Anton Menlo – Corporate Perk or Company Town?

Urban Land

September 25, 2015

There is no question that the explosive growth of Silicon Valley’s technology firms exacerbated what is now a colossal gap between the region’s housing demand and supply, with the resulting affordability crisis threatening the very economic expansion that spawned it. From 2012 to 2014, the San Jose and San Francisco metropolitan areas led the nation in employment growth rates; yet, as John McNellis, a developer in Palo Alto, California, has written recently, for the total 382,500 jobs created in the San Francisco Bay area, only 68,200 new dwellings were built. This imbalance is expected to continue through 2015, with forecasts calling for approximately one new unit of housing for every four jobs added. Now the critical question is not only how to, but who should, address this predicament.

Fragmented, density-skittish local governments have traditionally dictated the Bay Area’s housing supply, while private sector residential developers have struggled to build within the context of planning regulations often perceived as overly complex. With the current inventory shortage, the spotlight has shifted to a different group of stakeholders—the technology growth engines themselves—as potential providers. Many of these companies are already famous for offering workplaces with nearly every perk imaginable, such as soccer fields, gourmet food, health clubs, and daycare. Should housing be the next latest-and-greatest campus amenity?

The concept of corporate-sponsored housing is drawing increased attention, particularly as high-profile companies such as Google and Facebook start to experiment with development partnerships. While this does not yet constitute a trend, Bay Area real estate representatives report that these and other firms, including Uber, Salesforce, and LinkedIn, are “kicking around” various residential options. That said, these preliminary ideas still present more questions than answers.

  • To what extent should tech companies be responsible for providing housing as a community benefit?
  • What projects are already underway or planned?
  • Could this realistically evolve into a widespread trend, and would that be desirable?
  • Can a suburban campus be urbanized? And would cities and communities support such an intensification of uses?
  • What are alternatives to corporate-sponsored housing?

Corporate Contributions and Community Benefits

Many of the Bay Area’s technology companies have voiced support for additional housing proximate to their campuses; however, none is in a position to simply go build it. Expanding the region’s capacity ultimately comes down to local government land use policies, which are at least partly grounded in constituents’ opinions.

Increasingly, companies are offering up a variety of community benefits in an effort to appease both municipalities and the public, with a view toward getting the green light for much-needed office expansions. Nowhere is this more evident than in the recent, highly publicized battle for space in the North Bayshore neighborhood of Mountain View, California. Firms, including Google and LinkedIn, sweetened commercial development proposals with benefits including pedestrian bridges, open space, and subsidized rent for small businesses. Even so, it was the housing juggernaut that ultimately influenced the outcome. In a reversal of a previous decision against allowing housing in the district, the city’s May 2015 vote set aside six areas (including two sites planned for Google offices) to be considered for the development of 1,100 residential units.

This conflict not only highlights the critical need for local governments to buy into new housing development, but also reveals growing expectations that rapidly expanding corporations can be leveraged to help cities meet their housing requirements.

Existing and Planned Development

While the future of housing in North Bayshore remains uncertain, Google has already invested in Mountain View’s affordable housing stock. The company contributed $6.5 million to the $23.4 million, 51-unit Franklin Street Family Apartments project, constructed by ROEM Builders and completed in 2013. Since 2010, Google has channeled $100 million into eight other developments, including a housing project for seniors in neighboring Sunnyvale, California. Such ventures benefit communities and generate substantial tax credits and goodwill for their benefactors; however, they do little to alleviate employees’ housing needs.

One groundbreaking new development that targets a technology worker demographic is the Anton Menlo apartment community in Menlo Park, slated for completion in 2016. This 294-unit, $120 million project constitutes the largest mixed-use undertaking in the city’s history. It also represents a partnership between Menlo Park’s largest employer, Facebook, and St. Anton Partners, a privately held multifamily developer. While Facebook’s investment is limited to a $4.5 million affordable housing contribution (funding 15 below-market-rate units), the project’s overall design, campus connectivity, and marketing plans virtually guarantee where the majority of its tenants will work. In what could trigger a far more substantial corporate housing discussion, Facebook has expressed interest in building up to 3,500 additional units both on and off its campus; the proposal has yet to enter what would certainly be a complicated and lengthy rezoning process.

The link between housing supply and the demand created by technology companies is evident in a number of other planned projects orchestrated by more traditional residential developers. The Irvine Company’s proposed renovation and expansion of the Hamptons apartments, adjacent to the soon-to-be-completed 2.8 million-square-foot (260,000 sq m) Apple Campus 2 in Cupertino, California, is one such example. Conversely, developers can use housing as a draw to lure commercial tenants to more pioneering office submarkets. Lennar Urban’s reported bid to land Google as a tenant in Hunters Point Shipyard—its southern San Francisco development that will eventually include 12,000 housing units—also highlights the potential for residential projects to thrive based on employer proximity (and regardless of any additional stimulus from the employer).

Trend or Niche?

Although corporate-sponsored housing is generating intense interest in the Bay Area, the likelihood of encountering the same demand drivers in other U.S. metro areas is slim. The need has stemmed from a “perfect storm” of large, rapidly growing technology headquarters, extreme supply constraints, and skyrocketing costs that is unique to the geography.

Necessity aside, the desirability of this type of housing solution remains somewhat dubious. Would such projects alleviate traffic congestion and increase affordability—or would they result in isolated, economically segregated satellite cities dependent on a handful of companies in the volatile technology sector? Would modern “company towns” be compatible with an increasingly mobile and transient workforce that is arguably shifting toward contractor- and project-based work?

Urbanizing the Suburban Campus

Evolving workforce preferences are in large part responsible for bringing into question the future of Silicon Valley’s suburban campuses. A large percentage of young tech workers favors San Francisco’s urban neighborhoods over suburban sprawl. That said, regardless of how badly their employers might wish for increased proximity to the city, it is simply not feasible to relocate thousands of employees and re-create large-floor-plate environments in a market with a 5.5 percent vacancy rate and a pipeline that is already more than 50 percent preleased.

The potential to urbanize these suburban campuses, including the addition of a housing component, is up for debate. These efforts will depend on support from local policy makers; even so, massive rezoning efforts would not be enough to realize a dynamic, pedestrian-oriented vision. Substantial infrastructure investments would need to be funded and approved, as would public services agreements. These hurdles, combined with what would almost certainly be public outcry, preclude going all-in on density, theoretical examples of which are shown in Bay Area graphic designer Alfred Twu’s renderings of what several existing campuses would look like if their parking lots could be used to house employees.

A further consideration goes back to the desirability of such schemes and whether employees would want to live on site. Would they be willing to trade the diverse appeal of San Francisco for workplace proximity and a more homogeneous community of fellow employees?

Any technology company–driven, housing-related densification will require partnerships with real estate developers. The notion that tech companies can or should diversify into mixed-use real estate and place making is impractical. Demand assessments, financial feasibility, and reuse and exit strategies are best addressed by experienced players.

Corporate Housing Alternatives

Finally, discussion of corporate-sponsored housing should address alternatives. Given that scarcity and cost underlie the need, the most obvious alternative would be relocation to cheaper markets in which supply is more plentiful. The benefits of geographically diversifying corporate real estate portfolios are compelling, particularly when prospective employees are also considering lower-priced living options. As one San Francisco commercial real estate broker commented, “The potential for companies and workers to leave the Bay Area because of high costs is the biggest risk in terms of killing the current economic cycle.”

Housing stipends represent another means of easing the impact of high housing costs. Already in use by numerous Bay Area firms, such subsidies may be a more pragmatic way to compensate employees than jumping into the residential real estate game.