CED AGENDA: 6/26/17 ITEM: D (4)

CITY OF SAN JOSE Memorandum CAPITAL OF

TO: COMMUNITY & ECONOMIC FROM: Blage Zelalich DEVELOPMENT COMMITTEE

SUBJECT: DOWNTOWN PROGRESS DATE: June 19, 2017 REPORT

Approved Date 1%

RECOMMENDATION

Accept this informational report highlighting Downtown progress from August 2016 - June 2017.

OUTCOME

The Committee will receive a progress report related to Downtown commercial and residential development, economic vitality initiatives, public life and place making, clean and safe activities, special events, and convention and cultural activities.

BACKGROUND

Vibrant and successful city centers include four key components - work environment, urban living, arts and entertainment, and shopping and dining - connected through the public realm.

A vibrant city center is eclectic, interesting and inviting; has strong commercial and residential development; is socially, economically and ethnically diverse; is easily accessible from, a variety of transit; has a healthy mix of land uses; and attracts a variety of talent. is Silicon Valley’s city center, its only true urban environment. To this end, the City is committed to thoughtful but aggressive growth and planning efforts Downtown. A fulltime Downtown Manager, embedded within the Office of Economic Development (OED), allows for a central point of contact between city departments as well as a liaison for external partners and stakeholders on all Downtown-related matters. COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE June 19,2017 Subject: Downtown Development Update Page 2

Framework for a Vibrant City Center

Over the past eleven months, Downtown San Jose has enjoyed significant positive momentum due to its growing amenities, proximity to transit options, and attractiveness to a highly talented workforce. Based on the most recent demographic data available (2014), Downtown has a higher concentration of Millennials than the city as a whole, and has seen faster population growth than the rest of the city (4.2% versus 1.2% growth). Forty percent of Downtown households have disposable income over $75,000 and Downtown boasts 180 tech companies and has 1,138 residential units under construction. The distribution of Downtown businesses by sector is approximately 34% professional services; 22% real estate; 21% retail; 8% tech; and 15% general commercial, non-profit and government.

The Downtown Strategy 2040 EIR is a critical update currently underway that will evaluate the impacts of construction of Downtown development projects at a program level to approximately 2040. The Downtown EIR will enable an increase in both commercial development (up to 15.6 million square feet and 3,600 hotel rooms) and residential development (up to 14,360 units) in the approximately three square miles bounded by Taylor Street, San Jose State University, Interstate 280 and the Diridon Station Area. The Downtown Strategy EIR is scheduled for completion this year.

ANALYSIS

Work Environment There are approximately 40,000 jobs in Downtown San Jose. The vacancy rate for Class A office space is quickly dwindling. According to Q1 data from Cushman and Wakefield, Class A vacancy currently is 10.8%, a level that hasn’t been achieved since 2008. This leaves only 434K COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE June 19,2017 Subject: Downtown Development Update Page 3 square feet available. The average rate for Class A office space is $3.5/square foot. The Class B vacancy rate is a bit higher at 15.7%, creating an overall commercial vacancy of 13%, with a market rent range of $1.25 -$4.50.

New investors have entered the Downtown market, purchasing buildings that have long languished in the heart of the commercial core. These investors are committed to rehabilitating and re-tenanting their newly purchased buildings and share the city’s Downtown vision. Most notably, Lift Partners purchased all but one of Saratoga Capital’s Downtown commercial holdings, including 100,000 sq. ft. at the corner of First and Santa Clara streets and the building at the corner of Second and Santa Clara streets. Lift Partners now owns five Downtown buildings. Divco West and local investor Gary Dillabough purchased 2 W. Santa Clara Street (Walgreens building) in March for $14.4M. Dillabough has also purchased 150 E. Santa Clara Street and the former Camera 12 building and ground lease with Imwalle Properties.

Prominent leases executed over the past year include co-working leader WeWorlc taking 75K sq. ft. at the corner of Second and Santa Clara streets. Amazon entered the Downtown market by moving an initial group of employees into 20K sq. ft. at WeWorlc. Unicorn start-up Okta set up shop in the long vacant RiverPark Tower 2 and software developer Wrilce relocated their headquarters from Mountain View to 10 Almaden. Zoom Video Communications, in 55 Almaden Blvd, is one of the fastest-growing Downtown companies with its valuation jumping fourfold in January to $1B, after receiving $100M in venture capital funding.

