These landowners got rich buying and building Silicon Valley. Now can they fix the housing crisis?
Silicon Valley is one of the most expensive real estate markets in the United States. While it’s known that a handful of tech companies are huge employers, what’s less obvious is that these firms are also some of the Valley’s biggest landowners. We spent nearly a year looking at half a million property records to figure out – Who Owns Silicon Valley? This series was produced by KQED, The Mercury News, NBC Bay Area, Renaissance Journalism and Telemundo 48 Área de la Bahía. It is part of Reveal’s Local Labs initiative, which supports lasting, sustainable investigative collaborations across the country.
In a region where real estate equals influence, prestige and prosperity, just 10 power brokers – a mix of technology behemoths, commercial and residential developers and one private university – own about $59.2 billion in taxable property, making them the largest landowners in Silicon Valley.
Their concentrated wealth provides a window into how tech and real estate companies – and the university, Stanford – have shaped the valley into an economic powerhouse but also helped create the housing crisis now threatening Silicon Valley’s money-making engine, straining its middle class and displacing people who have lived here their whole lives.
These findings come from an analysis by a collaboration of local and national media, including this news organization, of more than half a million property records from the Santa Clara County Assessor’s Office during a yearlong reporting project. Much of the property is owned by a web of corporations and trusts, requiring deeper reporting into thousands of records to reveal the true ownership.
As both large players and smaller buyers bid up the price of land and consolidated their holdings over the last decade, who can afford to buy – and who can’t – has become perhaps the region’s most critical dynamic. The 10 largest owners alone control more than 11% of all the taxable property in the county.
“The increase in land values have almost single-handedly caused the increase in property values and then everything that goes with that in terms of rent (and) cost of housing,” said Larry Stone, Santa Clara County’s assessor. It’s also impacted commercial development, pushing out land-hungry manufacturing even as businesses propelled by the power of their ideas establish bigger and grander offices.
The county’s largest property owner is Stanford University, birthplace of some of the valley’s best-known tech companies. The university owns roughly $19.7 billion worth of taxable property, according to the analysis of records for fiscal year 2018.
Four tech companies join Stanford in the top 10: Apple owns about $9.0 billion in assessed property and Google has $7.5 billion, primarily in their office campuses in Cupertino and Mountain View, respectively. Google also has recently purchased large swaths of downtown San Jose for a campus expected to include offices, housing and retail. Cisco Systems owns $3.4 billion while Intel’s total is $2.5 billion.
Those companies trace the evolution of tech in the valley, from industry veteran Intel, the most important of the chip manufacturers that put the silicon in Silicon Valley; to Cisco and Apple, middle-aged firms that build the computers, smart devices and networking infrastructure we rely on every day; to Google, just two decades old and one of the leading companies born of the internet.
The other five top owners are real estate development companies, all but one with decades-old ties to Silicon Valley and the Bay Area. They are San Francisco-based Jay Paul Company and Mountain View-based Sobrato, both of which specialize in commercial real estate; and Prometheus Real Estate Group and Essex Property Trust, both founded in San Mateo, each owning more than a billion dollars’ worth of apartment buildings, although Prometheus also owns hundreds of millions of dollars’ worth of office and research properties.
The only outlier is The Irvine Company, a relative newcomer to this region best known for master-planning the city of Irvine in Orange County. Spotting opportunity in the valley’s boom, the privately-owned company has amassed $5.9 billion in apartments, offices, research and even some manufacturing buildings in Santa Clara County, much of it in the past six years.
Those developers tell another part of the valley’s history, as the focus in commercial development passed from speculative tilt-ups to build-to-suit, and residential construction went from tract homes to apartments and condominiums, sometimes in high-rise towers. John A. Sobrato spent the first 13 years of his career, starting in 1960, on single-family homes before becoming one of the largest commercial developers in the region. His company has since diversified into some multifamily housing. Besides the apartment builder Essex, George Marcus has created companies including SummerHill Homes, a single-family developer that recently has expanded into apartments.
Officials for Jay Paul, Prometheus, Essex and The Irvine Company either declined or did not respond to requests for interviews for this story.
