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Silicon Valley Developer Prepares To Take $4 Billion Step Toward Overhauling Vacant Mall Near Apple HQ

By Katie Burke
CoStar News

One of Silicon Valley’s largest developers is preparing to break ground on what’s set to be among its largest projects to date after rebuffing seven years of lawsuits and ballot measures aimed at halting the effort.

Sand Hill Property Co. said it is set to begin construction to replace the Vallco shopping mall in Cupertino, California, bookending a dramatic saga in the developer’s efforts to overhaul the long-vacant site. The mall, a 1970s-era property that will soon be rebranded as the Rise, is located within a mile of Apple’s global headquarters and surrounded by corporate hubs for some of the world’s largest tech companies.

The projected $4 billion project is slated to include 2,400 housing units; nearly 2 million square feet of office space; and nearly 430,000 square feet of retail, restaurant and amenity space, according to a statement from the developer. The entire footprint is expected to span 7 million square feet once completed, more than twice as large as Apple’s headquarters, the largest single development in the Silicon Valley suburb.

The Vallco redevelopment proposal was able to withstand steep opposition from local residents who opposed the project’s scale, claiming it would exacerbate traffic and would overwhelm the city if approved. City officials also pushed against the developer’s proposal, which ultimately proved victorious after securing status through California’s SB35 housing law that helps streamline approvals if means a 50% affordable housing threshold.

Sand Hill scored a victory in 2020 when it prevailed in a lawsuit filed by opponents, a step that ultimately cleared the way for the project’s groundbreaking.

The developer is now in the process of lining up building permits, aiming to start excavation and preliminary site work within the next several months, the developer said. The first phase will include about 800 housing units as well as a significant chunk of retail and open space. It will take about three years to complete, a finish line that will then kick off the second phase and the project’s remaining office space.

Half of the 2,400 housing units planned for the site will be set aside for low- and very-low-income residents, or those making 80% or less of the area median income. In Cupertino, the last reported median income was a bit more than $87,000 per year in 2019, according to the United States Census Bureau.

Sand Hill Property Managing Director Reed Moulds told CoStar News the project has full financing and the owners will be long-time operators. The developer’s equity partner is Abu Dhabi Investment Authority, a sovereign wealth fund of the Emirate of Abu Dhabi that manages nearly $697 billion in capital.

The development is the latest bet on Silicon Valley’s pandemic-era growth spurt, which has been fueled by a series of record-breaking leases and acquisitions among tech companies such as Google, Apple, LinkedIn and Facebook. The region overtook San Francisco as the priciest office market in the nation back in September 2021, with average rents surpassing $62 per square foot, according to CoStar data. For high-end and newer properties in Silicon Valley’s popular suburbs, however, landlords can often command rents well beyond $100 per square foot.

While a number of developers hit the pause button at the onset of the pandemic for a handful of large projects — Boston Properties has yet to break ground on two until it lands prelease agreements to anchor them — Sand Hill is taking an adaptive approach to the work-from-home trends that have emerged as a result of the healthcare crisis.

Moulds said the housing units, for example, will have more rooms for ancillary uses such as a home office or gym. What’s more, the project will include the open space and amenities necessary to draw in the foot traffic, office workers and potential tenants the developer needs to fill the vast amount of space.

“The market shows us there’s still a very strong appetite for incredible work environments,” Moulds said. “Certainly in this region, anything at scale is going to be unique.”

The developer said the office space included in the project will include expanded floorplans to allow for more spacious layout schemes, and it will even give Sand Hill the chance to capitalize on the Bay Area’s booming biotech sector with the flexibility to provide lab and research space. Touchless and hygienic features will be integrated throughout to “support a platform of wellness and human health for employees more conscious of workplace design than ever” before, Sand Hill said in a statement.

Source: https://product.costar.com/home/news/406244781

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