San Jose to sell FMC land to Hunter/Storm for Coleman Highline

See correction at end of article.

San Jose is poised next week to greenlight the sale of 23 acres of land — part of the old FMC site near the San Jose airport — to developer Hunter/Storm LLC, paving the way for a speculative office project there, plus a 150-room hotel.

The project is the first phase of Coleman Highline, a long-planned office campus that could eventually include up to 1.5 million square feet of office space in close proximity to the Santa Clara Caltrain station.

The sale will be phased, instead of a single land buy as originally envisioned. Still, officials hailed it as a major milestone because Hunter/Storm intends to start building immediately without a tenant in tow. Early site work has already begun. The council will take up the issue at the Dec. 16 meeting.

“Getting new spec coming out of the ground is a big deal for us,” said Nanci Klein of the city’s Office of Economic Development.

The office development is the latest example of long-stalled projects finally starting up in San Jose. It’s also the next chapter for a site with a long history, and a sign of how land in Silicon Valley continually reinvents itself.

For more than four decades, defense contractor FMC had its manufacturing and R&D operations on the site at 1123 Coleman Ave. Work included development of the Bradley Fighting Vehicle.

The facility closed in the mid1990s, and various uses were floated. The Sobrato Organization, the legendary Silicon Valley office builder, entered into a deal to buy the land, but that sale never happened, partly over environmental concerns.

San Jose purchased the site in 2005 for $81 million and cleaned it up. The city was originally going to use the land for an expansion of the airport, but those plans were downsized and the city looked to find other uses for it.

Enter Hunter/Storm. In 2008, the Cupertino-based firm gained approvals for a massive office, hotel and retail complex on the site, but it went on ice during the recession, with developers continuing to make option payments on the land. Meanwhile, the San Jose Earthquakes acquired 15 acres adjacent to the development site for what is today called Avaya Stadium.

Now developers are sensing the time is right to pull the trigger on office, even in San Jose, where leasing traditionally lags South Bay competitors such as Santa Clara and Sunnyvale.

Just last month, Legacy Partners started building a 200,000-square-foot building at 2503 Orchard Parkway on land it has owned for seven years.

Under terms in the deal slated for approval on Tuesday, Hunter/Storm will only buy about half the city-owned land — roughly 23 acres of the 45.5 acre site — for about $41 million (though $5 million in option payments will be applied to that number). The company, led by partners Deke Hunter, Ed Storm and Curtis Leigh, would purchase the second tranche for about $30 million by the end of 2017.

This is a switch from an earlier deal, in which Hunter/Storm would have taken down the whole thing. But Klein said it’s what’s necessary today given the market.

“The city’s intention is that by getting the spec buildings out of the ground and getting tenants to commit, they’ll be able to pull down the rest of the land faster and the carry costs will be less,” Klein said. She noted that Hunter/Storm had success with two other projects it started before tenants committed — the @First campus in North San Jose, which landed Brocade, and Crossing/900 in Redwood City, which snagged Box Inc.

The first phase calls for construction of a 320,000-square-foot office building, up to 12,500 square feet of retail and a hotel.

The project could ultimately include up to 1.5 million square feet of office, two hotels and 50,000 square feet of retail.

The latest deal also provides new information on how a crucial tunnel linking the Santa Clara Caltrain station to the site would be built. The tunnel is estimated to cost $14 million, with Hunter/Storm committing to paying $6 million — though $2.5 million of that will be advanced by the city, to be paid back as Hunter/Storm acquires the rest of the site. VTA is slated to approve $7.8 million in funding at its board meeting later this week.

For more details on the deal with the city and additional background, check the staff report here.


Corrects reference to Caltrain station in penultimate paragraph. Also corrects date of council meeting to Dec. 16.

Nathan Donato-Weinstein covers commercial real estate and transportation for the Silicon Valley Business Journal.