The new LinkedIn office in Sunnyvale was built by global developer Kilroy Realty based in Los Angeles.   Beth Willon/KQED
The new LinkedIn office in Sunnyvale was built by global developer Kilroy Realty based in Los Angeles.  (Beth Willon/KQED)

'Build It and They Will Come': International Developers Flocking to Silicon Valley

'Build It and They Will Come': International Developers Flocking to Silicon Valley

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The demand for office space is so big in Silicon Valley these days that even rather aged, nondescript buildings are getting gleaming makeovers.

"They're called old dogs," says Brett McLarney of San Jose's McLarney Construction. "We clean them up, make them look different and put them back on the marketplace."

The real estate industry is booming because of tech companies' urgency to build now and build bigger amid the industry's rapid expansion.

Developers from all over the world are flocking to Silicon Valley, backed with money from Wall Street and international banks needed to build at a larger scale than ever before.

"It's a 'build it and they will come' sort of market. It's not, 'Well, we'll have a building four years from now,' " said Phil Mahoney, executive vice president of Cornish & Carey realty in Santa Clara. "The nature of tech is four years from now may as well be 40 years from now."

Phil Mahoney, executive vice president of Cornish & Carey in Santa Clara shows off the new grill at an old research and development building in North San Jose. It is one of many buildings being modified to make it marketable again.
Phil Mahoney, executive vice president of Cornish & Carey in Santa Clara, shows off the new grill at an old research and development building in North San Jose. It is one of many buildings being modified to make it marketable again. (Beth Willon/KQED)

Los Angeles-based Kilroy Realty is among the groups dominating the building scene. The company's been operating here for four years, and already has an impressive resume of clients: LinkedIn, Box, Synopsys, Audience,  Salesforce and Dropbox.

Sponsored

The company is traded on the New York Stock Exchange and fronts the money for big tech to build. When the profits come back, dividends go out to thousands of shareholders worldwide.

"You could be a retiree, a mom and pop, a housewife and be investing in our company," said Mike Sanford, Kilroy's executive vice president.

Bigger Buildings, Bigger Budgets, More Global Funds

Kilroy represents one aspect of Wall Street's large footprint in Silicon Valley. The global investors are financing projects of unprecedented size and scale. A "big" building used to mean thousands of square feet, but today companies sometimes need millions of square feet.

"It is a scale that almost always requires institutional money," said John Sobrato, a longtime Silicon Valley developer.

Sobrato's family business made billions developing Silicon Valley, including Apple's headquarters in Cupertino.

Prominent local Silicon Valley developer John M. Sobrato standing in front of the Apple headquarters he built in Cupertino in 1992.
Prominent local Silicon Valley developer John M. Sobrato standing in front of the Apple headquarters he built in Cupertino in 1992. (Beth Willon/KQED)

"The business has changed dramatically, certainly in the 30 years I've been in it," said Sobrato.

Earlier in his career, he says the Sobrato Organization's competitors were other local firms. But now they're competing with large institutions with access to Wall Street opportunity funds, or foreign pension funds.

"The money and the decision-making rests with the financial partners who are based in New York or far away," he says.

Local Contractors Also Left Out

The scale of today's development projects requires so much money that building them is not worth the risk for some Silicon Valley general contractors.  McLarney said firms need to have the insurance or bonding capacity to handle an expensive project.


"On any given project you have a potential of an error or making a mistake.  And each of those things comes with a price tag.  The larger the project the larger the price tag," said McLarney.  "If it goes bad it can close down the company, so we make strategic decisions that [some projects are] simply not worth pursing."

Many of the contractors who specialize in these giant projects tend to travel and work outside the geographic area where they're based, said McLarney.

Concern Over Community Impact

Some argue that this outside investment is causing a disconnect between the developers and the community.

"If you're based in the Middle East or Qatar, or you're based in New York, the problems of San Jose don't really mean a whole lot to you," said Mahoney.  "It's whether or not that project's doing well and I'm making money on it -- and once I do, I'll sell it to the next guy."

Valley Medical Center is Santa Clara County's safety net hospital open to everyone. Over the years, developers like the Sobratos have donated millions of dollars to the hospital with projects like the Sobrato Cancer Center.

Michael Elliott, associate director of the Valley Medical Center Foundation, said the donation allowed the hospital to buy a linear accelerator to replace outdated equipment.

The state-of-the-art linear accelerator is at the Sobrato Cancer Center because of a million dollar contribution made by the Sobrato Foundation.
The state-of-the-art linear accelerator is at the Sobrato Cancer Center because of a million-dollar contribution made by the Sobrato Foundation. (Beth Willon/KQED)

"To allow us to offer better radiation therapy to our patients and the best possible care," said Elliott.

But as the developers are increasingly nonlocal, Elliott said the county hospital will be challenged to find new donors.

More Money, More Jobs

Silicon Valley is in the midst of a transformation much like Manhattan was decades ago, said Stanford Hoover Institution economist Tim Kane.

"Money is coming into this area and that's a good thing. That will create jobs and the fact that it is international money reflects we are an international city," said Kane.

No matter where the developers deposit their checks, the offices they build are for companies with strong roots here, he said.

Curious about the boom/bust cycle that is reshaping the Bay Area? Check out our Boomtown series: http://www.kqed.org/boomtown.