Imagine this scenario: A major symphony orchestra woos an internationally renowned conductor to become its next music director. After extensive, high-tension negotiations, the conductor at last accepts the job. The day after, however, the orchestra discovers something disconcerting: The conductor is tone deaf. Truth be told, she does not care much for music. After the inevitable flap, the conductor withdraws from the contract, citing unspecified "unsuitable conditions." Given this situation, should the orchestra feel disappointed or relieved?
At the risk of over-simplification, the above situation is similar to the collapse of negotiations in March between the San Jose Redevelopment Agency and the Palladium Co., a New York-based retail developer. The official reason for ending 14 months of talks was that the city and the developer together "concluded after careful and detailed review that the market at this time does not support the large, mixed-use project we originally envisioned," according to a statement by Ken Wong, Palladium's western region manager. Although plans for the project remained sketchy, the developer had proposed 500,000 square feet of retail space, a 350-room hotel, 350,000 square feet of office space and 1,000 residential units spread over a five-block area. Estimates of the construction cost ranged from $750 million to $1 billion.
That development sounds appealing for downtown San Jose, which lost much of its original downtown to urban renewal during the 1960s. The city has been rebuilding its downtown almost entirely through redevelopment projects for the past 20 years. That said, the city is better off without this particular project and this particular developer.
I think that the "poor market" excuse claimed by both the developer and the city was a fig leaf. True, the office market has tanked — the regional office vacancy rates are now about 16% in Silicon Valley as a whole — and the hotel business is still suffering from the chill induced by the September 11 attacks. It is also true that the retail market in downtown San Jose is very limited because the city has a small, if growing, base of full-time residents and office tenants who would be the primary patrons of downtown merchants. The large amount of retail proposed by the developer, equal in size to a regional mall, could not compete with real suburban malls less than five miles away. A grocery store, a drugstore and a handful of other businesses that serve locals would do more for downtown right now than one more mall or power center.
Not all parts of the project looked like a bad idea, however. The demand for housing remains strong in Santa Clara County and prices are actually rising on single-family homes in some areas, despite the recession and the "tech wreck."
San Jose Mercury News reporter Mike Zapler in a day-after story, suggested several additional reasons why Palladium's big feet got cold in California. Among the factors that made the developer chafe, according to Zapler, was the potential difficulty in assembling the five-block property that has at least 40 separate parcels. Conceivably, some of the properties needed to be acquired by the redevelopment agency through its eminent domain powers. Zapler also suggested that the city and the developer were at odds over a subsidy, although neither side has ever mentioned a dollar figure. On the other hand, mayoral spokesman David Vossbrink observed that the city has paid subsidies and condemned property in the past, so those issues may not have been deal breakers in themselves.
So what was the true reason for Palladium's departure from San Jose?
One clue is that Palladium expected to build this enormous project all at once. That approach makes sense for a developer that wants the city to hand it a big piece of land so that it could build quickly, lease quickly, and then sell to an investor at a healthy mark-up.
That is the attitude of a suburban developer, not a genuine urban developer. Palladium is a suburban developer in the sense that the company's idea of development is the old-fashioned, greenfield approach: Build a huge project all at once that defines the character of an area and creates a "destination" where one did not previously exist. Palladium calls itself an urban developer, I suspect, because downtown areas are fashionable and because cities with suffering downtowns are prepared to assist, and sometimes subsidize, such projects.
A city, however, is more than a passive staging area for an arrogant mega-project that will define and dictate the character of the city around it. If you want to develop a large portion of a downtown area, you must contend with the reality of cities. Cities are messy and complex. They have many parcels and many landowners. There are historic properties that make master planning difficult, especially when developers want to lay out huge floor areas for national tenants like Gap or Borders or Tommy Hilfiger. There are city officials who are very particular about what they want built in a particular area. My guess is that Palladium did not want to go through the trouble, expense, time and uncertainty to put this large assemblage together and entitle it. When the developer realized that San Jose would be a slow grind, it found a gracious way to withdraw.
The city is currently talking to CIM Group of Los Angeles, which was the runner-up when San Jose officials first chose Palladium. CIM currently is rehabbing a group of buildings on Hollywood Boulevard in Los Angeles. Neither life nor real estate development carry guarantees, but I suspect that CIM, if it takes the deal, will fare better than Palladium because of the former's willingness to embrace urban realities and work with them.
CIM and other experienced urban developers have a good sense of pitch. They can hear the music of the city. Palladium, in comparison, was tone deaf. There is nothing to regret in Palladium's departure except some lost time, maybe, and the annoyance of having negotiated with a conductor who could not carry a tune.
Thanks to the recession and various iterations of the dot-com boom and bust, Silicon Valley has a large, stagnant pool of empty office and light industrial space. The same region is woefully underbuilt with housing. Unsurprisingly, homebuilders are making inroads into the underused office parks and industrial sites in Santa Clara County.
Dammit, it's not fair! Residents of affordable housing get all the lucky breaks. Just look at all the money they're getting from all directions: local government, the local power company, the feds, the green-building lobby. Case in point: the Casa Dominguez development in East Dominguez Hills, an unincorporated area of south Los Angeles County, even has a child care center and a medical clinic, on site.
Remember the cliché about "the deal you can't refuse?" The park-for-a-billboard caper in the city of Los Angeles is just such a deal. I'll tell you about it. (Just as soon, that is, as you put that bottle back in the bag where it belongs. I have no desire to add another item to my institutional resume.)
Granted, the billboard story is hard to explain, because at bottom this deal makes so little sense.
When individuals barter, they generally have a firm sense of underlying value, i.e. "What's this thing really worth to me?" A 10-year-old car might be worth $1,000, to judge from the Recycler or Craig's List. At $20,000, a used car is a bargain only if it is a 1949 Ferrari Spider with the original piping on the seats.
Cities, on the other hand, often appear not to have a sense of "beyond this price we will not go." True, they bargain for big things on which it is hard to pin values, such as stadiums for NFL football and professional soccer. Still, the fact that cities are willing to entertain highly aggressive offers suggests to me that some city officials have a hard time drawing a line between a good deal and a bad one.
Why did nobody tell me that market-rate housing had become a NIMBY issue? Did I sleep this momentous event, just as I sawed a log through the Northridge earthquake? Here I am, bumbling through life as if nothing special is happening, while unbeknownst to me The Walt Disney Company is having one of its most creative moments since it released Dumbo.
The scene is a minor-league baseball stadium somewhere in the Inland Empire. The broadcasters are Ralph and Jim, a pair of middle-aged sportscasters, who are calling a Class-A game for local radio listeners.
Remember the frightening things your mother used to tell you in the name of safety when you were a child? If you went running around with scissors in your hand, you could put out an eye. Or if you went back into the swimming pool too quickly after eating, you could double up with cramps and drown.
The experiences of two developers — one a large-scale master plan developer and the other a smaller, apartment developer — are snapshots of the uneasy relationship between home building and environmental policy in North San Diego County at a time when newly minted environmental laws are racing to keep pace with rapid home building.
While it might be hard to convince some of my left-leaning brethren of the case, the forthcoming auction of El Toro will likely benefit the local community, the military and private business, in that order. The City of Irvine, not known to be a pushover on matters relating to the former Marine Corps base, seems just short of ecstatic about the arrangement.
"Your tax dollars at work!" proclaims a sign at the edge of the road, where a public works project is under construction. If we were to see this sign in Calimesa, a city in the San Gorgonio Pass area of western Riverside County, we might be forgiven for pausing and trying to parse its meaning.