Approved in 2014, the Diridon Station Area Plan (DSAP) allows for significant office, retail, hotel and residential development. Since December 2016, Trammell Crow and affiliates acquired several properties in the central zone of the DSAP. On June 6 the City announced its intention to enter into an exclusive negotiating agreement with Google for acquisition of properties owned by the City of San Jose and properties owned by the Successor Agency to the Redevelopment Agency in the Diridon Station Area for the potential future construction of 6M- 8M sq. ft. of mixed-use, transit- oriented development.

San Jose State University (SJSU) is Downtown’s largest employer and land owner and the nation’s largest urban university in a major city. SJSU inaugurated its new president, Mary Papazian, on May 4 and officially began a new chapter in the relationship between Downtown, the City of San Jose and SJSU. City and SJSU executives and staff have pledged a renewed commitment to strategic collaboration, planning, and communication.

Urban Living There are approximately 10,000 residents living in the immediate Downtown core bounded by Fourth Street, Julian Street, and highways 280 and 87, and approximately 22,000 residents when these boundaries are extended further east and south. In order to realize its true potential as an active and vibrant urban core, Downtown must attract significantly more residents. Approximately 500 residential units opened in the past year: The Pierce, Donner Lofts, and 27 North student-oriented housing. An additional 1,138 units are currently under construction COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE June 19, 2017 Subject: Downtown Development Update Page 4 including Modera and Silvery Towers in , Marshall Squares in the Historic District, and Balbach Street condominiums in SoFA.

In December the City Council approved an extension of the Downtown High-rise Incentive. The incentive allows developers, building 12 stories or higher, to benefit from a 50% reduction in parkland impact fees and construction taxes if their building permit is secured by July 2018 and certificate of occupancy secured by December 31, 2020.

Completed August 2016 - June 2017 505 Currently Under Construction 1,138 Currently Entitled 3,311

Shopping and Dining While Downtown continues to build toward commercial and residential densities that will support more shopping activity, the Downtown dining scene is robust with more than 175 eating establishments. Overall, data collected by the San Jose Downtown Association (SJDA) shows that Downtown ground floor vacancy tends to hover between 11% and 12%, with a significant portion of this vacancy concentrated along Second Street, between Santa Clara and San Fernando streets. Together, the City’s Small Business Allies and OED’s and SJDA’s business development teams have assisted approximately 200 groundfloor business and property owners in the past eleven months. The following is a sampling of groundfloor activity in Downtown’s three primary districts:

San Pedro District - The San Pedro Market welcomed new eateries Anchors and Coast Poke Counter. On Santa Clara and San Pedro streets, respectively, Five Points Bar and Olla Cocina debuted to rave reviews. District from San Francisco will move into a prime restaurant location on San Pedro Street that was formerly occupied by Black Arrow Technology. A Proper Cup, the first retail business to open in a recently constructed highrise, opened in May at One South Market.

SoFA District - Perennial favorite Ben and Jerry’s closed its doors after more than 15 years, but Tac-Oh! Mexican comfort food, Forager Tasting Room & Eatery, and Uproar Brewing Company have opened on South First Street. In the SoFA Market, Toasted and Pizzetta 408 opened this year leaving only two spaces to be filled of 11 in the market hall. Tenants for these two spaces have already been identified.

Historic District - Blue Bottle Coffee announced they will move into 1 W. Santa Clara Street. Blacksuit Tattoo opened on S. Second Street in the Western Dental building and Local Color, a pop-up San Jose artists’ collective, has set-up shop in former Ross Dress for Less space at 27 S. First Street. TechShopSJ relocated and expanded into to a permanent space at 38 S. Second Street (former Zanotto’s Market) and WestCA gym has transformed the former Sperry Flour Company building at Third and Santa Clara streets. Baja Fresh on the closed its doors in May and Carl’s Junior on S. First Street a few months prior to that. A new tenant has already leased the Baja Fresh COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE June 19,2017 Subject: Downtown Development Update Page 5

space. Common Grounds and InVita Cafe have committed to the never-before-leased ground floor of The Globe on Second Street and just two doors north owners of Paper Plane and Original Gravity will embark on their third Downtown concept. Fuz Bar & Grill opened at 58 S. First Street this Spring.

