How City Officials Made an 18-Story Building Disappear
In November 2001, the City of San Jose Finance Department presented a Measure I legal recertification study to the city council. (The Measure I initiative, approved by San Jose voters in 1996, required that a new civic center could only be built if it were cost effective.) The city’s recertification analysis concluded that if commercial lease rates dipped to a level of $28.11 per square foot, building a new complex would not be cost effective, and the city would be obliged not to pursue the construction of the new center planned for Santa Clara Street.
But instead of calculating lease rates on a basis that reflected true market conditions, city staff relied on an industry publication called “Colliers International Market Research” to determine that the average commercial real estate rate for downtown San Jose was around $42 per square foot. This inflated lease rate made it easier to justify the project.
According to a deputy city manager, city staff was not required to investigate real-time commercial rental rates, and instead used “existing contracts.”
At the time, the nearly-completed, empty 18-story Sobrato Tower at 488 Almaden Blvd. was not factored into the equation. Empty buildings, by their definition, don’t have “existing contracts.” By using only “existing contracts,” the Gonzales Administration was able to make the 18-story office tower on Almaden Blvd. effectively disappear!
The Sobrato Tower would later “reappear” in a letter sent by developer John Sobrato to the city manager’s office. “We are fully prepared to guaranty to the city of San Jose a maximum project cost for the entire city hall project…” Sobrato’s letter offered the 388,000 square foot structure at 488 Almaden Blvd. to the city for $160 million. The cost for the entire project package, including a new four-story, 93,000 square foot adjoining structure that would have been built, was submitted to the city for $210.5 million.
“This cost on a per-square-foot basis is over 40 percent less than the current estimated cost for the Santa Clara Street plan,” Sobrato wrote in his May 2, 2002 letter to Deputy City Manager Terry Roberts.
Part 3 follows next week.
Pete Campbell is a former political writer for La Oferta newspaper. He recently served as a member of the Reed Transition Team.