Waning economic conditions have caused the Related Santa Clara development to pivot, incorporating data centers at the cost of office and retail space.
At a special Santa Clara City Council study session Tuesday night, the council heard the reasoning for the largest development in the city’s history shifting its focus.
While Related “remains strongly committed to the long-term vision,” Steve Eimer, executive vice president at Related Companies, said the project’s economic viability is in jeopardy unless the company alters the project.
“These market challenges have been made tougher to overcome when factoring in the rapidly escalating interest rates and construction costs,” he said.
The more-than-9-million-square-foot mixed-use development is already behind schedule.
However, the agreements allow for “excusable delays” brought on by atypical events such as the COVID-19 pandemic and “material adverse economic conditions.” Such conditions are met if Valley Fair or Stanford Shopping centers see 15% office vacancy or 10% retail vacancy.
In addition to the pandemic, Elizibeth Klotz, assistant city manager, said state regulatory approvals and San Jose suing the city over California Environmental Quality Act (CEQA) issues also delayed the project.
“The project has been under an excusable delay since, essentially, when the project was approved,” she said. “The development landscape has shifted significantly in the last few years. It is important to situate this project in the broader economic climate.”
Since 2021, construction costs have escalated 5 to 15% per year while apartment building values have declined 15 to 30%, according to a presentation from city employees.
David Doezema, a city-hired consultant with Keyser Marsten Associates, said online shopping and “things like that” have made retail less viable in recent years.
Because of the economic downturn, Related is proposing to change the project. The new proposal would replace much of the office and retail space with light industrial space that would host data centers.
Those data centers would pay double the rent to the city.
Under the new model, once built, the city estimates that the new development would generate nearly $21 million a year to the city’s general fund, not including ground rent. Ground rent would add roughly $6.5 million to that total.
Although the overall square footage of the development would not change, Related has agreed to adjust the amount of below-market-rate housing in the project.
Originally, the development planned for rent on 10% of the apartments to be set at 120% area median income. With the shift, the percent of apartments would increase to 15% and the cost would fall to 100% area median income.
Additionally, the pivot would cement what Anna Shimko, with city consultant Burke, Williams & Sorensen, called “hard and fast dates” for project completion.
Previously, the timelines for each phase were tied to prior milestones, allowing Related to skirt timeline requirements if development stalled at any phase.
Council Member Suds Jain said the city should have bid the project.
“I think everyone in the community is concerned about the length of the delays,” Jain said.
Council Member Raj Chahal called the agreement “one-sided,” adding that Related is taking “all the benefits, but [the] city is not getting any of the benefits.”
Council Member Kevin Park said town centers like the proposed Related project are supposed to support the other aspects of the neighborhood.
“Data centers don’t drive retail. They don’t drive foot traffic. They don’t build life-style centers like we would like us to be. I think we should build what we want for that area, so we get what we expect. This is an entertainment district,” Park said.
The amended project goes to the planning commission June 11. It returns to the council in July.
The next regularly scheduled meeting is Tuesday, May 13 in the Council Chambers at City Hall, 1500 Warburton Ave. in Santa Clara.
Members of the public can participate in the City Council meetings on Zoom at https://santaclaraca.zoom.us/j/99706759306; Meeting ID: 997-0675-9306 or call 1 (669) 900-6833, via the City’s eComment (available during the meeting) or by email to PublicComment@santaclaraca.gov
Contact David Alexander at d.todd.alexander@gmail.com
Previous City Council Posts:
Youth Sports Organizations Come To Agreement With City On Field Use Fees
Council Sets Sights On Big-Ticket Events, Bond Projects for 2025
Santa Clara Gears Up For Super Bowl LX At Levi’s Stadium
Do they propose to buy power for the data centers from SVP, and at what discount?
If they’re not going to do as much retail, then the City should pass.
Let me also remind everyone that Related is here courtesy of Gillmor and her cabal. Let’s hope she’s as vocal against them as she is against the 49ers, who she also boosted in the beginning.
These are a blight on our community and offer no value. We just keep paying to build out electrical infrastructure for these electricity eaters. Any one who lives near any of these has to listen to the fans and experience the hot exhaust. Just awful.