OED staff attended the regional International Conference of Shopping Centers (ICSC) conference in Monterey to continue to foster ties with the retail broker community. Staff is in the process of securing consultant agreements to conduct a Downtown retail study to inform future retail development.

Seven of twelve grants awarded through OED’s Storefronts initiative will be awarded Downtown. Chromatic Coffee, Signet Media, Uproar Brewing, Goodies, Academic Coffee, Blue Bottle Coffee and Tea Alley are the recipients of these grants.

Arts and Entertainment OCA’s Special Events division, a team of three, coordinated the equivalent of 358 special event days in the Downtown core with 78 different event organizers over the past 12 months. These events drew 1.76 million attendees and included Musical Swings, Music in the Park, Downtown Ice, The Rock 4n’ Roll Half Marathon, the 2017 NCAA Men’s West Regional Basketball Championship, Women’s March Bay Area and the annual San Jose Jazz Summer Fest. OCA produced an inaugural 8-week public dance series, City Dance, geared toward engaging Downtown employees in an after-work activity. City Dance featured weekly dance instruction in genres varying from salsa to line dancing to Bollywood. Weekly attendance fluctuated between 200 and 300 and should increase significantly this year with an earlier, more robust marketing campaign.

OED staff processed 26 applications for the installation and removal of 1,935 special event banners. New banner locations were added near St. James Park and Diridon Station/San Fernando with 50 additional locations being installed Downtown this summer.

PRNS staff worked from June through October 2016 to program St. James and Plaza de Cesar Chavez parks. Both parks were activated with a regular schedule of food trucks, yoga, picnic games, live bands, movies, open mic, poetry readings and more.

Apple’s WWDC returned to the convention center this year for the first time since 2009 and Facebook F8 made its Downtown debut in mid-April. Other notable returning conventions included FanimeCon, Silicon Valley ComiCon and Nvidia GTC.

Downtown San Jose welcomed the addition of two new hotels - the AC Hotel by Marriott in February and the Clariana in June. The AC Marriott is a 210-room sleek, minimalist-style hotel at Santa Clara Street and Hwy 87 while the Clariana is an independently owned and operated, 44-room Beaux Arts hotel at the corner of Third and Santa Clara streets. Per Team San Jose, the city’s average hotel occupancy rate is 77.6% (no change from last year) with a daily rate of $225 COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE June 19, 2017 Subject: Downtown Development Update Page 6

(6% increase) and revenue per available room at $175. These numbers indicate that demand for hotel rooms remains strong.

Public Realm SJPD, D3, and OED staff, together with a generous donation from Barry Swenson Builder, collaborated on the establishment of a Downtown Services Office (DSO) in a vacant storefront along . The DSO is used by SJPD and other law enforcement agencies to hold team meetings, complete reports and take mid-shift breaks. The establishment of the DSO has resulted in the virtual elimination of illicit and illegal activity in Fountain Alley.

The work done by Groundwerx, under the management and direction of the San Jose Downtown Association, has had a significant positive impact on cleanliness and safety in the core since the program’s inception in 2007. In a recently completed survey, the Groundwerx ambassador program received its highest mark to date with an approval rating of 76.2%. Beautification/street life projects also resonated with ratepayers with a 89% approval rating and the Groundwerx cleaning program maintained a strong approval rating at 94.2%. The Groundwerx clean team has received an approval rating of over 90% the last four years. On average Groundwerx crews collect 295 bags of debris/litter per month, remove 1,700 stickers, handbills or tags, provide 1,192 pan and broom hours, power wash for almost 600 hours, clean 538 hot spots per month and provide 381 ambassador hours and 21 safety escorts for Downtown business and property owners.

One of the resources Downtown residents and businesses can access for support with issues related to homelessness is PATH, the City’s Downtown outreach services provider. PATH has extensive experience addressing issues successfully for Downtown partners and works closely with Police, the County, and other service providers to provide immediate assistance to vulnerable members of the community who may be in crisis. Since August 2016, PATH’S Street Outreach team has helped move 22 people from the streets of Downtown San Jose to permanent housing, including three families with children. PATH’S five outreach workers have completed 791 case management sessions with clients experiencing homelessness in the core.

