GOOG Alphabet Inc

By Nour Malas and Rob Copeland 

SAN JOSE, Calif. -- Technology giants helped pump the West Coast full of choking traffic and expensive homes. Now they are trying to fix the damage.

The challenge, and all its many complications, is playing out in real time in this city.

Google wants to build a campus of more than 6 million square feet here, with twice as much office space as the Empire State Building. The plans include a revamped downtown area around an old train station with thousands of apartments, shops and community spaces. The pitch would essentially remodel San Jose as a 21st-century company town, where a dominant employer lifts the local economy for decades to come.

Some residents welcome the potential lift. Others fear the worst, having seen nearby towns struggle to recruit firefighters and teachers because few can afford to live near their jobs. Activists protesting gentrification have objected to the secrecy around initial talks and booed the city mayor at public events. At one city council meeting in 2018, activists chained themselves to chairs to protest the project. Police used bolt cutters to remove them.

The Alphabet Inc. unit is negotiating with San Jose officials after three years of preliminary discussions. Local community groups want a quarter of the housing in the development to be sold at below-market rate. They're also drawing a line at private Google buses, citing inequality and environmental concerns.

Google has said it would build some below-market housing units but hasn't determined the exact figure. It won't commit to nixing the buses.

The back and forth is a microcosm of a battle that has played out over and over across the region. Technology has brought extraordinary wealth to Silicon Valley. It has also worsened the area's housing shortage and a widening economic divide. The question facing San Jose, the nation's 10th most populous city, is whether it can bring in a major employer while managing the downsides.

Elizabeth Valdivia, a 60-year-old security worker, could no longer afford to live in her hometown of Mountain View after Google built out its global headquarters there. She rents a room in an old San Jose apartment building for her disabled brother while she lives out of a rusted 1997 Mercury Tracer sedan.

"Where will we go?" she says. "You can't have 20,000 Googlers come here and not have mass displacement."

In private meetings, local officials say, Google representatives have said the company's primary responsibility is to shareholders, not to solving the ills of an entire region. Google has offered smaller concessions, such as curbing perks like free snacks for employees to encourage them to spend money outside the office and build up a broader neighborhood.

"We're trying to create the best version of all the voices we have heard, " says Google real-estate development director Alexa Arena. She says that from the start, Google decided not to seek tax breaks or run a competitive bidding process between cities -- strategies that fomented a public outcry during Amazon.com Inc.'s highly-publicized second-headquarters hunt.

"HQ2 is the opposite of what we are trying to do," says Ricardo Benividez, a Google director charged with incorporating San Jose public opinion.

San Jose's mayor, Sam Liccardo, said the city was working hard to get it right: "It's high stakes, and it's a great opportunity." Mr. Liccardo called the Google project an opportunity to reinvent Silicon Valley away from a model where "you create a moat, put alligators in there, and surround it with a sea of parking."

Tech companies, which largely blame the housing shortage on local regulations that restrict home building, are starting to respond. Last year Google pledged $1 billion, mostly in land donations across the San Francisco Bay Area, to address the issue. In November, Apple Inc. said it would commit $2.5 billion to go toward affordable housing in California, including to help the state develop and build low- to moderate-income housing and to help first-time home buyers with financing.

Two years ago, the company took heat from neighboring towns for spending $5 billion on a new headquarters that included roughly 10,000 new parking spaces but no additional housing.

Facebook Inc. was the first big Silicon Valley firm to start its own fund for affordable housing in 2016 as it negotiated with the city of Menlo Park over its expansion. In a pilot program for teachers who want to live in Palo Alto, the company covers any rent above 30% of their income. Last year the subsidy was an average $31,582 per teacher.

Facebook has also become a political force in Sacramento, putting hundreds of millions of dollars behind housing bills and supporting a grass-roots movement of housing advocates in California.

"We can fund all the housing we want, but that doesn't actually get it built," says Facebook's Menka Sethi, who leads the company's housing efforts. "Government needs to approve more."

Missing out

San Jose has long been the stepchild of Silicon Valley.

Its first city planner in the 1950s envisioned it as a Los Angeles of the north, a collection of single-family homes scattered across cherry, apple and plum orchards. The city designated relatively little land for commercial use, and mostly missed out as Palo Alto, Cupertino and other towns around Stanford University to the northwest became startup central.

Over the past eight years, Silicon Valley added jobs at six times the rate it added housing, according to local transport and housing agencies. San Jose, however, gained more residents working in cities to the west and north than it did new jobs, depriving it of business taxes and the daytime dollars its residents were spending everywhere else.

The city's streets are all but abandoned during the day. The population swells past 1 million only after dark, when commuters trickle home. The soundtrack is the roar of jet engines from the airport downtown.

San Jose has a reputation as a pocket of affordability in Silicon Valley, in a state that boasts 91 of the 100 most expensive ZIP Codes in the country, according to real-estate data firm PropertyShark.

