Related Santa Clara developer to appeal decision over wages

A development firm worth $60 billion intends to challenge a state decision that it must pay prevailing wages to workers on its massive project planned for Santa Clara.

The $8 billion Related Santa Clara project, from New York City-based firm The Related Companies, benefits from public subsidies granted by the city. Therefore, it’s considered a public works project that must pay prevailing wages, according to a decision from California Department of Industrial Relations Director Katrina Hagen.

Related is planning to build out roughly 9 million square feet of offices, hotels, shops, restaurants and nearly 1,700 apartments across 240 acres of city-owned land near Levi’s Stadium.

Hagen issued the determination late last month, nearly two and a half years after a regional chapter of a painters union asked the state to determine whether the development qualifies as a public works project.

The decision deals a blow to Related, which denies the project is a public work, and to Santa Clara Mayor Lisa Gillmor, who helped architect the deal for the development.

“Related is extremely disappointed in the department’s recent determination and strongly disagrees with the staff’s analysis, which improperly characterizes a private development as a public works project,” Evette Davis, spokesperson for Related Santa Clara, told San José Spotlight. “We intend to appeal the decision.”

An appeal in this case would ordinarily have to be filed within 30 days from the decision, Peter Melton, a Department of Industrial Relations spokesperson, told San José Spotlight.

However, Related and the city asked the department for an extension to Jan. 31 due to the holidays, and it was granted, Melton said. The outcome of the appeal can be challenged in court.

San José Spotlight revealed in September that Gillmor wrote a letter to Gov. Gavin Newsom in March advocating Related should not have to pay prevailing wages on the project. Months later, Related formed a campaign committee and funded it with $250,000 to help Gillmor win reelection against Councilmember Anthony Becker. Some of Gillmor’s council colleagues questioned her ethics over the letter.

Gillmor did not respond to requests for comment.

Favorable rent structure, capped fees

In a 24-page report, Hagen said Related is getting subsidies from the city through rent price reductions over the 99-year lease, a new city power substation paid for in part by the city and various caps and freezes on development fees.

The city also plans to deduct hundreds of millions of dollars in costs to account for the developer needing to do expensive prep work to build on the land, much of which was used previously as a landfill.

“By deducting the premium costs from the capped fair market value of the parcels, the city will in effect be partially reimbursing or crediting the developer for its infrastructure development costs,” Hagen wrote. She also pointed to a city staff report where Santa Clara noted it intended to take on some of the “responsibility” for Related’s high development costs through a reduction in rent in earlier years of the lease.

Hagen said the reduction in rent, “however it was clothed,” ultimately serves to reduce the costs for Related, which qualifies as a public subsidy, citing a 2011 case from San Diego that helped establish the precedent used in this case.

Santa Clara agreed to put up about $8 million to help fund a new Esperança Substation, to supply the needed power to the massive development as it takes shape over many years. While the developer claimed the substation benefit was negligible because the overall project is worth $8 billion, Hagen disagreed, citing an example from a 2012 case from Turlock.

“An infusion of millions of dollars to subsidize a project, even if the project brings numerous benefits to the city, is unlikely to be ‘proportionately small enough in relation to the overall cost of the project, such that availability of the subsidy does not significantly affect the economic viability’ of the project,” she wrote.

The city also agreed to pause several development fees until March 2027, including dwelling unit taxes and traffic impact fees, to help offset the cost of added congestion from the project. The city has options to extend the pause, as well. Once lifted, some fees will be capped, including those for traffic impacts.

Contact Joseph Geha at [email protected] or @josephgeha16 on Twitter.