Santa Clara developer swaps office for industrial as market tanks

The company behind the biggest proposed mixed-use development in Santa Clara is planning to cut more than 1 million square feet of office space, and still does not have a clear timeline for an already years-delayed construction plan.

New York City firm The Related Companies, the developer of the estimated $8 billion project known as Related Santa Clara, is planning to replace a 4 million-square-foot section of office campus space with up to 1.6 million square feet of light industrial and advanced manufacturing buildings.

The company said there are no changes in total square footage of the project, and that it plans to transfer the remaining roughly 2.4 million square feet of planned office space from the northeastern portion of the 240-acre site, into the “City Center” southwestern portion of the site.

A company spokesperson said the proposed retooling is a result of the same challenging economic conditions for other developers around the region.

“There’s not a demand for the amount of office that was proposed, and now Related is looking for a way to build something where there is demand and thus be able to continue moving ahead with the project,” spokesperson Evette Davis told San José Spotlight.

Kelly Snider, a professor in San Jose State University’s Department of Urban and Regional Planning, said adding a significant amount of industrial buildings could harm the city’s long-term plans for a bustling entertainment district adjacent to Levi’s Stadium and the city’s convention center.

“It would interfere substantially with the vision for the entertainment district. That is not compatible with having a 24-hour mixed-use district,” Snider told San José Spotlight. “It’s a terrible use in the middle of a transit-rich area.”

Related’s prior master plan called for building out roughly 9 million square feet of offices, hotels, shops, restaurants and nearly 1,700 apartments on a large plot of city-owned land.

“Everything Related wanted to do is not profitable now, and so they’re pivoting to the only thing that could possibly make money for them, and that is not a compatible use with the vision the city laid out,” Snider said.

Snider also took issue with what she called “intentionally vague” statements from Related about what will become of the “transferred” 2.4 million square feet of office space. Snider said it’s likely the developer will seek another change to its plans down the road.

Post-pandemic development

The post-pandemic landscape for real estate has required companies to rethink their visions, Davis said, but Related’s commitment to Santa Clara hasn’t changed.

“There will be something that goes in there, and it will be a mix of all the things we promised, but will it look exactly the way it did before? Probably not,” Davis said. “This project has every intention of moving forward, every intention of fulfilling its obligations to the city, but we are in a very different time after the pandemic.”

Councilmember Kevin Park said city officials need to keep in mind the importance of having a vision for what they want for that area of the city.

“Not having an entertainment district with a stadium there means we don’t capture a lot of the dollars from before the events, and people don’t stay there after the events, because there is no place to go,” Park told San José Spotlight. “If we don’t have a vision for the city, then the planning department is just an approval department.”

Related announced in late January that it filed an application with the city, requesting to amend the master community plan for the project to make these changes, as light industrial and manufacturing are not allowed in the project area under current zoning.

A city spokesperson told San José Spotlight it doesn’t have an estimated timeline for processing the application, but noted the developer’s request will need to come before the Santa Clara City Council for a final decision.

“Related Companies’ desire to amend its 2016 entitlements to better meet current real estate economics, demonstrates their commitment to the project and its long-term success,” Jovan Grogan, Santa Clara’s city manager told San José Spotlight. “Their proposed plans also maintain the original vision for a vibrant mixed-use project with new parks, open space, retail, restaurants, entertainment venues, offices and hotels.”

The project, which has been tossed around in various forms since 2012, was approved in 2016, but has stalled out, including several delays such as contentious lawsuits between San Jose and Santa Clara, the pandemic and Related’s own push to avoid paying prevailing wages to workers on the job.

In November 2022, California Department of Industrial Relations Director Katrina Hagen determined the Related project benefits from public subsidies granted by the city, and is therefore considered a public works project that must pay prevailing wage rates, which help ensure workers receive fair pay and benefits.

Related challenged the decision in an appeal filed on Dec. 28, 2022. No decision has been issued in the appeal, Davis said.

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