Landlord BXP is walking away from a development site once slated to become offices, and then housing, in Silicon Valley's largest city as rising costs threaten construction pipelines across California.
BXP, the real estate giant formerly known as Boston Properties, confirmed through a spokesperson this week that a mostly vacant property spanning an entire city block in San Jose where it had envisioned building a massive office and R&D park of around 1.6 million square feet has been put on the market as is, halting any development plans for the property.
Last year, the company filed an updated proposal reimagining the site to include almost 500 homes — more than 100 of them affordable — on the 25-acre property bounded by North First Street, Daggett Drive, Zanker Road and East Plumeria Drive in north San Jose, according to the San Jose Mercury News.
San Jose’s apartment market, with the nation's third-highest rents behind New York and San Francisco, has seen a surge in demand as Silicon Valley’s economy hums. However, developers have struggled to make housing profitable in the Bay Area due to high interest rates and steep construction costs.
BXP's housing plan would have marked a bit of a departure for the real estate investment trust, which has a portfolio dominated by office buildings. But the firm has dipped its toe into multifamily housing development, leading a $400 million joint venture with CrossHarbor Capital and Albanese Organization to build a proposed 670-unit residential project at 290 Coles St. in Jersey City, New Jersey. Last year, there were also news reports that BXP had filed plans to redevelop a 1970s-era R&D building in Lexington, Massachusetts, as a 312-unit multifamily property with retail space and a parking garage.
Permanently on hold
The real estate giant had dubbed the proposed San Jose office project the Station on North First when it pitched it nearly a decade ago, in 2016. The sleek new tech park was to be located in the North First Street corridor, an area the city had long targeted for commercial development clustered around the light-rail line that runs along the thoroughfare. The corridor has for years been dotted with vacant and underused sites.
The real estate firm said it is also selling another property in San Jose that was previously slated for development on South Almaden Boulevard, across the street from the city’s downtown convention center.
BXP said in 2021 that after a long pause it was finally moving forward with plans to develop the 3.57-acre site at 447 S. Almaden Blvd., replacing a surface parking lot with two 16-story office towers to encompass more than 2 million square feet of space atop more than 37,600 square feet of ground-floor retail and amenity space.
But BXP never broke ground on the project.
The company, one of the nation’s largest and most successful real estate and development firms, has said that rising costs and diminished demand in recent years have made it nearly impossible to rationalize office construction.
The firm was also slated to spearhead the construction of the 1.1 million-square-foot Platform 16 development, which abruptly was put on hold at the onset of the COVID-19 outbreak in 2020. Fenton told CoStar News at the time that the company would reevaluate the project once "we get through this current phase of the crisis." The project has remained on ice ever since, as the Bay Area's office market has failed to bounce back in a significant way, but BXP has not yet announced plans to sell the property.
San Jose — like all California cities — is badly in need of more housing, and state and local officials have been trying to come up with incentives for developers like BXP who have backed away from office projects in light of the dismal commercial real estate market to pivot to housing.
They've had a few successes. Jay Paul Co., a prolific Bay Area developer that’s been a force behind some of the region's major tech real estate, has outlined plans to convert four office buildings at 100 W. San Fernando St. in downtown San Jose into 320 homes as part of a larger project that ultimately aims to transform an entire block into apartments and retail. The developer had originally planned to build a state-of-the-art "urban campus” on the site. And Strada Investment Group, the developer of a project that was once slated to become part of San Francisco’s next booming tech district, reimagined the office project as 1,500 apartments per a proposal last month to build two high-rise residential towers in the city’s South of Market neighborhood.