Google’s construction site on its future megacampus in San Jose stands idle as the company halts development amid cost cuts.
Jennifer Elias
In June 2021, Google received approval to construct an 80-acre campus with 7.3 million square feet of office space in San Jose, California, the third-largest city in the country’s most populous state. The estimated economic impact: $19 billion.
The timing couldn’t be worse.
The last decade-long tech boom was almost over, and the next 12 months was set to be the worst for tech stocks since the 2008 financial crisis. Rising rates of interest and recession-related issues pushed advertisers to cut spending, which limited Google’s growth and compelled management to cut costs dramatically for the first time in the company’s history.
The town of San Jose could also be now paying the price. What was intended to be a mega-campus called “Downtown West”, with 1000’s of recent apartments and 15 acres of public parks, is essentially a demolition zone facing long-term visual impairment and economic null. CNBC has learned that as a part of Google’s downsizing, which went into effect earlier this 12 months, the company has gutted its San Jose campus development team.
Construction, which was due to start before the end of 2023, has been put on hold and the contractors haven’t been presented with a plan to resume construction, said people acquainted with the matter, who asked to remain anonymous. – information contracts. While sources are optimistic the campus will probably be built sooner or later and have said Google officials have expressed their commitment, they’re concerned the project may not reach the scale promised in the original master plan.
The Mercury News, one in all the major newspapers in Silicon Valley, previously reported that Google is re-evaluating its timeline. Sources told CNBC that the company began signaling contractors late last 12 months that the project might face delays and changes.
In February, LendLease, the project’s lead developer, laid off 67 employees, including several community engagement managers, according to documents reviewed by CNBC. The layoffs included senior development managers, the head of business operations and other executives.
Google also removed construction updates from its project website last month, according to internal correspondence reviewed by CNBC.
A LendLease spokesperson said in an emailed statement that the company stays “committed to creating thriving mixed-use communities in the Bay Area, including Google’s growth” and continues to have a “significant team to help deliver these communities.”
Google, owned by Alphabet, is embarking on the most serious cost cuts in its nearly 20 years in the public market. The corporate said in January that it did cut 12,000 jobsrepresenting around 6% of the workforce, to bear in mind a slowdown in sales growth after the increase in the variety of employees before and through the Covid pandemic.
A few 12 months ago, Google announced it will invest nearly $10 billion in at the least 20 key real estate projects in 2022. By then, the company had already accomplished much of its multi-year acquisition of land in downtown San Jose for its future campus.
Money comes ‘when the cranes are in the air’
The situation modified in a rush. On Alphabet’s fourth-quarter earnings call in February, finance chief Ruth Porat said the company expects to incur costs of around $500 million in the first quarter to cut global office space, and warned that it could there are other property fees.
While the tech industry is struggling to adapt to a post-Covid world that appears to be more hybrid and fewer centered around large campuses, Google is in a very precarious position due to its massive commitment, financial and otherwise, to changing the landscape of a big area city.
“We’re working to be sure that our real estate investments meet the future needs of our hybrid workforce, our company and our communities,” a Google spokesperson said in an emailed statement. “While we evaluate how best to move forward with Downtown West, we remain committed to San Jose for the long run and imagine in the importance of development.”
Google spent several years planning the complex in San Jose and invested heavily in attracting the local people. The opposition in some circles was so fierce that in 2019 activists chained themselves to chairs in San Jose City Hall over the decision to sell public land to Google. Years of efforts to address community issues have resulted in support from a few of the project’s staunchest opponents.
To win over the community, Google has dedicated greater than half of its campus to public use and has offered $200 million a package of social advantages that included resettlement funds, job placement training, and powers for community leaders to influence how that cash was spent.
While some advantages to the community have already been delivered, most are due to be distributed once the office space is developed. Google also promised to construct 15,000 housing units in Silicon Valley, 25% of which were deemed “reasonably priced,” a critical issue in an area with one in all the largest homeless populations in the country, according to government statistics. About 4,000 of those apartments were to be built in Downtown West.
“All of us knew initially it was going to be a long-term plan,” said San Jose council member Omar Torres, who represents the downtown area. San Jose highlight in February. “But yeah, it’s definitely worrying that plenty of money comes in when the cranes are in the air.”
The Google construction site stands idle on a Tuesday afternoon.
Jennifer Elias
The demolition phase of the project eliminated a variety of San Jose’s historic landmarks and compelled the relocation of others. The 74-year-old dancing pig sign for Stephen’s Meat Products had to be moved and only a small a part of the old bakery constructing remained.
Patty’s Inn, an 88-year-old beloved pub, didn’t survive demolition.
“It is a dive bar, but I never considered it as a dive bar. It was just Patty’s Inn.” – Jim Nielsen, Executive Director at RBC Wealth Management and longtime patron of the bar told Mercury News then. “It’s hard to watch these places disappear because they can not get replaced.”
The brand new campus was expected to bring about 20,000 jobs to the city.
Empty swaths of earth
CNBC visited the site several times during a traditional workday in April to see tracts of land where old buildings had been replaced by cranes, tractors and other construction equipment in a fenced-in area. Nobody was working on site.
Construction projects of this scale take an extended time. Google initially said it will likely take 10 to 30 years to construct the campus, so it still has significant headroom to resume development.
LendLease said in 2019 that it had struck a $15 billion cope with Google to spend the next 10 to 15 years redeveloping the company’s properties in San Jose, in addition to nearby Sunnyvale and Mountain View, where Google is headquartered.
“LendLease will probably be instrumental in delivering at the least 15,000 recent homes on our land,” said David Radcliffe, Google’s then-head of real estate, in a press release.
But Radcliffe left Google at the end of 2022 after 16 years with the company. He was replaced by Scott Foster, who previously headed global real estate for financial firm RBC. Sources acquainted with Google’s real estate projects described Foster as expected to be more conservative in spending and more likely to scale down the campus, especially in the face of cost-cutting efforts.
With construction on the site now stalled, San Jose sits without an expected headline tenant in a vacant downtown area. Dozens of suppliers and contractors who’ve been waiting for work are focused on other projects, waiting to see what happens next.
The mood is removed from what it was lower than two years ago, when Governor Gavin Newsom stood next to Google’s senior vp Kent Walker at an event in San Jose ahead of the city council meeting that will resolve whether the project could be approved. Newsom seized the opportunity mark SB7draft act on accelerating the construction of apartments and development projects.
Newsom and officials have repeatedly cited Google’s proposed mega-campus for example of the state’s economic “return” following the Covid pandemic.
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