Simeon’s San José Mixed-Use Development Grows to 230 Units, But Challenges Persist

San Francisco Bay Area, San José, SIMEON, Ankrom Moisan Architecture, City of San José, City’s Envision San José 2040 General Plan, BART Station

By Meghan Hall

While the San Francisco Bay Area real estate market is frequently touted as one of the most stable and strongest in the country, developers must increasingly face rapidly rising construction costs and lining up enough capital to actually develop a piece of real estate. All of this has lengthened project timelines in recent years and created challenges for even the most savvy developers. One such project, located at the northwest corner of Post Street and South San Pedro Street in downtown San José, is currently navigating the approvals process for a second time in three years.

According to Mike Kim, the chief investment officer at San Francisco-based SIMEON, the developer in charge of the project, it took roughly a year to revise the development plan. A time in which the expensive Bay Area real estate market has made it even more difficult for Kim and his team to proceed with approvals and construction.

“Since then, the market was very dynamic for a whole for host of reasons, but the net effect of them has been a steep rise in construction costs mainly due to the high cost of qualified labor and the dampening effect on rent growth as we begin to reach supply-demand equilibrium for the high-end, high-income renter cohort,” explained Kim of the market’s progression since 2015. “Relatively low current yields and concerns over future cap rates require a special type of investor—one who is willing to build through the bumps and own and operate long-term.”

The original project, which was approved by the City of San José in 2015, was supposed to begin construction in early of 2016 and be completed in roughly 24 months. Plans for the project have changed several times, however; the original site development permit approved in 2014 considered 182 residential units, up to 10,000 square feet of commercial space and 230 parking spaces over 21 stories. Just a year later, the site’s development permit was amended to increase the number of residential units to 205 and the commercial square footage to 10,900, while decreasing the number of parking spaces to 205.

However, SIMEON has amended those plans, too and submitted a revised project application. The newest iteration of the project, designed by Ankrom Moisan Architecture, would redevelop approximately 0.47 acres of land into a 20-story high-rise building with 230 residential units and up to 10,900 square feet of ground floor retail space.

Plans for a four-story parking garage with 215 parking spaces and a reduction of the outside common area from 8,100 square feet to 6,985 square feet are also part of the project application amendment. Updated plans for the common areas on the fourth floor would include a pool, spa, fireplace and a designated area for pets. 2,900 square feet of common area space will also be available on the 19th floor and will include landscaping and seating areas.

SIMEON would adjust the size of the residential units in order to accommodate the increase in apartments. The original plans included one to three bedroom units ranging in size from 528 square feet to 1,021 square feet. Kim says that SIMEON is aiming to appeal to urban households comprised of singles, roommates and working couples. The re-entitled project would include 70 to 80 percent studio apartments, and the remaining units would be larager.

Tracy Tam, a planner with the City of San José, explained that the revised plans are in line with the City’s Envision San José 2040 General Plan, which focuses on the creation of urban neighborhoods that support economic growth, fiscal sustainability and San José’s growth as a Bay Area cultural center.

“The project is proposing significant densification of the site, as a surface parking lot is what currently exists on the site, and will be adding to the population mass in the downtown to support downtown business growth and increase transit ridership to the light rail and future BART,” explained Tam.

The site, which was sold to SIMEON in May of 2015 for $8.8 million, is currently paved and used as a parking lot. The newest BART Station will be completed in 2025, which will add to the connectivity of the location, which has a number of other residential developments in the neighborhood. One of them is the Greyhound Residential Project proposed by KT Urban, located just across Post Street from this site. The Greyhound project would bring 781 residential units and 20,000 square feet of ground floor retail to downtown.

“From a location standpoint, it can’t get better, as it straddles the two main entertainment, civic shopping and dining districts of San Pedro Square and Cesar Chaves Plaza,” said Kim. “Other than Centerra Tower, Post Street Tower is truly the next purpose-built Class A apartment tower with very high-end design, finishes and amenities.”

The project site is also located by Highway 87 and Interstate 280, and San José State University is just four blocks away, along with Philz Coffee, the San José Center for the Performing Arts and the Tech Museum of Innovation.

According to Kim, the project is expected to cost $130 million dollars, and SIMEON anticipates that the City will approve the project based on its previous approvals. The development is scheduled for a director’s hearing, which will take place on June 6th. Kim estimates that the project will be completed by the Summer of 2020.

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