SAN JOSE

RECOMMENDATION

Adoption of a resolution approving the Memorandum of Understanding between the City of San Jose and BEA Systems, Inc., and authorizing the City Manager and the Executive Director to negotiate a Development Agreement with BEA Systems, Inc., to facilitate the expansion of the company’s corporate headquarters located on North First Street in the Rincon de Los Esteros Redevelopment Project Area to 2.8 million square feet.

BACKGROUND

Founded in 1995, BEA is considered to be the world’s leading application infrastructure software company selling products and services to over 13,500 worldwide corporate customers. BEA’s customer base includes companies in telecommunications, health care, pharmaceuticals, securities, airline, semiconductor, aerospace, and electronics manufacturing. BEA is a San Jose success story.

· The company employs over 3,000 people in 96 offices in 34 countries.

· Approximately 1,000 BEA employees work at the corporate headquarters location on North First Street.

· BEA is the fastest company in history to reach $1 billion in revenues.

In response to this growth and to secure the company’s future in San Jose, BEA executives have been meeting with City and Agency staff over the last six months to explore opportunities to facilitate an expansion of the corporate headquarters. BEA has requested Council action on the proposed Memorandum of Understanding (MOU) as the basis for proceeding with negotiations on a Development Agreement that is tentatively scheduled for consideration by the City Council in June 2004.

ANALYSIS

BEA currently leases its North First Street offices. In 2000, BEA purchased approximately 43 vacant acres of land from Agilent in an effort to prepare for the company’s growth needs. The property is adjacent to its current location. Two Planned Development permits approved in December 2001 and July 2002 entitled the company to build 1.4 million square feet of R&D and office space. Transportation improvements required as a condition of the PD permits have recently been completed.

Earlier this year, BEA approached the City and Agency to investigate the possibility of doubling its current entitlement from 1.4 million square feet to a total of 2.8 million square feet on its North First Street property. The company has indicated it wishes to stay and grow at this location, but that its current development rights are insufficient to accommodate BEA’s anticipated long-term space requirements. At build-out, the project could generate over 8,400 jobs for software engineers and office workers. In addition, the project would generate thousands of indirect jobs for residents of San Jose over the next 15 years and would provide millions of additional dollars in property tax to the City.

BEA has requested that the City and Redevelopment Agency enter into the proposed Memorandum Of Understanding to ensure that mutual goals are met through the negotiation and execution of a Development Agreement between the parties. The MOU describes two phases:

Phase I – Phase I will allow BEA to construct the full 1.4 million square feet contained in its current permitted allocation on the portion of its 43 acres that is along North First Street and the light rail transit corridor. BEA has filed a General Plan Amendment application to increase building heights from 105¢ to 210¢ on the entire parcel, an application for a rezoning to a Planned Development (PD) District, and an application for a PD Permit. The General Plan Amendment and PD rezoning applications are scheduled for consideration by Planning Commission in November 2003, and by City Council in December 2003. The rezoning will enable BEA to concentrate the existing 1.4 million square feet along the North First Street portion of the site.

Phase II – Phase II envisions possible methods to meet BEA’s need for an additional 1.4 million square feet of development starting January 1, 2006, bringing the total development to 2.8 million square feet over the entire 43 acres.

The proposed Memorandum of Understanding provides two possible alternatives for providing the required additional square feet: 1) a modification of the North San Jose Area Development Policy; or, 2) an additional allocation from the floor area transfer credit pool.

North San Jose Area Development Policy Modification – Under this alternative, allowable densities would be increased in the geographic area covered by the North San Jose Area Development Policy, by increasing the allowable floor area ratio (FAR) for proposed development. The floor area ratio is the total building area divided by the site area. An increase in the allowable FAR would require a City Council approved amendment to the North San Jose Area Development Policy (ADP). The current ADP uses three mechanisms to regulate development: 1) a maximum FAR; 2) height limitations; and, 3) a Level of Service Policy. Taken together, the three mechanisms limit the square footage in the Rincon Project Area. Prior to Council consideration of such an amendment, it will be necessary for an environmental review to be completed, including an analysis of traffic impacts associated with the higher densities that an increase in the FAR would allow and a determination of the transportation improvements necessary to accommodate the higher densities. Staff estimates that this work can be completed by the late Spring 2004. The intent will be to proceed with the analysis and bring a proposed amendment of the ADP before the City Council for consideration in a timeframe that would support the successful build-out of BEA’s project.

Allocation of Additional Development from the Existing or Expanded Floor Area Transfer Credit Pool - Under the current North San Jose Area Development Policy, a mechanism has been established for allocating floor area transfer credit for qualifying projects. Square footage is accumulated in a pool when the land use for a particular site is redesignated from industrial to residential in the North San Jose Development Area. Additional square footage accrues as building permits are issued. The proposed Memorandum of Understanding (MOU) includes a provision allowing the City to allocate 75% of the available transferable square footage that has accrued under the North San Jose Development Policy (assuming that transferable square footage exists in the pool and is not encumbered or reserved through previous agreements) to BEA annually, beginning in January 2006, up to the point that the additional 1.4 million additional square footage is reached. The proposed MOU also provides for the Director of PBCE, at his or her sole discretion, to allocate to BEA additional square footage from the pool if that additional square footage pool is available at the time.

The proposed MOU is the first step towards the negotiation and execution of a Development Agreement between BEA and San Jose, which is tentatively scheduled for City Council and Redevelopment Agency consideration in June 2004.

PUBLIC OUTREACH

Developers, architects, property owners and several San Jose corporate executives recommended that the North San Jose Area Development Policy be modified to allow increased densities along the light rail transit corridor at the “Getting Families Back to Work” sessions and focus groups held as part of the San Jose Economic Development Strategy process. A formal outreach process will be undertaken during the analysis of any proposed modifications to the North San Jose Area Development Policy.

COORDINATION

This item has been coordinated with the Planning, Building, Code Enforcement, Public Works, Transportation, the Office of Economic Development, the City Attorney’s Office and the Agency’s General Counsel,.

COST IMPLICATIONS

PBCE Staff is in the process of preparing a cost estimate for the environmental impact analysis necessary to propose a modification in the North San Jose Development Policy in response to Council direction concerning the Mayor’s Recommendations from the Getting Families Back to Work Study Sessions.

CEQA

Not a project.

DEL BORGSDORF SUSAN F. SHICK

City Manager Executive Director