deterioration in the condition of the assets underlying such investments.
- Unregistered investment. As with other unregistered investments, the regulatory protections of the Investment Company Act of 1940 are not available with unregistered securities.
- It is possible, due to tax, regulatory, or investment decisions, that a fund, or its investors, are unable realize any tax benefits. You should evaluate the merits of the underlying investment and not solely invest in an opportunity zone fund for any potential tax advantage.
The above material cannot be altered, revised, and/or modified without the express written consent of Urban Catalyst.
