In a move that could help spur development and reshape downtown, San Jose is fast-tracking applications for a pair of combined data center and housing projects.
Mega developer Westbank has submitted applications under the city's innovative project pathway program, a relatively new initiative that streamlines significant development projects that may not conform to zoning and land use designations but offer substantial public benefits.
Andrew Jacobson, the vice president of U.S. development for Westbank, said the projects offered the city many important benefits by creating more housing, generating more revenue from data centers and fulfilling its climate goals with a more sustainable downtown. He added that the projects were part of a grander vision for San Jose.
"It's really that first wave of momentum that's super important for San Jose," Jacobson said. "As these cities gain momentum, it becomes easier to develop, easier to bring outside capital to develop more and more housing, but it also gives the council ammunition to actually extract from development projects for the things you want to do today because it's so financially challenging (and) it's very hard to do without leaving the developers out in the cold to sit and wait."
In January, Westbank resubmitted its development application for 300 S. First St., which included the addition of a 10-story data center to go along with three 30-story high-rise buildings that could house 1,147 residential units, approximately 8,741 square feet of residential amenities and 18,442 square feet of ground floor retail space.
Last month, Westbank filed a development permit for 323 Terraine St. to build an 18-story tower with 345 residential units and an 11-story data center on the 1.56-acre site.
Westbank's broader vision is to pair three data centers with up to 4,000 residential units and potentially create a district energy system that utilizes the excess heat generated by the data centers and repurposes it to heat and cool surrounding buildings. The developer has successfully used that model in Vancouver, leading to billions of dollars worth of projects.
The net-zero communities also are being developed in partnership with PG&E, which is making infrastructure upgrades, including rebuilding a key substation, to help deliver the 200 MW of power to the three data centers.
Along with the climate benefits, Jacobson said the data center and housing projects were complementary because housing is needed for the artificial intelligence economy, and data centers could help housing projects pencil out financially.
"Housing is very challenged in San Jose, (but) data centers are not," Jacobson said. "When you couple those together, you have viable projects."
Jacobson also noted that a district energy system could help draw other developers to the area because it would lower energy costs.
The data center component alone could provide a steady revenue stream to the city's coffers. City officials have said that a 99 MW data center could contribute between $3.5 million and $6.4 million in taxes and fees annually.
However, while the project boasts several benefits, it would have faced challenges before the city instituted the new pathway program because data centers do not mesh with downtown land designations and do not meet onsite employment requirements.
San Jose unveiled the innovative project pathway program late last year as it attempted to prevent major projects falling by the wayside due to onerous zoning and development regulations. San Jose is testing the program downtown, where the city's goal is to attract more dense and mixed-use development. If successful, the program could be applied to other parts of the city, like its urban villages, in the future.
"Far too often in California, zoning and land use rules become a straitjacket that blocks investment," Mayor Matt Mahan said. "We created the innovative pathways program to turn high-impact, forward-thinking project proposals into reality, even if they weren't what our General Plan previously anticipated. And right now, it's helping us capitalize on the incredible demand we're seeing for data centers in San Jose."
In the past year, city officials have also opted to extend or introduce economic incentive programs to spur vibrancy and help developers overcome the hurdles created by challenging market conditions. For example, the city extended its downtown high-rise program, which waived construction taxes and some building fees, and created a two-year leasing incentive program to draw new tenants to downtown's glut of empty office space.
Business leaders have praised Westbank's project and the city's new major development program, pointing to the numerous benefits it offered residents and the local economy.
"This integrated, forward-looking approach positions San Jose as a leader in both housing innovation and economic resilience," San Jose Chamber of Commerce CEO Leah Toeniskoetter wrote in a letter supporting the project.
Along with pushing the applications further, Tuesday's action establishes a few standards or conditions city officials would like to see before the projects are ultimately approved. These conditions include beginning vertical construction for the housing component before data center operations begin, allocating a percentage of new revenues generated toward arts and entertainment programming, and incorporating street-level activations that promote a more dynamic and welcoming environment.
"We recognize the data center is what will most easily get financed, but again, it needs to be tied to the actual delivery of a real public benefit beyond just the tax base enhancement," Mahan said. "It also recognizes that there's a nexus, specifically in downtown, between data centers on privately owned land and a potential lack of vibrancy. It's not a structure that's going to have a bunch of people coming in and out every day (and) it's not a destination, so we asked staff to explore tying a small percentage of the future revenue from this downtown data center — potentially multiple — to arts, entertainment and cultural initiatives that contribute to downtown being alive and being a destination."
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San Jose Sees Big Gains From Downtown Data Center, Housing Projects
"Housing is very challenged in San Jose, [but] data centers are not," said Andrew Jacobson, vice president of U.S. development for Westbank. "When you couple those together, you have viable projects."
