Blaze in San Jose Another Blow to Struggling Area
Its cause still unknown, the fire that ripped through the construction site of a new upscale development in San Jose on Monday was yet another glaring setback to a region that is already smarting from the high-tech economic slowdown.
“This probably had more of an impact on the psyche of the city than on its financial situation,” San Jose Mayor Ron Gonzales said of the blaze, which destroyed 246 luxury apartment units and damaged 36 businesses at Santana Row, the most ambitious mixed-use development project in the city’s history. “This was a very exciting project, and there are thousands of people who were going to be employed there and are now unemployed. In that sense, it’s a blow and it’s hard to take.”
Embers from the 11-alarm fire also ignited fires that damaged or destroyed 43 apartments and homes nearby, forcing about 130 people from their residences.
The building that burned was the largest structure in the 538,000-square-foot first phase of an ambitious 42-acre project. The lower levels--including retail stores, five restaurants and 940 parking spots--were left standing. The apartment units that comprised the top levels of the structure were completely destroyed.
The first phase of Santana Row had been scheduled to open Sept. 19. Developers vow to rebuild, but a new opening date has not been set. In all, an estimated 20% of the development was damaged. Executives of the project’s Maryland-based developer, Federal Realty Investment Trust, pledged to have many of the stores open in time for the holiday shopping season.
Conceived in the Silicon Valley boom times of the late 1990s, the audacious Mediterranean-style project is to include 1,200 units of luxury rental housing, 680,000 square feet of retail space and a 213-room hotel. Touted as a very high-end shopping destination, it has risen conspicuously in the heart of an otherwise working class neighborhood in San Jose.
About 80% of the commercial space at Santana Row has been rented so far, and none of the planned tenants have pulled out in the wake of the fire, said Tom Miles, the property’s general manager.
Though Santana Row has garnered attention from urban planners for the project’s innovative mixed-use blend of residential and commercial space, retail and real estate experts have expressed reservations about its prospects since the region’s economic slowdown began about two years ago.
Santana Row is situated directly across from Valley Fair, another high-end shopping mall owned by the Westfield Group. Observers questioned whether the giant new project would be able to draw enough retailers--and customers--to make the sprawling development profitable.
“This project was past the point of no return before the downturn happened,” said Matthew Ostrower, a retail real estate investment trust analyst for Morgan Stanley Dean Witter. “I think there is still [an] attractive demographic base that will use the type of space and the type of tenants that Santana Row is going to produce. The question is, is there enough of them to satisfy the needs of retailers in both Valley Fair and Santana Row?”
“All the planning took place in the bubble period when the money was flowing and the sky was the limit. That’s not happening anymore,” said business professor Dale Achabal, director of Retail Management Institute at Santa Clara University. South bay retail has been hit pretty hard by the recession, and the area is not experiencing a lot of growth, he said.
Indeed, retail sales in the region have dropped precipitously in the last couple of years, leaving many cities in and around Silicon Valley with unexpected deficits. In San Jose, sales tax revenues in the last quarter were 20% less than in the same period last year.
“We have taken a tremendous hit,” Gonzales said.
He attributes most of the decline to a steep drop in business-to-business sales revenue, not a slowdown in retail.
Residents and city officials had high hopes that Santana Row would bring a much-needed economic boost. The project was expected to bring about 1,200 jobs by the time of the planned September opening. Over the next two years, the city was projecting about $1.5 million a year in new sales tax revenue from the project, out of a total revenue stream of $144 million.
“It would have been a bump that we could use as a city,” said San Jose Councilman Ken Yeager, whose district includes Santana Row.
Fire investigators turned control of the fire-ravaged property back to the developer Friday. So far, they don’t know what caused the blaze. Although there is no indication of foul play, an anonymous tip line has been established, and a $5,000 reward is being offered for conclusive information about how the fire started.
More than 100 witnesses and construction workers have been interviewed, said Battalion Chief Greg Spence of the San Jose Fire Department. “If you ask them a question, they give you an answer. But there’s nothing extra. We feel that if there’s someone who knows more, maybe they are afraid to come forward.”
