SVBJ: Sharks sue San Jose, fearing Diridon megaproject would eat up arena parking
Sharks Sports & Entertainment, the parent company of the San Jose Sharks, is going to court with the city of San Jose over a glitzy, $600 million, mixed-use project that the team says will gobble up parking for downtown arena patrons.
Just two weeks after losing in the Stanley Cup finals, team owners filed a lawsuit Thursday challenging the city’s environmental clearance of developer Trammell Crow’s “Diridon” office and apartment campus. The litigation, under the California Environmental Quality Act (CEQA), seeks to overturn the project's approval and an injunction to prevent the developers from breaking ground.
“This massive new project is being imposed on the Diridon Station area and downtown communities based on environmental studies completed many years earlier and based on substantially different conditions,” the Sharks’ attorneys, with Silicon Valley Law Group, write in a petition. The city's approval process "systematically avoided proper public disclosure" and was "rapidly rammed through the City Council, relying on surprise and wholly one-sided information."
The lawsuit underscores the conflict between two crucial economic development drivers: The Sharks, which pack a $250 million annual economic impact in San Jose; and urban-scale, dense development, which the city has sought to boost the fortunes of downtown and its relatively meager jobs base.
The Trammell Crow project is a key part of the city's vision for its future: It would transform a massive parking lot into a sleek 1 million-square-foot high-rise office development with 325 apartments and 30,000 square feet of retail. With its location practically next door to the South Bay’s biggest transit node, it’s considered among the most promising projects in downtown’s history.
But Sharks representatives have for months been raising concerns with city officials that the project would remove crucial parking for arena events — and violate a deal in which the city must ensure there is a minimum number of spaces within a half-mile of SAP Center. (The Sharks’ parent organization leases and manages SAP Center from the city.) Officials acknowledge that it would decrease the available spaces in the area by about 800 stalls unless they are replaced.
The city is required to ensure there are 6,350 parking spaces within one-half mile of the arena on weekdays after 6:30 p.m. and prior to arena events on weekends, with 3,175 of those spaces within one-third mile. But the deal doesn’t specify exactly where those spaces must be, and property owners are not specifically required to provide them.
More contraction in the Diridon parking supply is likely. The extension of BART to Diridon Station is expected to eat up a roughly equal amount of spaces, officials say, and other development spurred by San Jose's new Diridon Station Area Plan could cut the number of parking spots further.
In a statement, Sharks' representative Sean Morley said: “As the operator of the city-owned arena, there is no greater advocate for downtown San Jose’s success than Sharks Sports & Entertainment. The organization will continue to welcome any development opportunity that adds to the vitality of the downtown experience, but not at the expense of the SAP Center’s continued success or its customers’ ability to easily access and park at this incredible community facility."
Morley, a principal at land-use and government affairs consultancy Morley Bros. LLC, said that the team "has tried to work cooperatively with the parties involved to address the deficiencies identified in the petition for the better part of a year, but the City and the developer have not yet offered any feasible solutions. SSE did not make the decision easily, but no other options were left. The company is asking the court to direct the City and developer to better study the problems identified in the petition and reconsider the project in an attempt to provide the public a clearer understanding of its true impacts, especially on parking and traffic, so that solutions can be found before moving forward with the project. SSE is committed to working cooperatively with the city and developer and eager for quick resolution.”
CEQA lawsuits are frequently employed by business interests and unions to extract concessions from cities or developers on new projects, because the threat of litigation can scare lenders or tie up developments in court, motivating all sides to make a deal.
But the developer said on Friday that it's not concerned that the litigation will slow things down. The project is a partnership between Trammell Crow, one of the nation's largest developers, and Bentall Kennedy through its Multi-Employer Property Trust, which invests on behalf of pension funds. Officials have said the project is fully funded through equity and no debt.
"This appears to be an issue between the arena and the city," said Don Little, an executive with Trammell Crow Co. "We’re proceeding full speed with permitting and construction."
Sharks allege city 'rammed through' project
In an interview on Friday, City Attorney Rick Doyle said that officials are working the ensure the parking obligation is met.
“It’s disappointing that they filed this, but the focus needs to be on short-term and long-term parking solutions,” he said. “We’re moving on it. We know we have this contractual obligation and we intend to satisfy it. In my view, the Sharks are an anchor tenant downtown. They’re very important to the downtown and the city.”
In their complaint, the Sharks blast the city’s approval process, saying the project was put on a fast-track using a loophole that cut short the public's ability to analyze the project's impact.
Specifically, the team takes issue with the fact that San Jose approved changes to the massive project under an “addendum” to a decade-old environmental impact review for a previous design for the site. The addendum process “is appropriate only for minor technical changes," attorneys write, but note that the Diridon addendum was 142 pages with 2,365 pages of appendixes and was released shortly before a public approval hearing. (The team tried to appeal the project's approval, but the city declined to hear the appeal and mailed back the team's $200 filing check.)
“This treatment of the addendum process as a loophole through which a project may be rammed through and avoid critical public participation misconstrues the meaning and intent” of CEQA, Sharks attorneys write in their petition.
While the Sharks’ challenge is ostensibly over the environmental review process under the California Environmental Quality Act, the appeal and lawsuit is strongly focused on one issue: parking. The team's May appeal of the project states that “the proposed parking structure for the office buildings has serious new design deficiencies that will cause excessive traffic delays, traffic accident hazards, and problems for pedestrian movements.”
Sharks Sports & Entertainment “believes that the current environmental review is wholly inadequate for a project of this magnitude, and does not comply with the procedures in the California Environmental Quality Act,” the team’s lawyers wrote in the May appeal. “Additionally,” they state, the project “as proposed will likely put the City in breach of its agreements with SSE.”
Finding a place for parking
Parking has long been a focus for the team, and the team's management agreement with the city identifies a site near the arena for a new parking structure. But it doesn't lay out how it would be funded or when it should be built.
The issue has reared its head now because development is picking up in the Diridon station area, where the city recently approved a new land-use plan to spur growth. Planners believe the underdeveloped area around Diridon could become even more vibrant than the existing central business district because of the growing transit connections that are expected one day to include BART and high-speed rail.
A year ago, the city and the Sharks signed off on a 10-year lease extension that committed the city to “coordinate” with the Sharks regarding development projects in the area and “to ensure that the required number of Available Parking Spaces is maintained,” according to a term sheet approved by the city council. The term sheet states that “if and when” development on the Trammell Crow site occurs, the City will “use its best efforts” to continue fulfilling the parking agreement, “including encouraging the developer to provide Available Parking Spaces during and after site development.”
But a deal for the Trammell Crow project to provide shared parking hasn't been reached. One likely reason: Tech tenants and their security needs. Companies like Apple and Google are notoriously concerned with security in their facilities. That issue surfaced earlier this year at Coleman Highline, a new office development next to Avaya Stadium. (The city changed plans for a park in the area partly to provide the new office buildings with their own dedicated parking.) It's likely that Trammell Crow is reluctant to agree to a parking deal for public access to the project's future garage without getting the eventual tenant's approval.
Nathan Donato-Weinstein covers commercial real estate and transportation for the Silicon Valley Business Journal.