Despite significant on-going investment by both the public and private sectors to address Downtown homeless and mental health issues, challenges persist. The production of more permanent supportive housing will go a long way to address these challenges. Staff hopes to report significant progress in this area in next year’s Downtown Progress Report.

Over the past 12 months city staff has engaged in more substantial placemaking and public life initiatives. More than 60 community stakeholders were engaged in a process to reimagine the Paseo de San Antonio from San Jose State University to the Guadalupe River from November - February. As a result of this process, a framework for the “Park Paseo” has emerged and can be carried forward once funding mechanisms are identified and the timing of three major developments (Block 3, Camera 12 and Museum Place) along this corridor is known. COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE June 19, 2017 Subject: Downtown Development Update Page 7

In March, CMG Landscape Architecture was awarded an initial SIM agreement for design work at St. James Park. This award was the culmination of a community design competition where CMG was one of 14 interested design teams and one of four finalists selected. The winning design consists of a border of Victorian Gardens around the park, a spruced up playground, a dog park and picnic area and a whimsical fountain. The plan also closes Second Street to car traffic and proposes a modern, open-air music pavilion. Funding to build the redesigned park is proposed to come from Downtown Park In-Lieu fees, including funding placed into the St. James Park Management District, a program that allows developers developing adjacent to the park to donate 50 percent of the value of their parkland dedication or park impact fees (PDO/PIO fees) to the revitalization of St. James Park in exchange for an equivalent reduction in those fees for capital uses. Simultaneously, The Friends of Levitt, a private non-profit foundation, solidified their commitment to raising the necessary capital and operating funds to build the music pavilion imagined in CMG’s design.

Under the joint leadership of the Office of Cultural Affairs (OCA) and Moviemento de Arte y Cultura Latino Americana (MACLA), Urban Rooms by Estudio Teddy Cruz + Forman debuted at in early June. This new public artwork in the SoFA arts district will provide much needed shade for the public space as well as an opportunity for increased community engagement and cultural productions.

The completion of the Autumn Street connection between Coleman and Julian and reopening of the west bank of the are two significant accomplishments of the Department of Transportation (DOT). This work enables better connectivity across the railroad tracks from the Market Center to the SAP Center and Diridon Station, providing an alternative to the Alameda and Coleman. This stretch of Autumn Parkway is a complete street with high- quality sidewalks, street trees, a planted median, and green painted bike facilities so that people are comfortable whether driving, bicycling or walking.

Last fall, OED and DOT staff began collaborating with staff from the cities of San Francisco and Oakland, the Metropolitan Transportation Commission (MTC) and SPUR on the development of a Regional Urban Wayfmding Program and complementary Regional Transit Mapping Project. In March, MTC issued a Request for Qualifications to establish a bench of pre-qualified consultants to provide technical assistance for mapping and wayfmding design services. San Jose and other public entities will piggyback on the procurement process once the bench is seated by the MTC in June, bringing a consultant agreement to Council by September.

OED staff collaborated with the San Jose Downtown Association and Team San Jose to produce a standard Downtown map for distribution at the airport, in the convention center and other city- owned facilities and through Groundwerx ambassadors. The map will be updated twice per year as part of the urban wayfmding program and will be distributed in 2,000 hotel rooms throughout the city via a foldout in Content Magazine. COMMUNITY AND ECONOMIC DEVELOPMENT COMMITTEE June 19,2017 Subject: Downtown Development Update Page 8

PUBLIC OUTREACH

This memorandum will be posted on the City’s website for the June 26, 2017 Community and Economic Development Committee meeting.

COORDINATION

This memo has been coordinated with the Department of Parks, Recreation and Neighborhood Services; the Department of Planning, Building and Code Enforcement; the Housing Department; the Office of Cultural Affairs; the Department of Transportation; Team San Jose; PATH; the San Jose Downtown Association; and the City Attorney’s Office.

CEOA

Not a Project File No. PP10-069(a), Staff Reports/Assessments/Annual Reports/Informational Memos that involve no approvals of any City Actions.

/s/ BLAGE ZELALICH Downtown Manager

For questions, please contact Blage Zelalich, Downtown Manager, (408) 535-8172.