Economic effect still isn't clear

Silicon Valley/San Jose Business Journal
Sharon Simonson and Timothy Roberts
Published: March 21, 2005
------------------------------------------------------------
The new $388 million San Jose Civic Center is scheduled to open downtown
this fall and spark an economic revival on East Santa Clara Street, but
that won't be soon enough to help copy shop owner Vien Tan.

Mr. Tan, whose Tan Tien Publications sits in the shadow of the 18-story
edifice, is moving. His business is eeking out sales of less than $200 a
day, and he has lost faith in the city's plans for economic rejuvenation
of the area, once populated primarily by Vietnamese-owned businesses.

"For the last couple of years, the economy has been going down, and then
we've had all of this construction, and we don't have any parking any
more ... " he says. "We've lost so many customers."

With just six months to go before it opens, the new Civic Center has
spurred little of the private-sector investment promised by city
officials and downtown boosters. Only two developers have revealed plans
to capitalize on the city's investment: Barry Swenson Builder and Los
Gatos developer Michael Shadman. The Swenson firm and the First United
Methodist Church hope to build a 140-unit high-rise condo building at
Fourth and East Santa Clara streets. Mr. Shadman is planning a
medium-rise office building on Fourth Street facing the Civic Center and
condominiums facing Third Street.

From the start, a new City Hall downtown was sold as an
economic-development tool. In 1996, for instance, the campaign for a
ballot measure to allow the city to move its offices from North First
Street to downtown, proponents said it would boost business.

The city used the San Jose Redevelopment Agency to buy and clear the
land for the new Civic Center. But in 2001, the California Court of
Appeal ruled that redevelopment agencies could not participate in
building city halls. The Civic Center had been included in a 32-acre
redevelopment project "intended to revitalize and stimulate growth," the
court wrote.

In 2002, when the city had to defend its choice of a move downtown, the
city manager's office declared, "This site was selected because of its
location and ability to attract private development to this area of
downtown."

In a memo to council members at the time of the challenge, Mayor Ron
Gonzales said the new civic center would save money, improve services
"and support long-term community development goals."

Mr. Gonzales did not respond to requests for an interview for this
article.

Eighth-District Councilman Dave Cortese, however, argues for a longer
view, saying that long-time downtown property owners are holding on to
their land until just the right moment, a moment that will come sooner
because of the stimulus effect of the Civic Center.

"It'll happen," he says. "I think there is generally a delayed reaction
(to projects like this one)."

But so far the new $385 million Civic Center is proving anything but an
economic stimulus for the retailers at its flanks. Three of the 11
storefronts in Mr. Tan's tiny strip center are vacant. An eyewear store
next to Mr. Tan's business closed 14 months ago and the space remains
empty; a second store closed in the last month. A third storefront has
been empty for more than a year. A worker in a beauty parlor two doors
from Mr. Tan says they're also contemplating a move because business is
so bad.

Visitors to the Albertson's directly east of City Hall are unlikely to
see improvements to that store's appearance soon either. A spokesperson
for the Idaho-based grocer says a mid-2003 company promise to invest $4
million to upgrade the tired, 31,000 square-foot store is no longer in
the offing. She declines to say if concerns about returns on that
investment are an issue but does say it's a factor in any such decision.

The new City Hall "is definitely a step in the right direction," says
Quyen Ha of Albertson's public affairs office, but the company is unsure
about putting its own money to work nearby. "We still remain committed
to having productive conversations," she offers.

A search of 144 parcels on 12 blocks surrounding City Hall, done
exclusively for the Business Journal by Stewart Title Co. to identify
ownership changes, shows no flurry of commercial property sales in the
last five years, contrary to expectation were there private investors
anticipating an economic bounty.

Not everyone at City Hall is a believer.

"The economic impact was oversold," says council member Chuck Reed. "We
always argue according to the Big Bang Theory and there is no big bang.
You have to do it piece by piece and block by block."

"I've never believed it would be a catalyst for new development," says
Linda LeZotte, the council member representing the 1st District. But,
she adds, the 1,700 city workers will bring cash to spend on lunches and
dinners when the building opens this fall.

There is a respectable argument to be made -- and City Hall proponents
are making it -- that it's too soon to evaluate the economic impact.

"The market is waiting to see what opportunity arises from having 1,800
new people working downtown," says John Weis, deputy executive director
for the San Jose Redevelopment Agency.

"I personally think that City Hall will open and everyone will be
flabbergasted at how wonderful it is. People will be drawn to it and the
public space out front and will say, 'This is a great thing,'" he adds.

Other developments around the site are bound to help, says Scott Knies,
executive director of the San Jose Downtown Association.

"I think the perspective for East Santa Clara Street is not just about
City Hall. I think you also have to think about BART going down Santa
Clara Street and what the expansion at San Jose State University means
and the redevelopment of the (San Jose Medical Center) site," he says.

Silicon Valley appraiser Norm Hulberg says there have not been enough
property sales in the area to statistically establish whether values
near City Hall are changing. He adds, however, that City Hall, as a new,
state-of-the-art structure, is far better for values than the buildings
that previously occupied the Civic Center site.

"They tore down a lot of very old, very modest structures and are
putting up a very modern expensive structure. There's no question that
has a favorable influence on surrounding property values," he says.

But even a $388 million City Hall designed by world-renowned architect
Richard Meier can't create demand for new office towers. Residential and
retail development nationally is hot; office towers are not. The capital
of Silicon Valley is no exception.

Downtown developers of high-rise condominium towers are falling all over
themselves to put up nearly a dozen towers, including the two next to
City Hall. Atlanta's Cousins Properties is building a 360,000
square-foot retail power center anchored by Target immediately north of
downtown, partly in anticipation of the shopping needs of the thousands
of new downtown residents.

In contrast, with a quarter of the office space downtown vacant, no
developers are moving forward with new downtown office construction.

Randy Shortridge, a vice president, urban designer and architect for
RTKL Associates in Los Angeles, says mostly what City Hall needs, if
it's going to work any magic, is time. RTKL has a long history in
downtown San Jose, helping design master development plans more than 20
years ago and more recently helping Hollywood's CIM Group with its
downtown retail and housing developments.

"Is economic growth going to happen just because of City Hall?," he
says. "No. But will it happen because of City Hall and the museums and
public spaces?

Yes.

"But it will take 20 or 30 years."

This article can be found at http://sanjose.bizjournals.com/sanjose/stories/2005/03/21/focus2.html

Posted by Coalition Webbies at March 22, 2005 01:09 PM