Large-Scale Opportunity Zone Project in Downtown San Jose Could See Residential or Office Towers Rise

By Meghan Hall

The land around Diridon Station has become increasingly ripe for development thanks to investment from Google and the implementation of investor incentives like opportunity zones. A recently pitched project could transform yet another underutilized parcel in downtown San Jose, although the developer has yet to finalize its true course. At the end of February, Marwood Development Company submitted a pre-application to the City to redevelop 2.72 acres into either two residential or two office towers.

The properties are located at 400 and 458 West San Carlos St., and according to Google Maps are currently developed with local businesses, including an autobody shop and restaurant. Just across State Route 87 is downtown San Jose, the San Jose McEnery Convention Center, and Discovery Meadow. The SAP Center and Diridon Station are also in close proximity.

Marwood intends to develop the properties into either a mixed-use project with 1,011 residential units or 1.8 million square feet of office space. In both scenarios, the square footage would be divided into two towers. The project will be called “Diridon South.”

The property is within one of San Jose’s 11 qualified opportunity zone, areas which were created by the 2017 Tax Cuts & Jobs Act to provide tax benefits to investors who choose to invest in low-income areas to redevelop properties that will create job and housing growth. 

Marwood launched and funded three Qualified Opportunity Zones (QOF) in 2019, according to its website, of which the Diridon South station project is one, according to the company’s website. 2020 QOF formation is in the process to allow for the investment of last year’s capital gains. The Marwood QOFs are single asset structures, in an effort to eliminate the commingling of investment dollars. 

Investors who re-invest capital gains into QOFs can defer federal payments on realized gains until December 2026, and those who hold their investment in a QOF for five years can reduce their tax bill on capital gains by 10 percent. If the investment is held for at least seven years, the reduction increases to 15 percent. Those who hold their investment for ten years will not be required to pay federal capital gains tax on any realized gains from the investment.

Since its inception in 2012, Marwood has invested in, developed or managed assets valued at more than $1 billion. Currently, the firm manages a portfolio of more than one million square feet across Northern California.

In addition to Marwood’s proposal, there are several other opportunity zone projects in the works throughout downtown San Jose, including several of those proposed by local real estate equity fund Urban Catalyst. Also near Diridon Station, the firm is planning to construct a  175-key hotel just adjacent to the new Google campus and Adobe’s world headquarters. Urban Catalyst is also working to revamp the Paseo, an 87,000 square foot office and retail building between first and second street. Urban Catalyst is also working on The Icon, a 348-unit multifamily apartment building, and The Mark a 222-unit student housing tower. Both projects are also located in San Jose.

As of this writing, Marwood has not returned The Registry’s request for comment.

West Coast Commercial Real Estate News