Apple Inc. and the city of San Jose are working toward a development agreement that would allow the Cupertino-based juggernaut to build a north San Jose campus of up to 4.15 million square feet, according to city records — an amount larger than Apple’s “spaceship” campus under construction in Cupertino.
The draft agreement, which is not yet completed, will come before the city’s Planning Commission later this month, officials said. It would lock in development rights — and expectations for both sides — for the next 15 years in an area that sprawls across 86 acres north of Highway 101 across from the Mineta San Jose International Airport.
The percolating deal comes after Apple burst onto the north San Jose real estate scene this year in a series of high-profile leases and sales that included existing buildings and bare land. The work toward a development agreement is significant, as it shows Apple is working swiftly — and not piecemeal — to develop the site.
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To be sure, a development agreement is not an actual project, and does not guarantee all of that space will get built. Apple hasn’t said what it is eyeing the sites for, and it has not yet submitted a formal development proposal. Such deals are standard procedure for large real estate projects, giving applicants certainty for everything from fees to building-height requirements. Cities also like development agreements because they spell out the obligations for the project applicant.
But the Apple deal will be closely watched because it involves one of the Valley's most important companies making its first sustained push into the region's largest city, and connects to a decades-old economic development story arc in which San Jose has traditionally not seen tech's glittering stars set up shop. It's an issue I looked at back in May, before any deals came to fruition.
At this point, though, the Business Journal doesn't have all the details about the agreement. City officials, unusually tight lipped, did not respond to inquiries.
A brief summary of the agreement shows that it would cover three sites: 28 acres that Apple bought from Ellis Partners this summer for $165.8 million; a 43-acre grass field it acquired from Lowe Enterprises for $138 million; and a 16.5-acre parcel currently owned by real estate developer Steelwave.
Apple has leased a 200,000-square-foot building under construction on the Steelwave site, but has not yet purchased it. The development agreement would suggest that is likely in the cards.
All of the sites have existing development capacity which, when added up, is not far off from the 4.15 million-square-foot figure identified in the development agreement. But the agreement suggests Apple is thinking about building out the site holistically, though the phasing of what would get built when is not yet clear.
Also unclear: Exactly what types of buildings Apple might build on the land. Some real estate observers believe Apple might be interested in doing manufacturing there, perhaps for its emerging automotive interests. The agreement gives little away, describing “industrial development, including office, research and development, manufacturing and other related and supporting uses” consistent with the city’s land-use plans.
The development agreement would actually “restate” an existing deal between the city and software maker BEA Systems back in 2004, according to the summary. That deal, which was just for the 43-acre piece Apple bought from Lowe Enterprises, allowed up to 2.8 million square feet of development. BEA, which was acquired by Oracle Corp., never built that project, and the land was eventually sold to developers.
The new agreement would revise the BEA 2004 deal to include the additional parcels. Use of the BEA agreement as a starting point could be advantageous to Apple, since it pre-dates the establishment of much higher development impact fees in North San Jose that came a few years later. It's possible that Apple could pay the lower fees on at least the original 2.8 million square feet, which would save millions of dollars. (Such an arrangement is not unusual, because development agreements are tied to the land, not the original negotiating party.) But that’s speculation at this point, because we won’t know specifics until the text of the actual agreement is released.
“The Development Agreement,” city records state, “includes findings to recognize that the extraordinary benefit to be provided by the project includes the creation of job opportunities for existing residents and a stronger municipal tax base, the expansion into North San Jose of a superior local business presence whose business is particularly suited to the area, improvement of the City’s job/housing balance, and the provision of a water well site to serve the North San Jose area.”
Last month, Apple turned in a rezoning request that sought only to make minor changes to the existing zoning, notably eliminating minimum height requirements for North First Street.
Apple declined to comment.