Santa Clara Approves Major Housing and Office Development; Could Take 25 Years to Build

Santa Clara officials are betting on another major development plan to help drastically revamp the northern edge of the city near Levi’s Stadium.

The area has long been home to low-slung office parks, light industrial uses and the city’s convention center, along with California’s Great America and Mission College. However, a series of long-range city planning efforts and a slew of ambitious development proposals envision the area reshaped into a haven of housing, entertainment, offices, shopping and dining.

Demand for office space and hotels has been sluggish in the wide wake of the pandemic, and large-scale developments have faced financing challenges, in part causing some sites to languish for years, while one recently approved project might not take shape for a decade or up to a quarter century.

“We have a lot of potential, but we’ve been talking about potential for the last 20 years,” Councilmember Kevin Park told KQED News. “What I want to see now is execution.”

Last week, the city council unanimously approved a developer’s plan for 3 million square feet of office or R&D space, along with anywhere from 1,800 to 2,600 apartments, with 15% of them required to be below market rates. The development is also expected to have about 100,000 square feet of retail space, up to 7.6 acres of parks and 10,000 square feet of child care facilities, city reports said.

The plan from Kylli, a Bay Area-based subsidiary of Chinese investment firm Genzon Group, is set to be built on a 48.6-acre site near the corner of Tasman and Old Ironsides drives, which Kylli owns and is largely made up of a parking lot currently used by Levi’s Stadium during events, along with four office buildings.

Mayor Lisa Gillmor called the project a “valuable lynchpin” toward the success of the northside during the Nov. 19 meeting where the plan was greenlit.

“This is going to bring a different dynamic to that area. Once you have residential development and the mixed-use, there’s a vibrancy that comes along with it,” Gillmor said.

While the project was supported widely by business advocates, residents and pro-housing coalitions, all the excitement may be on hold for a while.

The city and Kylli agreed to a contract that allows the developer 10 years to complete the project, with options for extending the development timeline to a total of 25 years if certain milestones are achieved or if the developer pays fees for unbuilt portions.

Santa Clara could be waiting for up to 10 years and receive nothing in return if the developer were to walk away from the project altogether, but officials are hoping the developer will follow through on its aims and say the agreement is necessary for such a large development in a rocky financing cycle.

“We can’t force it. Some people don’t understand that,” Gillmor told KQED. “When the market becomes available to finance these types of projects, believe me, they’re going to build. They will.”

Reena Brilliot, the city’s director of economic development and sustainability, said when crafting the agreement, the city had to consider that the large project would likely need to be built across multiple market cycles and that it includes a significant portion of new office space, for which there is little to no demand currently.

“We are aware that the office market is quite soft, and there isn’t a clear trajectory on when that’s going to change with remote work being still in flux,” Brilliot said.

The approval allows the developer to shrink some of its office space plans in exchange for more housing units to help boost the viability of the project and meet market demands if needed. The contract also asks the developer to build valuable community benefits first, such as 90 of the affordable apartments by 2031, and either the child care facilities or a grocery store by the 10-year mark.

If the developer meets those goals or chooses to pay a fee of $1 per square foot of unbuilt project square footage if it doesn’t, then it can request the first of three five-year extension options.

“We’re tying (the extensions) to the things that matter to us from a community benefit standpoint with the realization that they’re likely not going to build those in a standalone fashion,” Brilliot said.

Santa Clara is not new to big plans and indeed has laid out major growth blueprints all around the stadium. Just last week, the council approved the first 284 apartments of a potential 12,000 planned for a 74-acre area filled with offices that run along Patrick Henry Drive, sandwiched between Mission College and the Kylli development site.

The city’s major plans also include the Tasman East area, where some successes have already been notched. On the 45-acre plot just northeast of Levi’s, several developers are working on roughly 4,500 residential units, some of which are complete, some which are largely constructed and some are still in the pipeline, all following a 2018 plan approved by city leaders.

While the Tasman East work has moved along relatively smoothly, the city has also seen its share of unexpected delays throwing a wrench into much-ballyhooed plans for major developments.

The Related Companies, a massive New York City-based development firm, has long planned to build a landmark $8 billion project in Santa Clara directly across from Levi’s and Tasman East, known as Related Santa Clara, that was originally set to include a total of 9 million square feet of homes, offices, hotels and restaurants, all on 240-acres of city-owned land.

However, since its 2016 approval, some site work has been completed, but nothing has been built. The project faced lawsuits out of the gate from San José and later faced challenges about Related’s plan to pay workers less than prevailing wages, and requires careful environmental planning because much of it is being built on a former landfill site.

It has also contended with the same market forces shifting other projects. Related was able to secure nearly $700 million in financing to build two projects in the Tasman East area in recent years.

Challenges aside, some leaders have grown frustrated with the lack of construction over eight years for the large project, especially because of the developer’s size.

“They’re Related,” Park said. At some point, if they can’t make a plan to build this, then who?”

Related has, in the last year, submitted an alternate plan to replace millions of square feet of office space with industrial manufacturing uses on the site and consolidate some of the office space into other portions of the land, but the city is still reviewing that plan. The developer has continued to pay rent to the city annually during the delays.

A spokesperson for Related Santa Clara did not respond to a request for comment.

The long holdup for Related Santa Clara gives Park concern about the extended timeline options for Kylli and other potential similar agreements that might undergird developments aimed at renewing the city’s north end.

“I don’t like long timelines. With every long timeline you give, you hope it’s because it gives you a higher percentage of completion or possibility of completion,” he said.

Representatives for Kylli say the developer has every intention of building the project, though the company has paid attention to the bevy of challenges other developers are facing, informing how the development agreement was structured.

“Every developer and every project has its own story,” said Wendi Baker, the chief operating officer of Los Gatos-based Harmonie Park Development, who is working as a consultant on the Kylli project. “We saw all of those stories unfolding before us, and we really tried to create the best opportunity for success for all of us here, the developer, the city, the community.”

Despite concerns council members and others may have, Park and Gillmor said the city and its leaders need to keep pressing forward in planning for hubs that attract and benefit residents and visitors. The city is leaning on trust that developers will come through, like with past successes at Rivermark and Santa Clara Square, two major mixed-use developments in the city.

“If we can’t look at a developer and take them at face value and take them in good faith, if we try to be too clever, I just don’t think that’s a good thing,” Park said. “We can’t look at the possible downsides and not approve projects. We have to look at the possible upsides.”