Google’s mega campus in San Jose hits a snag

Amid ongoing turbulence with office space vacancies, Google and an Australian development firm are ending their agreement to create four work and live districts in the South Bay worth $15 billion, including Downtown West in San Jose.

The tech giant on Friday said its split with Sydney-based Lendlease is not the end of its master-planned projects in San Jose, Sunnyvale and Mountain View. But some real estate and development experts say it’s not clear when Google will begin major work on Downtown West or its other major projects, which are set to include thousands of homes, millions of square feet of office and commercial space, as well as parks and plazas.

Mark Ritchie, a commercial real estate broker and San José Spotlight columnist, said the announcement isn’t surprising.

“It’s housekeeping, there’s nothing to do if you’re not building,” Ritchie said. “Google sells ads, and Lendlease is a developer.”

Ritchie told San José Spotlight the market is experiencing “the annihilation of office space,” and companies large and small are shedding space, as they wait to see what happens with work and employment trends.

“Clearly office space is in an existential crisis in general,” Ritchie said. “Until the space that’s vacant is absorbed, and there’s some new rush of technology employment, we’re not going to need to build new campuses and new buildings for some time. I don’t know how long that is, but it’s years, not months.”

Ritchie said he is still confident that Google will keep its commitment to San Jose and other projects over the long term. He added Google wouldn’t rush to build housing before the office space is complete or under construction.

Google has pledged to work with local governments to rezone $750 million worth land it owns to help create at least 15,000 homes, a company spokesperson said. Working with Lendlease, the company has already paved the way for up to 12,900 units to be built in Mountain View and San Jose.

“As we’ve shared before, we’ve been optimizing our real estate investments in the Bay Area, and part of that work is looking at a variety of options to move our development projects forward and deliver on our housing commitment,” Alexa Arena, Google’s senior director of development said in a statement.

In a statement Lendlease said it will be removing the four district projects, known collectively as the San Francisco Bay Project, from its development pipeline.

“The decision to end these agreements followed a comprehensive review by Google of its real estate investments, and a determination by both organisations that the existing agreements are no longer mutually beneficial given current market conditions,” Lendlease said.

Lendlease said as part of the agreement to end the contract, “it will receive a payment in consideration for value created through the entitlement and master planning process,” but didn’t specify the amount.

When Google first pitched Downtown West, it hoped to complete its project around the same time the BART to Silicon Valley extension was completed through downtown San Jose, Ritchie said. That major transit project, which requires many land takeovers and deep tunneling work, has faced several delays and is now estimated to be finished in 2036.

A Google spokesperson was unable to provide more information about a timeline for Downtown West. 

A San Jose development source, who requested anonymity to speak about the Google and LendLease news, said each of these major district projects Google is envisioning are akin to 10 complex “mini-projects” in one.

“My gut is that it was just too much for that one group to commit to, depending on how they had their arrangement financially,” the source told San José Spotlight.

The source agreed with Ritchie that Downtown West and the other projects will happen eventually.

“I still think there is going to be movement on the Downtown West project in the next 24 months. It could be with a different co-developer, or a different consultant, or Google could just move forward on its own,” the source said.

There could be roughly $1 billion of new infrastructure needed to support the project in the older, mostly industrial portion of the city where Downtown West is planned.

“Newspapers and media and residents love it when there are tower cranes in the air, but on these giant projects,” the source added, ” it doesn’t mean work is not happening (without them).”