San Jose approves permits for Caltrain’s downtown towers project

Despite the struggles of the current office market, Caltrain is moving forward with its plans to construct two commercial towers near Diridon Station after San Jose approved its permits Wednesday.

Caltrain expects to partner with a developer to build a 15-story and 16-story tower on the 3.09-acre site, which is located on the west side of South Montgomery Street between Crandall and West San Fernando streets.

“It’s an excellent (transit-oriented development) location, which is why we’re so excited about the future for this project even though the market is a little challenging for office (space),” Caltrain transit-oriented development director Nadine Fogarty said.

The project as a whole would offer 1.1 million square feet of commercial space, which envisions various uses, including office, retail, and entertainment.

It also plans for one acre of publicly accessible open space and a plaza that will make it easier for commuters to access Diridon Station.

Although the proposal is near public transit, officials noted that four levels of underground parking would offer 792 shared spots to remain consistent with other projects planned in the area, including Google’s Downtown West development.

“As planners for this, we wanted to push for the minimum amount of parking possible,” said Aaron Aknin, a principal and co-owner of Good City Company. “We would love to go lower, but we also want to have a building that’s marketable and can be built.”

While the city approved the site development permit this week, it is currently unknown when and how long the project could take to come to fruition.

Because Caltrain is a public agency, it does not develop its properties. Instead, its policy is to enter into an agreement with a developer to build the project and then sign a ground lease. Caltrain would maintain ownership of the property over the long term.

Fogarty said that Caltrain’s development process includes conducting a market assessment to determine timing before releasing a request for proposals to identify the development partner.

Since remerging from the pandemic, San Jose’s downtown office market has struggled to fill vacancies like the other major cities in the Bay Area despite more employers imposing stricter return-to-office policies.

Multiple large companies have left or plan to leave downtown for other high-quality spaces in the city in the coming years. PwC, for example, signed a lease earlier this year to move its workforce to One Santana West.

Conversely, the VTA plans to relocate its headquarters and consolidate some of its satellite offices into the downtown building PwC intends to leave.

The collapse of the office market has also resulted in delays or the reimaging of major projects downtown and across the city.

Last year, Google temporarily slowed its Downtown West urban village project — one of the most significant development proposals in the area — as it reassessed its timelines.

The project envisioned a mixed-use urban village on 80 acres near Diridon Station that included thousands of homes, 7.3 million square feet of offices and 500,000 square feet of retail space that could accommodate tens of thousands of jobs.

But despite the challenges, the downtown area, specifically around Diridon Station, presents a major opportunity for growth. Along with BART and high-speed rail coming downtown, city officials could invest billions of dollars to turn Diridon Station into a world-class transit hub, which would further their economic development and climate goals.

The larger Diridon Station area is a 250-acre span that could accommodate more than 12,000 additional homes and tens of millions of square feet of office space anchored around the SAP Center and the station.

Like other transit agencies, Caltrain has begun to focus more on building transit-oriented development projects to increase ridership and create a long-term revenue stream.

Should the project come to fruition, it is also seen as a boon to the city. The project could create $12 million in commercial linkage fees, which fund affordable housing developments, and would utilize union labor.