Google, where the median employee pay is almost $250,000 a year, almost triple San Jose's median household income, has the potential to reverse those trends.

City officials say they started talking to Google in 2016. Kim Walesh, San Jose's economic development director, says her team was gauging if Google would consider expanding in San Jose, arguing that a large number of the search giant's employees already lived there.

"Quite honestly," she says, "there was no interest."

In late 2016, Mark Golan, Google's real-estate head, called the mayor, Mr. Liccardo, and said Google was in. It would develop a complex surrounding downtown San Jose's dilapidated Diridon train station with as many employees as Google's headquarters a few miles to the north. The development could be ready as soon as 2024.

The city also has plans, yet unfunded and decades away at best, to transform the station into a hub for light rail, metro and bullet train systems connecting the city to Silicon Valley's smaller towns, as well as to San Francisco and Los Angeles.

Google's Mr. Golan told officials his company would buy land parcels downtown through a real-estate broker, to keep the company's name out of the press.

Mr. Liccardo agreed to swear to secrecy while negotiations continued. The mayor, along with two dozen city staffers including council members and their aides, signed nondisclosure agreements starting in February 2017.

The agreements became public that June. Two weeks later, the city council voted to start exclusive negotiations with Google to sell the land. No other bids were solicited. Google has spent around $450 million so far buying public and private property for the expansion.

"It felt like, 'This is happening,' as opposed to, "Do we want Google in our community, and is that the best thing for us?' " says Liz Gonzalez, a local activist.

Mr. Liccardo says the NDAs were appropriate to stem real-estate speculators, and because the city didn't make any decisions related to public benefits during that time. Google executives now say that they were a mistake from a public-relations standpoint, and that no further NDAs are planned.

Already the largest lobbying spender among major technology companies in Washington, D.C., Google has recently become a major philanthropic force in San Jose.

In early 2018 San Jose assembled a Station Area Advisory Group of various community groups. Several groups on the board receive money from the search giant, and Google has bumped up its donations in the past two years, according to public disclosures and interviews.

Google's Ms. Arena says there's no quid pro quo. "It's a little bit of a double-edged sword," she says of donations to community groups with a say in the outcome. "We absolutely need to support the organizations who are helping to think through massive regional programs."

A walk-through of the site last year revealed actual tumbleweeds. Parking lots were mostly empty. Google's Mr. Benividez, playing the role of tour guide, was delighted to find a full bike-sharing dock, but it wouldn't accept his credit card when he tried to rent one.

Several homeless residents were sleeping in makeshift camps. Google gave $1 million to a local nonprofit that runs shelters in November.

The tour continued past a reedy, unkempt creek. Ms. Arena said Google is negotiating with environmental groups about what, if anything, it can to do improve the waterfront, given local regulations.

San Jose council member Johnny Khamis said the variety of demands levied on Google risked scaring the company.

"If we keep forcing them to pay for housing and parks, they will go to Houston or Austin," he said. He balked at the idea that companies like Google should be involved in building housing: "They will end up fixing toilets rather than fixing code."

The Station Area Advisory Group meetings have been dominated by talk of housing.

A recent hearing in a windowless conference room at San Jose City Hall demonstrated the mix of viewpoints that all involved must navigate in a city as large and diverse as San Jose. Google's Mr. Benividez sat quietly to the side as a dozen speakers railed against his employer.

The first speaker during the public comment period, local resident Paul Soto, began reading excerpts from Aldous Huxley's dystopian novel "Brave New World" with dramatic verve.

"Democracy can hardly be expected to flourish," Mr. Soto said, "in societies where political and economic power is being progressively concentrated and centralized."

Another resident compared Google to "colonizers who set sail for San Jose." She broke into tears after her two minutes at the microphone were up.

City officials have banned the use of the word "campus" in internal and external communications about the Google project, fearing it triggers a negative association with the sprawling, insular workplaces of other tech giants.

Plans for the new development released in October included up to 5,000 units of housing. That would accommodate roughly one-fifth of Google's employees at the site.

As part of its effort to win over locals, it spent $40,000 restoring a San Jose icon, a neon sign of a plump yellow pig once used for an old meat factory. It marked the event with a party in a parking lot in June that was covered closely in the local media.

On Montgomery Street in downtown, two blocks from where Google's new village may rise, shopkeepers and homeowners are awaiting a tap on the shoulder to sell to the company.

A row of stores -- a cement showroom, a welding shop, a food wholesaler -- and a shingle-roof home have already sold to Google. Across the street, mechanic George Lopez hoped his turn would come next: "It will be a beautiful thing. Jobs. Tourists. More people spending money."

Ms. Valdivia, who has taken on more hours at work to save for an anticipated rise in her brother's rent, sees it differently. "We're going to be driven out of town."

Write to Nour Malas at nour.malas@wsj.com and Rob Copeland at rob.copeland@wsj.com

(END) Dow Jones Newswires

January 28, 2020 13:19 ET (18:19 GMT)

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