When Google last month unveiled its $1 billion commitment to build at least 20,000 new homes in the Bay Area, the news was paired with unanimous fanfare by regional leaders — and a lot of unanswered questions.
Google announced on June 18 it would take a three-prong approach to help create 20,000 new residential units. Of those new homes, 15,000 would rise on land valued at $750 million that the company would set aside for housing. The second part of its commitment is a $250 million investment fund meant to help developers move their projects along. Finally, Google is going to divvy out $50 million in grants to nonprofits addressing displacement and homelessness in the Bay Area
Since the announcement, Google has fielded queries about its unprecedented promise, but few answers have emerged.
“What Google has announced is really awesome and we should celebrate a corporation that is investing in housing,” said Leslye Corsiglia, executive director for housing advocacy nonprofit [email protected] “I think everybody would like to have more information and I don’t think they are being insincere that they don’t have all the details yet.”
Until then, here are some of the details we know about Google’s $1 billion housing commitment along with the biggest questions still outstanding.
How $1 billion will translate to 20,000 homes
After the tech titan’s announcement, some in Silicon Valley were skeptical that $1 billion could translate to 20,000 new homes in a region where a single apartment unit can easily costs upwards of $500,000 to build. At that price, $1 billion would translate to roughly 2,000 new homes.
But the key is understanding that Google isn’t planning to build any of the homes.
This week the company announced a new partnership with Australian developer Lendlease to help build much of its promised housing, along with retail and community space. Google, from its earliest plans for mixed-use projects, has said it plans to lease its land to housing developers who will then build their own projects on the soil.
Lendlease, for its part, said it anticipates the value of its projects on Google-owned land to ring in around $15 billion over the next 15 years.
The developer will have the first chance to build in Mountain View, Sunnyvale and San Jose, where the majority of the development is likely to happen in the coming decade, according to a Google spokesperson. Outside of those three primary growth zones, Google will be open to partnering with other developers, the spokesperson added.
In the end, whether Google’s investment will translate to the number of homes promised seems to be just as much up to its development partners as it is up to Google.
Where will the homes rise?
Google has answered this question in part, naming San Jose, Sunnyvale and Mountain View as key areas where it’ll be building, but also naming San Francisco as a benefactor of its overall pledge.
Those development locations make sense, given that the tech titan already has a massive presence in each city.
Google is by far the largest landowner in Mountain View’s North Bayshore, where the company is headquartered. Last year, the tech giant submitted a set of master plans for the land it owns in the district, each of which show a mix of retail, open space, residential units and office. Though Google has hit some speed-bumps in its plans recently, it is still in talks with city leaders to bring its mixed-use vision to life in the coming years.
In 2017, Google wowed real estate and tech industry onlookers with its massive — though not unexpected — purchase of more than 50 land parcels valued at more than $800 million in Sunnyvale’s Moffett Park. Since then, the search engine giant has continued to buy up land, and submitted plans for office projects in the area. It’s also asked the city to reevaluate its vision for the business district. Sunnyvale is currently considering revising its plan for Moffett Park to include space for housing, retail and other uses.
Diridon Station is nearly synonymous with Google these days. Since announcing its interest in creating a new tech campus near the city’s urban core, Google has bought up hundreds of millions of dollars worth of real estate and is putting together plans for a mixed-use campus that would span 6 million to 8 million square feet in size, including office, retail and residential space.
“I have some sense that a lot of the land that they’re talking about is in these big planning areas where they are already working,” Corsiglia said. “There’s already a desire on behalf of these communities that these areas become mixed-income and mixed-use with significant new housing to go with the jobs.”
The question now is whether Google plans to buy up more land to meet its $750 million land promise, or if it’s got what it needs.
The art of valuing of land
Calculating the value of property is more an art than a science, at least that’s how Santa Clara County Assessor Larry Stone explained the process to San José Spotlight in a recent interview.
For instance, property in Mountain View has historically been valued by appraisers and developers at a higher value than a comparable slice of land in San Jose. In addition, land where only an industrial building can be built will be worth far less than a property where a high-density residential project can rise.
Google has told San Jose Spotlight that it plans to calculate the value of the land after it has been rezoned to allow residential development and that the company will use common real estate industry methods to calculate the value of the properties.
To figure out the value, the easiest method is to hold Google’s property up to land that is similar and nearby, said Bob Staedler, principal of land use consultancy Silicon Valley Synergy.
“I really think the simple thing is the comparables: What did they do before and what are they doing now and then comparing apples to apples,” he said. “But it’s really more a calculus equation than it is a straight one plus one equals two.”
How will rents factor in?
Google isn’t planning to sell its land to developers, but allow companies to use the property to build housing. That generally comes with a lease cost, but how much?
In Silicon Valley, one of the biggest hurdles for new residential development is penciling the project, or making it work financially with enough profit to attract investors and lenders. Sky-high land values are a major part of what makes development so costly.
Google told Spotlight that it would “most likely” charge below market rates for the land because the company would likely have certain requirements for its development partners that would go beyond the standard development procedures. The tech giant hasn’t said whether it would account for that income in its $750 million land value commitment.
An investment fund, but where to apply?
Google has said it will offer $250 million to developers in an effort to help along the creation of 5,000 homes.
But the company has yet to provide insight into what sort of projects or companies it aims to fund. It also hasn’t released a formal application process, despite CEO Sundar Pichai stating in a recent blog post that Google aims to “get housing construction started immediately, and for homes to be available in the next few years.” A company spokesperson told Spotlight the company is trying to work quickly to release more details.
How to address displacement
The final bucket of money Google has promised is one that local nonprofits are eyeing the closest: $50 million set to go to organizations fighting displacement and homelessness.
In San Jose, local thinktank Working Partnerships USA has been especially vocal about displacement as Google works to envision its massive new campus. The grassroots organization has praised Google’s recent housing commitment and is eager to see how the company will deploy grants.
“We’ve heard at least that this is above and beyond any of their commitments in any of the individual areas,” said Jeffrey Buchanan, the group’s director of public policy. “How does that commitment and the framework they’ve committed to in San Jose come together so the whole is greater than the sum of its parts?”
Contact Janice Bitters at [email protected] or follow @JaniceBitters on Twitter.
Editor’s note: This article has been updated to include information received from Google after initial publication.
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