Google-Lendlease Breakup Signals “Bad News” for San Jose

A decision by Australian developer Lendlease to sail away from $15 billion in homes, offices and shops proposed by Google could push the Downtown West project in San Jose back a dozen years.

So says Kelly Snider, director of the real estate development program at San Jose State University, who said a close reading of the failed Google-Lendlease agreement suggests the Diridon Station project won’t break ground until at least 2035, the Silicon Valley Business Journal reported.

“It’s all very bad news for anyone who cares about a vital and thriving Downtown San Jose,” Snider told the newspaper.

The Sydney-based developer ended its contract with Google early this month to build four neighborhoods in the South Bay after the firm reviewed its real-estate investments.

The projects Lendlease and Google agreed upon four years ago were to include 15 million square feet of new offices, apartments, shops and restaurants in San Jose, Sunnyvale and around Google’s hub in Mountain view. Lendlease had hoped to start work in 2021.

Under the agreement, Google was to build the offices, and Lendlease was to develop the homes, hotels, shops and restaurants.

Downtown West, an 80-acre transit village proposed for Downtown San Jose, was to be the centerpiece of Downtown development, with a plan to build 4,000 homes, 7.3 million square feet of offices, 500,000 square feet of shops and restaurants, a community center and 15 acres of parks. Its economic impact was estimated at $19 billion.

In April, Google slammed the brakes on the project. Last fall, Google Chief Investment Officer Ruth Porat referred to it as “a multi-decade opportunity and development plan.”

This month, Lendlease said its split with Google suggested the latter may no longer be committed to Downtown West, or the other local projects.

“The decision to end these agreements followed a comprehensive review by Google of its real estate investments, and a determination by both organizations that the existing agreements are no longer mutually beneficial given current market conditions,” Lendlease said.

The precise words Google and Lendlease used are key to understanding both parties, said Snider, a professor in the school’s Department of Urban and Regional Planning. Two terms point to the thinking at both firms: “multi-decades” and “mutually beneficial,” she said.

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Google and Lendlease had a 15-year development agreement. When Porat says “multi-decades,” she can claim Google hasn’t given up on the project, suggesting work may not start when originally planned, Snider told the Business Journal

And since Lendlease only makes money from development, the firm likely concluded its Google projects won’t pencil out, Snider said. An end to the partnership means Downtown West won’t start until at least 2035, she predicted.

“If San Jose wants something other than the vacant parking lots (at the Downtown West site) between now and 2040, then someone other than Alphabet shareholders will have to pay for every inch of it,” Snider said.

— Dana Bartholomew