Building In Silicon Valley Means Having One Foot On The Gas, With The Other Hovering Over The Brake

With a lot of investors and developers focused on Downtown San Jose as part of the desire to be close to Google's planned development, one project in North San Jose near the Mineta San Jose International Airport is gaining quite a bit of attention from companies looking for large blocks of space.

Hunter Properties is in the midst of developing a true mixed-use transit-oriented development years before Google breaks ground on its own urban village in Downtown San Jose. Coleman Highline is on the border of San Jose and Santa Clara and at full completion will have 1.5M SF of office with over 1,000 apartments, retail and access to Avaya Stadium.

Now that it has completed and leased the first phase of Coleman Highline, Hunter Storm, the development arm of Hunter Properties, is deep into construction of the next two shells and helping tenants, such as 8x8 and Roku, manage build-outs across four buildings, Hunter Properties President Deke Hunter said.

The next four buildings, expected to break ground Q3 2019, will add 800K SF and 50K SF of amenities and retail, Hunter said.

For such a large project, construction costs are becoming a bigger challenge, but cost containment and keeping things on schedule are increasingly challenging, but not impossible to manage, Hunter said.

Construction costs and developments in 2019 will be discussed during Bisnow’s Silicon Valley Construction and Development Forecast Dec. 4 in San Jose.

“Cost increases are making us very mindful of the viability in the near future of some of these projects,” said Hunter, who will be speaking at the Bisnow event. “Right now everything is a green light, but we’re starting to see flashes of yellow if we continue to see cost increases.”

He said rents in the marketplace have escalated, but are directly assigned to hard costs. Supply has come down while demand has remained strong, he said. So far, Coleman Highline’s office portion is able to keep up with construction costs, but rents can't go up much more.

Multifamily has been more sensitive to rising construction hard costs.

“Multifamily is getting close to where upward pressures on costs for us could suspend or at least delay breaking ground,” he said.

Hunter Storm has 1,600 apartments planned for the Santa Clara side of the project near the Santa Clara Caltrain station, with 700 units to break ground in 2019.

Strategies For Controlling Costs

Having an ongoing relationship with Devcon Construction has helped control costs. Devcon attracts top-tier subcontractors needed for Hunter Properties to stay on schedule, Hunter said.

“You’ve got to pay to play,” he said. “It’s vitally important. It reflects our reputation.”

Devcon also has similar values and sensitivities to maintaining a strong reputation in the industry and preforming on time, he said.

“We have complete alignment with making promises and performing,” Hunter said.

What also has helped is forward planning and pre-construction, which allows for subcontractors to set aside the right labor commitments, Hunter said.

“Projects pulled together quickly and poorly conceived won’t get the attention of serious subs, and the ability to hold price and schedule gets a lot more difficult,” he said.

If demand cools, the company will have to figure out how it fits within the changing environment, Hunter said. Hunter Properties remains cautious about adding too many more projects at once, he said.

“We try to take a sober and realistic look at how rents are trending and not get too caught up with the momentum,” Hunter said.

Hunter said he expects things to eventually slow down, which the company has prepared for. Rents will not increase as much, while demand will temper a bit for the next two years. He doesn't expect a 2008-2009 situation. 

“We’re cautiously optimistic and a little fragile as it relates to an unidentified element of change," he said. “We’re all doing the best we can to keep one foot on the gas and one foot hovering over the brake.”

Find out more about Coleman Highline from Hunter Properties President Deke Hunter at Bisnow's Silicon Valley Construction and Development Forecast Dec. 4 at the San Jose Marriott.