16 September 2009

Subsidies and Realities

In light of the Merc article containing economist feedback on the economic impact report, there's been a small amount of blowback from San Jose and other media. While I haven't trumpeted or killed the report critically, I feel that it has enough realism and conservatism baked in to pass muster with the public.

During the City Council session yesterday, there were some comments about omissions in the report. Some of the unknowns:
  • How much parking will be built on site and how much will it cost? Will the City foot some/all of the bill?
  • What is the fiscal impact of sales of construction materials for the ballpark?
  • No mention is made of land lease terms, or the cost of additional land acquisition.
It's been understood for some time that new infrastructure in the area, including parking, will be for the benefit of the transit hub and the downtown community as well as the ballpark and arena. Future demands are too great to have exclusivity, especially for a parking garage.

In the report, the alternative development plan involves a new corporate campus, or up to 1 million square feet of mostly office and some retail. The space is expected to be built out over two-plus decades, with the final space available in 2038. That's a major departure from a ballpark, which would be completely open in 2014. Height restrictions prevent buildings of 20 stories or more, so the chances of building anything as architecturally iconic as a ballpark are slim. You need not look further than the Adobe headquarters for proof:

The only thing memorable about the HOK-designed complex is the art installation on the north exterior, otherwise known as the San Jose Semaphore project.

Speaking of Adobe, they didn't exactly start out in San Jose. Originally a Mountain View-based company, Adobe was lured downtown with a $33 million subsidy and favorable lease terms. Most of the land in the picture above is owned by SJ Redevelopment, not Adobe. In hindsight, it's proven to be a good deal because as of this moment, Adobe is the only Fortune 1000 company located downtown. In the past few years, several companies have left, leaving a massive vacancy rate in their wake. Knight-Ridder was acquired by MediaNews, with the Bay Area papers absorbed by BANG. Power producer Calpine emerged from bankruptcy and promptly moved to Houston. Even new deals were sunk, as City tried for years to bring middleware maker BEA down from the northside, only to have Oracle acquire them after the deal was consummated. The target building, Sobrato Tower, remains vacant as City tries to find a tenant yet again. Finally, Adobe bought the old San Jose Water Company site, but there's no telling if/when anything will be built there.

To better illustrate downtown's plight, here's a map showing where the city's six Fortune 1000 companies reside in blue, along with a red/black square denoting the ballpark site's location:

These companies have little incentive to move. They have full control over their parking, are just as close if not closer to where their employees live as downtown, and for the most part don't need downtown amenities, such as they are. It also doesn't hurt that for the companies that have large, long-held real estate portfolios, they also have Prop 13 on their side. It wasn't that long ago that much of north and south San Jose was cheap farmland, ready to shape however the developer saw fit.

Faced with this un-downtown-like reality, it's no wonder why SJRA projects all the way to 2038 for office space. Downtown will always have smaller businesses, law firms, and media companies there. There's nothing wrong with pursuing more large corporations, but city fathers should also understand that there are other ways to enhance downtown. A ballpark is Exhibit A in doing just that.

To that end, they're focusing on this hub concept, for both transit and entertainment. Retail went with Santana Row and a series of expansions to Valley Fair, so the best things left are transit (coming with BART and HSR) and entertainment (sports, arts). As mixed up and broad as their vision for downtown has been for the last 20 years, it's good to see it coalesce around a more focused set of objectives.


Anonymous said...

Great post ML---ironically, it would be the ballpark, coupled with the infrastrucuture improvements of BART and HSR, that will help to make downtown SJ a much more enticing area to locate a corporate headquarters or to live in. These add to the fabric of the city and with the Shark Tank, Performing Arts Center, Rep Theatre etc. begin to create a reason to head downtown on a more regular basis.

My kids and I feel that Plant 51 looks pretty enticing if a ballpark is just across the tracks--without it---wouldn't make the investment.

Anonymous said...

Great post yourself anon 642,
I'd imagine there are many a corporation, tired of the "campus/parking lot" model, who would relocate into a more urban setting with top-rate amenities; ballpark, HP Pavilion, BART, high-speed rail.
All of a sudden, Plant 51, Axis, The 88 (with Safeway), 360 Residence, and even City Heights look much more appealing.
Cisco headquarters at Diridon/Arena anyone?

Dan said...

They still building Plant 51? I had a friend investing in it early on and he eventually backed out because it was just one delay after another.

Bob Moses said...

I think that Cisco likes the auto-based sprawling suburban campus model, otherwise it would originally have located somewhere served by Caltrain.

Dan said...

Can't blame them. The valley was based on the old sprawling campus model for decades back when companies like Applied, ROLM, etc... were all the big movers and shakers. Now it's become a thing of the past, but it's unique again.