Silicon Valley’s largest developments delayed amid COVID-19 uncertainty
Kim Walesh, deputy city manager and economic development director for San Jose, gives a presentation Thursday to business and community leaders. Photo by Janice Bitters.

    It’s been a month of uncertainty for many Bay Area workers facing state and local stay-at-home orders, but construction sites have been particularly confusing places to be. And things got a little more complicated this week.

    Top Bay Area health leaders on Tuesday updated the region’s existing shelter in place order, extending it to May 3 and adding new rules for essential businesses. Under the revised order, some construction projects previously deemed “essential” will be halted, and city leaders say some of the largest projects in the region are falling behind schedule.

    The previous order allowed many construction projects, including all housing development, to continue as the coronavirus spread forced most workers to stay home. But the updated order only allows work on certain public works projects, health care facilities, shelters and housing developments with at least 10 percent affordable housing to remain underway. Market-rate homes were left off the list.

    That decision came a day after the Northern California Carpenters Regional Council sent a letter to the Santa Clara County Board of Supervisors, explaining measures union construction workers and trades people have taken to ensure worker health and safety on job sites. The letter urges county leaders to allow construction workers to stay on the job by exempting construction, repair and maintenance work from the shelter at home order.

    Now, the group is working to understand what the new order means for thousands of construction workers, said Augie Beltran, director of public and governmental affairs for the group.

    “We saw (the order), but sometimes it takes a lot more than one sitting to try to interpret it,” he said. “It will take phone calls to the health department and phone calls to the attorneys.”

    Everything slows

    But it’s not just construction being affected. The entire Silicon Valley real estate industry has been thrown into limbo by COVID-19. The region’s largest projects will be delayed, including Google’s planned corporate campus in downtown San Jose, and an even larger project in Santa Clara by Related Cos. near Levi’s Stadium.

    Despite those impacts, California Gov. Gavin Newsom has asked residents to “meet the moment” by staying inside as the deadly respiratory illness spreads, creating especially deep roots in Santa Clara County. So far, 30 people have died and 890 are confirmed to have the virus in the county, though local health experts say that’s a fraction of how many people have been infected as testing lags.

    Before the virus hit the region, the South Bay was having its own moment of sorts with record leasing and development growth.

    Officials in San Jose were chipping away on an ambitious goal of building 25,000 homes by 2022. Residents were preparing for Google’s proposed 60-acre corporate campus next to Diridon Station to get a vote before the end of the year. In Santa Clara, Related Cos. was preparing to start construction on its 9.2 million-square-foot project in May.

    Now everything has slowed or stalled, as the region settles into a new normal that includes staying at least 6 feet apart.

    While industry experts told San José Spotlight that real estate isn’t the region’s top priority during the pandemic, it’s not far from mind. The industry has enormous effects on the long-term health of the economy and creates well-paid jobs that workers hope to return to when the stay at home order is lifted.

    And in an industry where added time can add hundreds of thousands or even millions of dollars to the bottom line, the slow down can be difficult for developers to swallow, especially those who build affordable housing with tight profit margins.

    “I don’t think anyone is going to go through this unscathed,” said Chris Neale, executive vice president at San Jose-based The Core Companies, which develops both affordable and market-rate homes. “I think this is so new people don’t know how or where they are going to lose money, but they are bracing to lose money.”

    Deadlines loom

    Meanwhile, the Google development, which is using a state streamlining program called AB 900 that comes with a Dec. 30 city approval deadline, carries more questions than answers, said Kim Walesh, San Jose’s deputy city manager and economic development director.

    “Obviously, we want a robust public review process for all major development projects … and given the circumstances, that is clearly not possible at this time or in the foreseeable future,” she said.

    The city will ask the state to extend the AB 900 program deadline for projects that won’t be done in time due to the pandemic. If the state agrees, that will affect not only Google, but developments around the state, Walesh said.

    At the same time, more than half a dozen residential developments face a June 30 deadline to pull building permits to qualify for a city program that offers tax and fee breaks to high-rise developments in downtown San Jose. The last time the city extended the program deadlines, it was met with protests from labor and housing advocates. Whether the deadlines will be extended again remains to be seen, said Rosalynn Hughey, the city’s building and code enforcement director.

    The Related Santa Clara project, though delayed, will eventually come to fruition, said Steve Eimer, Related Companies’ executive vice president.

    “These projects take many, many years to bring to fruition and Related has a very unique ability to be patient and persistent and resilient in the face of all kinds of problems,” Eimer assured Santa Clara councilmembers last week.

    In this file photo, construction is underway at the Adobe site in San Jose. Photo by Janice Bitters.

    Deals on hold

    More than 12 million square feet of commercial office and research and development space was under construction across Silicon Valley before COVID-19 hit, according to data from Colliers International, a commercial brokerage.

    Meanwhile, companies — particularly tech — were looking for a combined 11 million square feet of space across the region, according to Colliers. Developers that started construction on new office buildings in San Jose’s downtown for the first time in a decade banked on that demand to stay high.

    But now many of the real estate deals are on hold, according to Phil Mahoney, executive vice chairman at commercial brokerage Newmark Knight Frank.

    “Those companies just have higher priorities right now, like how do they physically operate in a very scattered environment?” he said.

    Mahoney works with the largest tech titans and developers in the region, and said many are still planning for growth on the other side of COVID-19.

    “I don’t see this as being a fundamental game-changer for a long period for Silicon Valley,” he said. “But that doesn’t mean it’s not going to be fairly uncomfortable for a while — it just is.”

    Some construction continues

    The construction projects that are allowed to continue now will help stop the spread of the virus, according to local leaders.

    State officials are rounding up trailers and motels to offer homeless residents a place to protect themselves from the virus, or isolate if they contract it. San Jose Mayor Sam Liccardo recently urged Newsom to make public land available for temporary housing and waive environmental review, permitting rules and some state building codes to build new shelters faster. Hospitals are finding creative ways to expand their capacity to care for patients, requiring some construction or repair.

    That’s created a new reality for some contractors, Neale said.

    “Medical workers are accustomed to being essential, but it’s new for subcontractors to learn their work is essential,” he said. “I think the unsung heroes are the subcontractors and the general contractors who are going to these sites and trying to keep things moving.”

    Meanwhile, many city leaders are staying positive in the face of the economic uncertainty around COVID-19.

    Santa Clara Mayor Lisa Gillmor called the Related Cos. development “an optimistic part of our city’s future,” before approving the first phase of development last week.

    And Walesh thinks San Jose can hold onto the momentum it had before the virus.

    “We have really emerged as an exciting development market,” she said. “We have attracted multiple international developers and investments into our city and there is a widespread sense regionally, nationally and globally that San Jose is really on a development cusp — and that there’s huge long-term potential here.”

    Contact Janice Bitters at [email protected] or follow @JaniceBitters on Twitter.

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