Related Companies is on the cusp of getting Santa Clara’s sign-off on the first phase of its 9 million-square-foot project, which the developer initially expected to start building in 2020 but has since pushed to next year, citing the pandemic as a factor.
The Santa Clara City Council unanimously voted this week to approve Related’s parcel subdivision plan for the initial 1 million-square-foot phase, consisting of a nine-story, 440,000-square-foot office building; a 12-floor, 480-room business hotel; and 200 furnished apartments available for short- and long-term stays. The plan divides the 14-acre site facing Levi’s Stadium on Tasman Drive into seven parcels, a move that aligns with the company’s overarching vision for the so-called Related Santa Clara mixed-use development, according to city planning documents.
The office and hotel buildings contain 51,000 square feet of space for restaurants and shops between them, and sit above an underground parking garage with nearly 2,000 spaces, according to plans. Related Santa Clara’s first phase serves as one of the main gateways into the project, which is among Silicon Valley’s largest mixed-use developments.
Santa Clara’s community development director and City Council had already given the green light to phase one’s overarching design and scope and its corresponding architectural drawings before the vote, making its outcome something of a formality. That shouldn’t dilute its significance, though, as approval of the phase’s associated building permits depends on the city signing off on the subdivision plan, said Nimisha Agrawal, the city’s planning project manager, at a planning commission meeting last month.
One of the preconditions of ground-lease agreements between the city and Related for the project is the plan’s approval, said Anna Shimko, outside counsel to Santa Clara on Related Santa Clara, during last month’s planning commission meeting. Rather than sell Related the parcels it needs to build its 240-acre development, the city will ground lease them to the developer for up to 99 years, allowing it to collect rent during that time, according to Santa Clara planning documents.
“We want to thank the Planning Commission and City Council for their unanimous support of our phase 1 tentative subdivision map,” Related’s Steve Eimer, head of its Santa Clara project, said in a statement. “It represents another important step forward for the project.”
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The city aims to share those ground-lease agreements with Related over the next two months, Shimko said at the Oct. 26 meeting. Signing those documents and obtaining building permits are the last key regulatory hurdles the developer would need to clear before it can break ground.
It remains to be seen whether Related, mastermind of New York’s Hudson Yards megaproject, will start building its Santa Clara development as soon as it’s able. There may be enough demand for the first phase’s hotel and multifamily components to pencil out despite rising construction costs and interest rates, given the Bay Area’s severe housing crunch and its location across from Levi’s Stadium, which hosts the San Francisco 49ers’ home games and other events.
On the other hand, the phase’s 440,000-square-foot office portion could have trouble finding takers, with Santa Clara’s office vacancy rate at 37 percent at the end of last quarter, according to Cushman & Wakefield data. Convincing one or more lenders to finance that much new office space at a time when the region’s tech sector is pulling back on growth and reducing headcount is a tall order, unless Related can arrange a significant pre-lease for the project.
Company spokesperson Evette Davis said in a statement that Related won’t break ground on the first phase by the end of this year and will have more updates on the project in 2023.
The developer has been busy with contractors on pre-construction work at the project site, the Silicon Valley Business Journal reported last month. It secured nearly $700 million in construction loans earlier this year to build 700 apartments next door to Related Santa Clara. Construction work on the two-building apartment complex is underway and slated for completion by early 2025, underlining Related’s confidence in Santa Clara’s multifamily market.