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Old Posted Oct 29, 2007, 6:13 AM
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North San Jose rezonings set table for 998 apartments, homes

Friday, October 26, 2007
Silicon Valley / San Jose Business Journal - by Sharon Simonson

San Jose has approved another massive land-use change for nearly 50 acres near Highway 237 as part of the rapidly unfolding redevelopment of the city's most-important industrial cluster along the North First Street spine.

Sought by semiconductor equipment-maker Novellus Systems Inc., which owns the bulk of the underlying property, two rezonings will bring 998 high-density apartments and homes to two sites occupied by older industrial buildings.

At the same time, the city has agreed to increase by three times the development capacity of the 27-acre industrial parcel where Novellus' world headquarters is located, pushing it to more than 1.2 million square feet from 419,000 square feet now.

Approval came over the objections of residents in the area, who do not believe the city has adequately planned for the locations of new parks, schools and other community amenities in its efforts to remake 5,000 North San Jose acres. However, as part of its offerings to the city to obtain the changes, Novellus agreed to dedicate five acres for a community park across from its headquarters and an acre next to one of the housing developments for a neighborhood park. The company also agreed to spend $3 million for park improvements and $1.5 million for park maintenance.

The Novellus changes are but the latest that the city has ratified along the North First Street corridor in recent months. Together, the modifications promise to transform the area's aesthetic, now characterized by low-lying, often older office and research and development buildings. Recent housing approvals, including the Novellus changes, shows nearly 5,000 new apartments and condos are slated for construction, all of them high-density and mid-rise or higher. Others are in the entitlement pipeline.

For instance, further south along North First, in proximity to a light-rail stop, Mill Valley-based developer Thompson/Dorfman is seeking to build 1,600 single-family and multi-family attached homes, 40,000 square feet of shops and restaurants, and eight acres of public and private parks at 3469 N. First. The site is immediately adjacent to the enormous North Park Apartment Village, which has 2,700 units and is owned by Southern California's Irvine Co. Irvine is also preparing to build 1,800 units on a former Sony Electronics Inc. site, also nearby.

The area has little residential now.

A smattering of new industrial development also has been approved, though development pressure from the industrial side has only begun to materialize in the last several months. Right now, developers Legacy Partners, Tishman Speyer and Boston Properties all have pending requests before the city for new office development in North San Jose totaling nearly 2 million square feet. Novellus has secured its industrial development rights for 20 years, and does not appear to have any immediate plans for expansion.

The tracts adjacent to 237 and North First have proven a locus of activity. Besides the Novellus rezonings, Cupertino developer Hunter-Storm has begun scrapping dirt on 39 acres fronting Highway 237 and immediately north of the Novellus headquarters. That site is to be home to a 160-room hotel, 250,000 square-feet of new retail, including a Target store, and some 890,000 square feet of offices.

Chicago-based real estate investment trust Equity Residential, in a joint venture, is the slated developer for the housing approved as part of the Novellus application. Equity, one of the largest apartment owners and operators in the country with 165,000 units, is expected to pursue the projects in the next two years. Investment in the development is expected to exceed $400 million. The company owns over 6,900 apartments in the Bay Area, a company spokesman says. It has 1,866 units in the South Bay.

Novellus declined comment.

However, land-use consultant Erik Schoennauer of The Shoennauer Co. in San Jose, who represented the semiconductor equipment maker, says the changes were key to the company's future: "Novellus has been very clear that this whole package makes them more competitive as a company in retaining and recruiting employees," he says.

Surveys of Novellus workers show that significant percentages are interested in using the community park during lunch and after work, Schoennaur says. The nearby housing "also would allow people to walk to work," he adds.

Novellus occupies 750,000 square feet on North First Street. It has 1,200 employees in North San Jose and 3,300 worldwide, the city says.

Novellus' development agreement with the city does not prohibit it from selling the land to which the new industrial entitlements attach, Schoennauer adds.

The company did not disclose details of the land-use changes as material events during a conference call with analysts Oct. 23 to discuss its third-quarter financial results, nor do public records reflect the sale of the two new housing sites.

However, there is little doubt that the city approvals increased the value of Novellus' land holdings substantially. Industrial property, for instance, is worth approximately $40 a square foot while land designated for high-density housing is worth $80 a square foot to $100 a square foot.

SHARON SIMONSON covers real estate for the Business Journal. Reach her at (408) 299-1853.
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