The figures used in these rankings are based on the assessed valuation of county properties in fiscal year 2018 and include the value of land, buildings and other taxable property such as heavy machinery or tech equipment. But those numbers don’t fully reflect what holdings are worth: California’s Proposition 13 limits the increase in assessed values of land and buildings to no more than 2% each year unless property is sold. For players such as Stanford and Intel, which have owned certain properties for decades, their lands have assessments well below their current market value.
Real estate ownership and development is not without significant risk. But for those companies that have survived in Silicon Valley since the 1960s and 1970s — Sobrato, Prometheus, Essex and Jay Paul were all founded between 1965 and 1979 — the meteoric rise in property prices has been wildly profitable.
“I don’t think developers, any developer, realized what was happening here and how beneficial and financially successful they were becoming because of this,” Stone said.
When Stone was first elected assessor in 1995, all the taxable land in the county had a total assessed value of $115 billion. In 2019, it was $516 billion – a 350% increase in 24 years.
“That tells you the story of Silicon Valley,” he said. “At least from a real estate standpoint.”
The Sobrato family, whose organization often is ranked as one of the most philanthropic in the Bay Area, has a net worth estimated by Forbes at $6.7 billion. Jay Paul has a net worth estimated at $3.5 billion.
Prometheus founder Sanford Diller, who died in 2018, and Marcus, whose companies include Essex and Marcus & Millichap, both had estimated net worths of at least $1.5 billion.
Those developers have mined their fortunes from the industry’s explosive growth and hiring boom. Sobrato helped build Apple’s old Infinite Loop headquarters in Cupertino, and Jay Paul’s corporate tenants include Google and Microsoft.
Residential developers, meanwhile, erected the homes and apartments to house those highly-paid programmers and engineers. But their business is now challenged. Today high-end apartments, renting out at $3,000 or more a month, are the only ones profitable enough for developers to build here without government assistance, according to Michael Lane, deputy director of the housing advocacy nonprofit SV@Home.
“Particularly in the Silicon Valley but this is true in the Bay Area and beyond, the only projects that really pencil are high end projects that can really get those higher rents,” Lane said. “But they need rents to increase on an ongoing basis over time. That’s just the business model to be able to pay back the loans and the expenses.”
That model is driven in large part by land values – the average listing price per square foot in Santa Clara was $685 in September, nearly double what it was in September 2010, according to Zillow.
And there’s no looking back, said Sobrato, founder of The Sobrato Organization. Land is too scarce, and demand is too high.
“It’s always going to be a very expensive place to live,” Sobrato said. “We’re not going to be able to reduce the price of housing down to where it’s going to be affordable for the majority of middle income people.”
Instead, the skyrocketing cost of housing is driving an exodus from the region – with some expats choosing two-hour commutes from Tracy or Vallejo for better rent or the chance to own and others giving up and abandoning California for Texas or Idaho. The neighborhoods they leave end up generally wealthier – and with fewer African American and Latino residents. Some that remain are increasingly moving into vans and RVs, lining neighborhood streets and leading some cities to ban them; the estimated 9,706 residents in the county without a home is the most in over a decade.
There was, though, a time when property in the valley was cheap and plentiful, spurring an East Coast company to come here to build an expansive manufacturing plant. What happened on its South San Jose campus over the following six decades is a tale of Silicon Valley in miniature, as rising prices and shifting owners drove sweeping changes in land use, in ways that have been repeated across the region.
Khrushchev and Palo Alto homes
The year was 1955, when New York-based technology powerhouse IBM purchased 425 acres of mostly orchard land to build a new type of research and manufacturing campus off Cottle Road.
The company had been drawn to the region by the talented young graduates coming out of Stanford and other Bay Area universities, who were reluctant to leave the picturesque setting and near-perfect weather of the so-called Valley of the Heart’s Delight, according to Dag Spicer, senior curator at the Computer History Museum.
“IBM felt it was losing out on the technical talent of West Coast engineers,” Spicer said. “That became the genesis of IBM’s entire presence on the West Coast.”
Just a few years earlier, the company had invented the world’s first hard-disk drive, revolutionizing computing as it obsoleted punch-card programming. Taking advantage of the vast orchard land, IBM built a manufacturing and research plant for the new drives on Cottle Road, featuring open space, modernist art and a punch-card inspired facade.
