It's still a parking lot, but not for long.
A 23-story condominium high-rise and downtown San Jose's biggest cluster of retail shops could finally start to soar on a sea of asphalt near the San Jose Repertory Theatre this fall, under a new agreement the San Jose City Council is expected to approve Tuesday.
But the 285-foot tower won't be the first residential high-rise downtown if developer Barry Swenson gets his way. He is racing to be the first to break ground at St. James and San Pedro streets on a 16-story building.
The towers are just two of seven high-rise projects in the works for downtown that boosters hope will finally transform the still-struggling area into a bustling, cosmopolitan destination.
The competition between Swenson and CIM Group of Hollywood to open the first tower is a tribute to the increasing allure of downtown -- and to the logic of building up in a city where choice land costs about $2 million an acre.
But the race also is a reflection of anxiety among developers and their bankers about the demand for high-rise condominiums. They're worried about flooding the market with hundreds of units all at once when it is considered risky to build high-rises in the first place in suburban San Jose.
"No one knows if it will hurt each other to have a lot of units on the market all at once, or if it will be very complementary," CIM founder Shaul Kuba said. "I want to be first."
So does Kristy Reynolds, manager of Swenson's City Heights project. "It would be nice to be the pioneer," she said.
Vice Mayor Cindy Chavez, whose council district includes downtown, is aware of the worries but says she believes the buzz among residents who move into the first high-rises will create a snowballing demand for even more.
The surge of interest in building downtown comes after the city this summer began offering certain developers a financial incentive in order to attract more homeowners and renters to the heavily subsidized area and to create a new population of patrons for its stores, clubs and restaurants.
The city has waived rules that say 20 percent of the units developers build in downtown residential projects must be "affordable," a requirement builders say can cost them millions. The catch is that the developers must begin work on the projects by June 30, 2006.
CIM is not eligible for the break because its project was approved in 2002. But the company, which built its reputation with projects in Pasadena, San Diego and Santa Monica, is getting plenty of financial assistance from the city's redevelopment agency. CIM is developing both the three-acre parking lot near the San Jose Repertory Theatre and a one-acre parcel near Zanotto's grocery store that will include an upscale bowling alley and four-story townhouses.
The redevelopment agency is investing $35.35 million in the $240 million project on a site near the theater, including the cost of the land and public parking spaces. That's about $3.4 million less than called for under an initial agreement.
In return, San Jose will receive only 30 percent of the profits after the developer's cut from the sale of the condos, rather than 60 percent. Currently, no profits are expected after CIM gets its estimated $29 million for the residential component, redevelopment officials said. But they estimated that net annual parking revenue for the city could be up to $950,000.
Tuesday, the city council is expected to approve a new agreement with CIM that spells out how and when the long-awaited project will be built. The city has long struggled with the site, which is located in the heart of the downtown. Years ago, it was slated to be a parking garage, but former redevelopment director Susan Shick successfully urged the city to develop housing, parking and retail there because of its strategic importance. Then it was a part of a failed deal with New York-based Palladium, which pulled out once the valley slid into recession.
Under the current plan, the project will be divided into two phases. In the first phase, CIM has to commence construction by the end of September on one of two high-rise residential towers, a new street bisecting the site called Central Place, a public parking garage with 190 spaces and 36,000 square feet of street-level retail. The project must be completed in 30 months, though CIM anticipates finishing sooner. The average expected selling price for each unit in CIM's first phase is $635,000.
Chavez said the new agreement allows the city to find another developer for the second phase if sales are slow for the first tower and CIM doesn't want to proceed.
"Every single residential developer has raised a concern about market absorption," Chavez said. "But as soon as the first high-rises get under way and start getting purchased, it will create a lot of excitement around the market."
The CIM project has one more regulatory hoop to jump through. The city has to hold a public hearing because the firm slightly redesigned the project to save money. For example: Steel costs rose 32 percent last year, so the firm redesigned the towers so they are lower and wider.
As high-rises sprout downtown, surface parking lots will disappear, to the chagrin of many San Jose residents who enjoy the convenience. But downtown residents are eager to see the towers go up. To them, the buildings are emblematic of downtown's transformation and its future.
"There is some talk about how it's going to be uncomfortable, construction-wise, but we're very excited about the development," said Elizabeth Mattson, president of the Downtown Residents Association. "With the Civic Center being completed, and this tower going in, I think we're really turning a corner."