09 Jul Exclusive: Developer buys Union Pacific site for ambitious mixed-use project at gateway to downtown San Jose
by Nathan Donato-Weinstein
Silicon Valley Business Journal
Thousands of motorists every day whiz by the 10.6-acre parcel of bare land just off Highway 87 at the edge of downtown San Jose. But it has long been overlooked as a development site.
Not anymore. Last week, Insight Realty Co. acquired the brush-covered site from longtime owner Union Pacific Railroad. Its vision: An ambitious combination of “creative office” and apartments that Insight managing director Dennis Randall says will create a balanced ecosystem of jobs and residents in a riverfront setting. Working title? Railyard Place.
We want this to be a walkable, pedestrian urban village,” Randall said in an interview. “This is not a car project. It’s a people project.”
Insight paid about $7.75 million, or just under $17 per square foot, for the land, public records show. That’s a relative bargain for more than 10 acres in the heart of Silicon Valley, but the price also reflects some risk. The land is unentitled, and the project will need approvals that are not guaranteed.
Perhaps more significant for the market, however, is Insight’s bold bet that downtown is ready to expand over the freeway.
“What they’re doing is testing the ability of the city to jump the freeway,” said Mark Ritchie of Ritchie Commercial, which specializes in the downtown office market. “The freeway is a murderous barricade. But downtown is so small, it can be doubled by jumping the freeway, provided that the tenant base will do so.”
Insight has yet to submit a formal proposal to the city, but Randall said the concept is to build about 240,000 square feet of office closest to the freeway, complemented by about 650 apartment units fronting the Guadalupe River trail. Retail would also be in the mix.
On the office side, Insight is considering an industrial-chic design that recalls a kind of factory building complete with a sawtooth-style roof. But the key selling point is the wide-open interiors that today’s tech tenants are seeking: large floor plates of around 40,000 square square feet and huge ceilings 18 feet tall.
“It’s bigger than what we have in downtown right now,” said Randall, who has a view of the site from his eighth-floor office at 333 W. Santa Clara St.
Randall knows a thing or two about the city’s office market, having worked on the development of the 225 W. Santa Clara St. trophy tower for Opus West in the early-2000s. His current firm, Insight, was formed more recently and includes development veterans John Pringle and Matthew Love, with entrepreneur Vincent Woo. The company is focused on a wide spectrum of commercial real estate investments including ground-up development, adaptive re-use of obsolete buildings and value-add renovations.
The Union Pacific site speaks to the company’s willingness to take on deals with unique challenges. In this case, a significant obstacle is access: The land is bounded by a freeway to the east, a rail line to the south, an electric substation to the north, and a river to the west. Height restrictions, thanks to the airport’s proximity, are also in place.
Randall isn’t deterred, noting a pedestrian and bike bridge over the Guadalupe would connect the site to the bike trail and link the project to Diridon Station. Future roadway improvements to Autumn and Julian streets — coupled with the massive North San Pedro plan across the freeway— will also better weave it into downtown.
“It’s a large urban site with phenomenal freeway visibility,” Randall said. “I think it’s one of the most important pieces in downtown San Jose.”
Ritchie agreed: “Access is perplexing, but once all those streets are realigned in that neighborhood, and they complete Autumn Street, it will rationalize the streets and make it more obvious how it’s connected.”
While experts agree that the project’s residential component would be successful, the depth of office demand in this area is unclear. The largest office project nearby is the Sobrato Organization’s 290,000-square-foot River Corporate Center, adjacent to the Railyard Place parcel. It was built in the 2000s and has not been followed by additional construction.
But Randall said the market is ready for the office, especially because large tech tenants are seeking proximity to housing and services. “Every property now has to do double duty,” he said. “We’re getting work balanced with life.”
Another question is whether the project could be developed with a residential component at all. It is currently zoned for commercial use only, and city officials have resisted recent developers’ requests to build housing on land primarily zoned for jobs.
“It brings up a policy question,” said Michael Brilliot, a planning division manager for the city of San Jose. “It’s something we have to put our heads together and have a conversation about.”
Randall said the residential component is needed to obtain financing for the office element, given the strength of the housing market and uncertainty over office. And the office proposed in the Insight plan isn’t anything to sneeze at, either.
“They work well together,” Randall said. “If it were all office, it’s too much office. If it were all residential, it doesn’t work because it’s too close to a freeway. … Ultimately, the site and the spot has a demand of its own. So instead of forcing our mode onto a site, we’re letting it tell us what to do.”
Nanci Klein, deputy director of the Office of Economic Development, said access issues needed to be addressed. She noted the importance of increasing the city’s jobs base, highlighting the importance of the office component. But getting something built on the land would definitely be a good thing, she said.
“The city would love to see the site developed, and we look forward to the opportunity to grow jobs in the city,” Klein said.
Insight hopes to have the policy questions settled quickly so it can bring the project to market as soon as possible.
“This is the kind of thing that can happen in this cycle,” Randall said. “We have to change the conversations about what’s going on downtown. That’s why we’re doing this.”
