Erik Hayden, a Bay Area real estate executive who is one of the busiest developers in downtown San Jose, recently opened a new 176-room Marriott TownePlace Suites hotel on West San Carlos Street, and landed $112.5 million in construction financing for a nearby 278-unit apartment complex known as Aquino that will have an overall project cost of $135 million.
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Hayden, founder and managing partner with Urban Catalyst, recently spoke to BANG about his views on downtown San Jose; the development potential of Google’s proposed mixed-use neighborhood, Downtown West; and the overall condition of the Bay Area real estate market at a time of elevated costs and high interest rates.
This interview has been edited for length and clarity.
Q: What’s your assessment of downtown San Jose right now?
A: The question that folks have been asking is when is downtown San Jose going to get that it factor. A couple of times we thought downtown San Jose had that it factor. One was right before the 2008 crash. Then it came on pretty strong between 2011 and 2020, peaking in 2019. The nightlife in downtown San Jose has really improved over the last 20 years. This is as good as I’ve seen it. There are things to do downtown now that it didn’t have before.
Q: What was the downtown like before?
A: In years past, downtown San Jose was a big office park. Restaurants opened for breakfast and lunch and then closed. They weren’t open at night.
Q: What has changed these days?
A: Now we don’t see many people here during the day, but at night it lights up, and, dare I say it, it’s become cool.
Q: What are the big problems facing downtown?
A: Downtown San Jose is still facing the same problems as a lot of other major metro areas. Overcoming these problems will create the opportunities. You need to get more people coming back to the office, and you have the homeless problem. You go to St. James Park, and there are still a lot of folks there. We don’t see a lot of solutions.
Q: What could the solutions be?
A: We need a lot more people in downtown San Jose. They need to have lunch during the day and then come downtown in the evening. We need more housing units. We need a lot more residential density. You need people living downtown as well as working downtown. Mayor (Sam) Liccardo had a vision of developing a lot more housing units downtown. And Mayor (Matt) Mahan has much the same idea.
Q: How realistic are the plans?
A: There was talk of 25,000 units, but at 250 units a highrise, you’re going to need 1,000 highrises. It’s hard to see that happening. Overall, San Jose has a good vision of how to develop the downtown, but COVID and interest rates have held the city back.
Q: What’s a more realistic number for housing towers in downtown San Jose?
A: We might not get to 50 or 100 highrises, but we can get to 25 to 30 highrises. Downtown has a lot of bones. We just have to put some meat on those bones.
Q: What areas need to be developed in downtown San Jose?
A: Most of the big development areas are in Downtown West, but there are potential development areas throughout the downtown.There are a lot of empty parking lots. Downtown has a lot of lower-density spaces that have a lot of potential.
Q: Do you think a turnaround is happening?
A: We think this is the beginning of a new cycle. We will see a lot of development happen, although we won’t reach the goal of 25,000 housing units. It’s better to be more realistic. First things first. Let’s build the parts of downtown that haven’t been built.
Q: What about the real estate market overall? What are the challenges and issues?
A: High interest rates are a problem. High labor and material costs are a problem. But high construction costs are what have really sunk the real estate market. It is very busy to build in California because of the state’s regulations. We don’t see much additional revenue from low-flush toilets and EV charging systems. These requirements just add costs.
Q: Do you see any hopeful signs for construction costs?
A: Some new CEQA (California Environmental Quality Act) rules are getting rid of some small portion of construction costs.
Q: How do labor costs look?
A: We have a real issue of labor in the South Bay and really all of the Bay Area. It’s expensive to live here in Silicon Valley and it’s very expensive to live in the Bay Area. We don’t have enough labor. Most of our subcontractor crews come from the Central Valley.
Q: What are the trends in construction costs?
A: Between 2011 and 2020 we saw construction costs double. I remember when I built Meridian at Midtown for $220 a square foot. The Aquino housing development, which is a somewhat similar project, is costing about $550 a square foot. Construction costs have just gotten too expensive.
Q: It sounds like a lot of problems are facing development.
A: We have the highest fees in the country, we have the highest construction costs, we have the highest interest rates in 40 years. Construction ground to a halt in 2022. All of that crushed real estate. Real estate was affected more than any other industry by interest rates.
Q: Do you see any signs of a rebound?
A: It’s starting to come back. Real estate is not quite back yet. But it’s getting there.
ERIK HAYDEN PROFILE
Company: Urban Catalyst
Job: CEO
Age: 46
Birthplace: Portland, Oregon
Residence: Los Gatos, California
Education: University of Washington, Bachelors of Science in Electrical Engineering, Minor in Math
Family: Married for almost 20 years to his wife Tandem. Hayden and his wife have four children.
FIVE THINGS ABOUT ERIK HAYDEN
1. Hayden has been a musician for many years, playing and singing in several bands. His current project is called the Ryan Reynolds Band. His recent album is a country album and is available on all music streaming services.
2. He has always felt a strong connection with the construction trades. He recently launched a plumbing company called Fluid Dynamics Plumbing, doing residential and commercial services in the South Bay.
3. Erik has taken over 800 classes at Orange Theory Fitness. He attended most classes near his home, but has been to over 35 different studios across the country and the world (Barcelona Spain).
4. He met his wife having lunch at the Los Gatos Brewing Company. She was his waitress, and he left his phone number on the tab.
5. Gardening and cooking are hobbies that Hayden has found to be extremely relaxing, with only one exception: trying to convince his kids to eat the vegetables he grows.
