Gary Dillabough may have plans to develop or revamp some of the most anticipated projects and buildings in downtown San Jose, but he doesn’t like to think of himself as a developer.
“Hopefully we’re people who can create an urban community or great user experiences,” said the 55-year-old real estate and venture capital investor. Dillabough, along with real estate guru Jeff Arrillaga, founded and leads a company called Urban Community, which captures the legacy he’s hoping to create as an “urban community builder.
“If we do our jobs well, that’s what people, hopefully, will say,” he said.
And while San Jose’s downtown revival story has been dominated by talk of Google and its mega campus plans, the momentum started well before the tech titan announced in 2017 that San Jose was the next “it” place.
Dillabough is part of a tenacious group of investors and developers — or urban community builders — who have been laying the foundation in recent years for San Jose’s downtown growth after several false starts.
Downtown enthusiasts say this time, the momentum is real and lasting, and while longtime developers in the area have been critical to the city’s success, downtown has been buoyed by a new generation of investors who have visions for the commercial core that reach far beyond their own property lines.
Downtown San Jose has more than 30 development projects in its pipeline totaling more than 23 million square feet of potential new office space, 7,600 new residential units and more than 650 new hotel rooms, according to Business Journal research. Those numbers include projects that have been proposed, entitled or are under construction.
Scott Knies, executive director of the San Jose Downtown Association, says the current momentum started a few years ago, when new investors began picking up and reimagining Class B buildings that had sat underutilized for decades.
“Speaking to this new generation of owners, they were coming in with entirely different expectations,” Knies said. “They were trying to look at, ‘Well, this district is kind of dead during the day, so we need more offices here.’”
Gary Dillabough is part of a tenacious group of investors and developers — or urban community builders — who have been laying the foundation in recent years for San Jose’s downtown growth after several false starts.
When Dillabough talks about his downtown projects, for instance, he can spit out stats on square footages and parking ratios, but he’s just as quick to draw or pantomime a map filled with paseos and maybe a fountain or two. He muses about retail that may or may not end up in his buildings and is working on new ways to get community members invested — both personally and financially — in his projects. He wants to start a voluntary program for property owners to help out with homelessness in the city.
Urban Community is behind downtown projects like the historic Bank of Italy revamp, a project that will span most of the surrounding block near North First and East Santa Clara streets. That corner has the potential to be downtown’s “main and main,” said San Jose Downtown Manager Blage Zelalich.
Also on that corner is a onetime JC Penney’s store that sat underutilized for years, with the ground level walled off from pedestrians. That was until Lift Partners picked it up as part of a larger portfolio in 2016. The development group set out to make the 101,000-square-foot building a choice location for creative office tenants and landed a lease for the ground level that will bring the first Blue Bottle Coffee shop to the South Bay.
“There’s a lot of momentum behind it now, but when we were doing it, it took a lot of convincing of retailers, investors and lenders to believe in the story,” said Chris Freise, managing partner and co-founder at Lift Partners. “Selling it kind of snowballs, so you get the Blue Bottle, and Blue Bottle led to other retailers believing that this was an up-and-coming area.”
Chris Freise from Lift Partners, pictured here in 2017, is one of a new generation of younger developers who are buying up and revamping older buildings in downtown San Jose.
Freise is also part of a new generation of owners that had begun investing back in 2016, before Google was a glimmer in most downtown San Jose onlookers’ eyes. That’s when they they picked up a three-building portfolio from Saratoga Capital for $33.5 million. Since then, the group revamped and helped find tenants for the buildings, then sold the portfolio piecemeal for a combined $72.5 million.
“What tenants want was all here, they just didn’t know it,” Freise said. “You couldn’t convince an office tenant to come tour San Jose that was coming from Mountain View or Sunnyvale, but that is not the case anymore.”
Other steadfast downtown San Jose investors and developers have helped the area get to where it is today. Depending how far back one wants to look, the list includes, but is not limited to, The Sobrato Organization, JP DiNapoli, Lew Wolff, Richard Berg, the late Jim Fox and John McEnery, who built the popular San Pedro Square food hall.
Longtime San Jose developer Swenson has a master plan for the city’s Guadalupe River, where the company doesn’t own the land it’s proposing for redevelopment. The effort, unveiled in late 2017, was led by Swenson President Case Swenson.
“There are still some of those kind of original, old-time investors,” Zelalich said. “But there certainly has been, over the last two to three years, this infusion of new blood interested in investing in downtown in a small-scale way, but that makes a very large impact.”
Downtown San Jose development by the numbers
Development projects: 30-plus
Potential new office space: 23 million square feet
Potential new residential units: 7,600
Potential new hotel rooms: 650
Meanwhile, bigger players have started to enter the scene since Google said in 2017 that it plans to build a tech campus on downtown’s far west side.
The one that made the biggest headlines this year was prolific San Francisco-based developer Jay Paul Co., which purchased the 600,000-square-foot CityView Plaza in July for $283.5 million, and then picked up the former JC Penney building for $46 million.
Those purchases marked Jay Paul’s first entrance into San Jose. Not long after the deal closed, the company said it plans to redevelop the nearly block-long mixed-use CityView Plaza, likely into something much larger.
And while investors and city officials agree both Google and Jay Paul’s entrance to downtown is critical to the area’s future growth and momentum, their presence also means the secret is out about San Jose’s new cool status. That comes with some drawbacks.
Most notably, land prices have surged since Google’s interest in the city was revealed in the summer of 2017. New investors have entered the market, paying top-dollar for existing buildings with room for improvement and some developers, like Jay Paul, are moving ahead quickly and confidently.
But that means some of the people who laid that foundation — who invest on a smaller, but impactful scale — are feeling the squeeze. Freise acknowledges that it’s gotten harder, but maintains “there’s still opportunity.”
Dillabough, for his part, says he’s planning to hold back on scouting new deals because of how high land prices have climbed in the last few years. “The pricing just doesn’t make much much sense to me anymore,” he said. “But it’s great that Google came down. Google wasn’t a factor at all in why we came down here, so that was a nice validation.”