Google scraps $15 billion deal with lead developer of Silicon Valley campus projects

Google has ended its agreement with Lendlease, the lead developer it had been working with on four major campus projects in Silicon Valley. In an announcement published earlier on Friday, Lendlease said both companies had agreed to end the deal after determining that “the existing agreements are no longer mutually beneficial given current market conditions.” 

The deal covered Downtown West in San Jose, Moffett Park in Sunnyvale, and Middlefield Park and North Bayshore in Mountain View. The Wall Street Journal notes that developments could have totaled over 15 million square feet of “office, residential, retail and other space.”

“The existing agreements are no longer mutually beneficial given current market conditions”

Google and Lendlease agreed to the original $15 billion deal in 2019 and planned to spend 10 to 15 years redeveloping Google’s land across the three locations, CNBC notes. But since then, the covid-19 pandemic has significantly changed business real estate needs after companies shifted toward more hybrid modes of working. The Wall Street Journal cites figures from CoStar Group that suggest that around 17 percent of office space in Silicon Valley was vacant as of June this year, up from 11 percent in 2019. In Mountain View, in particular, vacancy rates have reportedly surpassed 20 percent.

At the same time, Google has also been going through a period of belt-tightening. In January, it cut 12,000 jobs, roughly 6 percent of its global workforce. In April, CNBC reported that Google had gutted the team in charge of developing its Downtown West campus in San Jose and had put the campus plans on hold after completing the demolition phase. 

Although Google is ending its agreement with Lendlease, CNBC reports that it will continue to work on the campus developments with other developers and capital partners that may yet include Lendlease. In 2019, the company said its plans included the development of 15,000 new homes and incentives to develop 5,000 more. As of June this year, the company said it had paved the way for up to 12,900 units to be built on its land in Mountain View and San Jose and had allocated over $133 million for 3,800 units across various affordable housing projects.

In a statement, Google senior director of development Alexa Arena said that the company is looking at “a variety of options” to meet its housing commitment. “As we’ve shared before, we’ve been optimizing our real estate investments in the Bay Area, and part of that work is looking at a variety of options to move our development projects forward and deliver on our housing commitment. We appreciate Lendlease and the work the team has done to get us to this point,” Arena said.

San Jose Mayor Matt Mahan told Bloomberg that the Lendlease deal coming to a close “doesn’t change Google’s commitment to San Jose or their timeline… It simply gives them the flexibility needed to get the best possible developers on the project to build 4,000 new homes in our thriving downtown.” Google had proposed constructing 7.3 million square feet of office space and 50,000 square feet of retail and cultural space in addition to the homes, around a quarter of which were due to be set aside as affordable housing.

Source: The Verge

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