Housing agency takes $13 million loss in sale

Authority had intended downtown San Jose building for headquarters

A South Bay government agency lost nearly $13 million in two years on a north San Jose office building when it realized the property was a lousy choice for its headquarters — but only after it had bought the site.

The Santa Clara County Housing Authority wound up on the short end of two property deals involving an office building at 3553 N. First St. on a choice San Jose site that at one point was going to be a large new headquarters for the organization, next to the light rail tracks.

Instead, the Housing Authority's foray into owning office space has morphed into a financial flop, according to Santa Clara County property records that were filed on Wednesday.

“We heard from the community that our home office and the services we provide would be best located in or around downtown San Jose, that it be resident-centered, relevant to the economic and community development goals of the city and county, and a space that allows for convenient access and collaboration with other serviceoriented agencies,” said Preston Prince, the Housing Authority's executive director.

That analysis, however, began to take shape only after the county agency had purchased the building, which once was the local headquarters for China-based tech company LeEco before its Silicon Valley operations imploded.

In 2020, the Housing Authority paid $37.35 million for the office building, according to a staff memo issued around the time of the purchase by the agency, whose primary mission is to bolster and encourage the creation of affordable housing.

On Wednesday, the Housing Authority sold the building for $24.5 million, documents filed with the Santa Clara County Recorder's Office showed.

“The utter incompetence of the Housing Authority in this matter begs the question if they can serve their main purpose,” said Bob Staedler, principal executive with Silicon Valley Synergy, a land-use consultancy.

The latest transaction price for the building represents a stunning 34.4% decline in the property's value over the approximately 21 months that the housing agency owned the building.

“The civil grand jury should investigate this,” Staedler said.

Despite the money-losing outcome for the Housing Authority, the agency claims it will use the proceeds to support community housing needs.

“We will be quickly redeploying these funds back into the community to support affordable housing developments and residentfocused projects in our expansive pipeline,” Prince said. “By putting these funds to work soon, we can serve more residents, leverage state and federal funding, and meet the urgent needs of this moment.”

The two-story building totals 86,100 square feet and occupies a 6-acre parcel at the corner of North First Street and Rio Robles. The Tasman light rail station is about two blocks away.

Alvarez & Marsal Capital Real Estate, acting through an affiliate, bought the office building in an all-cash deal, according to the county property records.

“Our current focus is on meeting the demand for `creative' office space in major western U.S. markets through the adaptive reuse and repositioning of existing assets,” A&M Capital Real Estate, which is based in the Los Angeles County city of El Segundo, says in a post on its website.

It was only after the purchase was completed in December 2020 and the Housing Authority had become the owner of the building that the county agency realized that it had erred in its plan to move the headquarters to the north San Jose property.

“Subsequent analysis and feedback from staff and stakeholders showed that the North First Street location was not in alignment with the future vision for the agency,” according to a presentation prepared for a Sept. 21 meeting of the Housing Authority.

The Housing Authority also was jolted by the prospect of a hefty price tag to prepare the building as a headquarters.

“Estimates for additional building needs and tenant improvement costs to improve the office space ranged from $23 million to $40 million,” the county agency report stated.

A Housing Authority analysis determined that the agency actually requires 60,000 square feet of office space — not 86,100 square feet — to accommodate its future space needs.

The county agency at present maintains its headquarters at 505 W. Julian St. in downtown San Jose. It is a two-story office building that totals 35,000 square feet.

“Several years ago, it was determined that Santa Clara County Housing Authority had outgrown 505 W. Julian,” stated a housing agency staff memo that was prepared for a February 2022 meeting of the government entity.

It was only after the Housing Authority had bought the building that it more carefully scrutinized the property's pros and cons. Places such as downtown San Jose were deemed ultimately deemed to be preferable locations.

“Siting in north San Jose would increase commute time of our workforce and require that our clients travel greater distances to visit us,” a staff report stated.

Staedler believes the county agency has compounded its mistakes by selling the building in a sluggish office market.

“Instead of losing $13 million dollars now, they should have held onto the building and let nonprofits use it as is,” Staedler said. “That way they could have broken even when the office market improves.”