By David Goll
Another signal that downtown San Jose is diversifying its renaissance is the recent submittal of a preliminary application to build a 23-story, 399-unit apartment tower by The Sobrato Organization.
The Cupertino-based developer that builds with its own resources, eschewing investors, has announced plans for the L-shaped high-rise residential building at 150 S. Second St. designed by Arquitectonica International Corp., a Miami-based architectural firm. The site is on one of three downtown parking lots Sobrato has owned since 2010 and 2011 that the company hopes to develop into residential and office towers.[contextly_sidebar id=”UIJE5nFIc5GLJ8tLEJ2bFQoBv8Yo6ZCD”]”We are a family-owned company that is very patient in our development strategy,” said Rob Hollister, Sobrato’s president of real estate. “The parking lot has generated good income but as we have watched the evolution of Downtown San Jose, we were looking for evidence that others see the development potential there. We have seen that happening in the past couple of months as people are moving in.”
That evidence includes the newly completed mixed-use 312-unit, 23-story One South Market project developed by Essex Property Trust at the corner of Santa Clara and Market streets that includes 6,000 square feet of commercial space; the nearly completed 21-story, 347-unit Centerra Apartment complex being built by Simeon Commercial Properties at 77 N. Almaden Ave. that is pre-leasing; and the 643-unit, twin tower apartment complex now under construction at 190 W. St. James St. by KT Properties of Cupertino.
Hollister said construction on the residential tower on South Second Street could begin as early as next spring, with a possible opening in early 2018.
“I believe that it’s a viable project,” said Scott Knies, executive director of the San Jose Downtown Association, of the latest Sobrato downtown development. His advocacy organization was formed in 1988 to manage downtown’s Business Improvement District. “The timing is up to the very smart people at Sobrato who have been involved in a long-term investment strategy in the downtown area.”
Knies cites the company’s Villa Torino three- and four-story apartment complex on W. Julian Street, which was “built when no one was building housing downtown,” and the 17-story, 381,000-square-foot office structure at 488 Almaden Blvd., with accounting firm PwC — also known as PricewaterhouseCoopers — as its anchor tenant as proof of Sobrato’s commitment to downtown and deep knowledge of the market.
“That project was also built ahead of the market,” Knies said of the high-rise at the southern end of downtown, overlooking Highway 280, which sat empty for a few years before corporate interest was kindled.
Not surprisingly, Sobrato officials will take their time considering options for their other two potential parking lot building sites at W. San Fernando and S. First streets, just east of the Knight Ridder building; and at Market and San Carlos streets, in between two of downtown’s major hotels, the Fairmont San Jose and The Westin San Jose. Hollister said the shape of the W. San Fernando Street parcel would be more amenable to a residential structure, while the site a couple of blocks south would work as an office building. But there are no firm plans as yet.
“We are going to proceed with these projects one by one,” Hollister said. “Today, San Jose feels like a city that is evolving from primarily residential into a bigger employment center. But, at this point, the level of rent needed to justify construction of an office building on that (Market Street) location is not quite there yet.”
He said average asking rents in downtown San Jose range from $2.50 to $3 per square foot monthly, contrasting with $3.25 to $7 in the more robust office markets to the north, from Santa Clara to Mountain View and Palo Alto. Furthermore, Hollister said building a high-rise office building in downtown San Jose has higher costs than constructing low-rise offices in northern Santa Clara County, since such “life safety” features as fire suppression and emergency protection measures for tenants can add up quickly in a 15- or 20-story building.
“You could be talking about adding another $3 million in construction costs for a 300,000-square-foot office building,” Hollister said.
And, despite the Valley Transportation Authority’s (VTA) bus and light rail lines running through the downtown area, he added that most San Jose employees still commute by car, making construction of underground parking lots another major expense. But, he remains cautiously optimistic construction of an office building on Market Street will soon pencil out.
“Employees are increasingly interested in living close to work and having walkable living and working environments,” Hollister said. “We see that happening more often in downtown San Jose, we see such amenities as the San Pedro Square Market. Having employment centers in more urban settings is becoming a bigger and bigger recruiting tool for companies.”
Image courtesy of Arquitectonica