News Clipping Cisco pullout a blow to Coyote Valley hopes
Maria Alicia Gaura [] and
David R. Baker []
San Francisco Chronicle []
October 25, 2001

For San Jose officials, Cisco Systems’ decision to shelve a planned Coyote Valley campus means one more frustration in a long effort to lure tax- paying companies to the site.

For Cisco, it represents yet another retrenchment during a brutal business year.

On Tuesday, the company announced it would hold off construction of a new office complex on the city’s southern edge and cut the project’s overall size, from 6.6 million square feet to somewhere between 1 million and 3 million square feet.

City officials yesterday tried to find reason for hope in the company’s decision. They noted that Cisco had not abandoned the project outright.

But San Jose has long had hopes for the vacant fields 14 miles south of downtown, seeing in them one of the last places to put a new corporate campus in a city that has more housing than jobs. The taxes on those houses don’t pay for all the parks, police and fire services their occupants need, meaning corporate taxes must pick up the slack.

“Coyote Valley is San Jose’s last frontier, and this is our last chance to get it really right,” said former San Jose Mayor Tom McEnery.

For Cisco, however, the project no longer makes financial sense—at least not now. When the company first announced the new campus in early 1999, its sales and payroll were growing at an astonishing rate. So, too, were many of Silicon Valley’s other firms, creating a shortage of space that drove lease prices ever higher.

Now those companies are shedding workers and offices after technology sales plunged earlier this year. The amount of Bay Area office space available for sublease—much of if from financially troubled firms—has increased 525 percent since the fourth quarter of last year, reaching about 12 million square feet, according to the Mihalovich Partners real estate firm.

Cisco, too, has been forced to cut back.

“When we were growing at a rapid pace, we needed to plan to be able to accommodate that growth in employees,” said Cisco spokesman Steve Langdon. “As the economy has slowed, so have our space needs.”

Nor is Coyote Valley the only real estate project the company has placed on hold. Plans for a Fremont campus have been delayed until the economy picks up again, said Daren Fields, deputy director of Fremont’s Development and Environmental Services Department.

Like his counterparts in San Jose, however, Fields expressed confidence the company would eventually build in Fremont. Cisco is one of several companies scheduled to occupy the Pacific Commons project, which will be built on about 370 acres near Interstate 880 and Auto Mall Parkway.

“We don’t see them walking away from Fremont,” Fields said. “We think it’s a question of when, not if.”

Wall Street analysts have spent much of the year trying to figure out when Cisco’s fortunes will turn around. With the company’s next quarterly financial report due in November, many analysts believe Cisco’s sales will hold level or decrease slightly, a far cry from the dramatic drops witnessed earlier this year.

In this climate, holding off on a multiyear construction project makes sense, said Chris Sessing, an analyst with Crowell, Weedon & Co. in Los Angeles.

“You obviously don’t want to see a company expanding their facilities at this point when there’s no demand,” he said.

For San Jose, the Cisco project was more than a run-of-the-mill real estate deal. City officials hope that industrial development in Coyote Valley, the city’s last large piece of open land, will help ease San Jose’s persistent imbalance of jobs to housing.

A development proposal by Tandem Computer was rejected in the early ’80s, and Apple Computer tried several times to build a lavish world headquarters on the site.

“They wanted I.M. Pei to design it; they wanted a tremendous world headquarters,” said McEnery. But those attempts were undone by fluctuating business cycles.

Cisco won approval and popular support for its plan, based largely on the company’s local influence and good reputation. The company’s withdrawal from the site now has many people worried that San Jose has been the victim of a bait-and-switch.

“I don’t subscribe to conspiracy theories, but some people worry that Cisco was used as a stalking-horse to open up the Coyote Valley,” said Terry Christensen, a political science professor at San Jose State University. “Approval was based very much on this being Cisco’s project. Now the area has been opened (for development) and who knows what will happen?

“Will the city stick with good planning or will they unleash the developers?”

David Vossbrink, spokesman for San Jose Mayor Ron Gonzales, said the city is dedicated to maintaining high standards for development of the Coyote site, and noted that diversification may work out well.

“A mix of occupants could be a strength in the long run,” Vossbrink said. “It could lend economic resiliency, and not be so affected by economic ups and downs.”

Vossbrink said the city intends to forge ahead with infrastructure improvements to the Coyote Valley site, including sewer and water extensions, road improvements and an interchange on nearby Highway 101.

©2001 San Francisco Chronicle

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