At its peak, the campus was home to more than 13,000 workers (and almost certainly would have made IBM one of the top 10 landowners in Santa Clara County, had a list been compiled then). It was even one of the stops in Soviet Premier Nikita Khrushchev’s 1959 visit to the U.S. The communist leader was unimpressed with the hard drives but raved about the cafeteria, according to Fast Company, later encouraging factories in the USSR to adopt a similar model.
To house those workers, along with the growing workforces of Hewlett-Packard, the recently founded Fairchild Semiconductor, and defense giants like Lockheed and United Technologies Corp., developers were building a valley to match the American dream: affordable single-family homes outside of urban centers and suburban industrial parks where middle-class workers would drive easily to their jobs.
“For the first 13 years of my career, I was a real estate, single-family home broker in Palo Alto, (with a) company called Midtown Realty that I started in 1960,” Sobrato said. “We used to sell homes for $20,000, 10% down. It was easy for people to buy a home, very easy. And nobody had to commute two hours to, you know, Tracy.”
Sobrato noted that Palo Alto didn’t get its first condominium until 1963 – his company had the listing for it.
As time passed, the valley minted more and more cutting-edge companies – Intel came along in 1968, and the moniker Silicon Valley was coined, as best can be determined, around 1971.
The increasing power of silicon chips and the growing capacity of hard drives led to personal computing, then networking, and that too boomed right here: Apple started up in 1976, and Cisco in 1984. The tech industry paid its engineers extraordinarily well but – although it wouldn’t be obvious for years – the region had headed down an unsustainable path.
Consider: In 1960, a house in Santa Clara County cost about $145,000 in 2018 dollars, roughly 2.3 times the median annual income for a household in the region. By 2000, that had grown to $651,000 and six times the median household income. In 2018, a home in the valley cost an average of $1.1 million, 8.8 times the median household income that year.
If Sobrato or SummerHill homes had perfect foresight, would they have realized single-family houses could never accommodate the almost 1.2 million jobs that would eventually be based in Santa Clara County? And if they had, could they have built – and convinced those tech workers to buy – something different?
“I don’t think developers have as much vision as to what’s going to occur in the future,” Stone, who spent years himself in development before becoming assessor, said. “They’ll build whatever’s popular to build. They’ll build whatever sells.”
Building up the valley
Eventually, rising land costs began to force the decline of manufacturing in the valley, as defense and technology companies sought cheaper locales for the lower-paid workforce that sustains that sector.
Apple shuttered a computer factory in Fremont in 1992, less than a decade after it opened, and a model factory run by Flextronics for Cisco closed in 2003, part of the manufacturer’s 3,000 layoffs that year, according to the book “From Silicon Valley to Shenzhen,” which looked at how Silicon Valley moved many manufacturing facilities to China in the 2000s.
And in 2002, IBM bailed on local manufacturing altogether, selling its hard-drive division to Hitachi Global Storage Technologies, or HGST, a subsidiary of the Japan-based Hitachi, and with it, the now 332-acre Cottle Road campus. (The company earlier had divested portions of the campus to developers who built a Lowe’s with a punch-card-like shell that mimicked IBM’s old corporate building.)
But IBM, like many of the valley’s technology stalwarts, didn’t disappear from the region. The company’s hilltop Almaden campus has an assessed value of $205.8 million – its market value in 2019 is far higher – and has 73.6 million square feet of usable space. That campus is used for one of the few things it’s still profitable to manufacture in the valley: ideas, embodied in human form as R&D and in digital form as software. The IBM research center is working on artificial intelligence and quantum computing, among other areas.
“Now, that manufacturing simply doesn’t exist here, and land values, again, caused that to go somewhere else,” Stone said. But “the brain trust still is here and the high-tech engineering still is here because this is where the people are.”
And the land is worth far more as something else. Stone pointed at a research and development facility AMD opened in 1990 in Sunnyvale, the city he had served as mayor. A few years ago The Irvine Company purchased AMD’s campus space, which the chip manufacturer had leased for 47 years. In 2017, the developer announced plans to build 1,076 housing units on the 34-acre site.
For its part, soon after it acquired the IBM property, HGST began working on plans to sell off some of its new holdings. In 2005, San Jose approved a new master plan that would allow for 2,930 homes and 460,000 square feet of retail and commercial.
Developers, including Miami-based Lennar, Cupertino-based Hunter Properties and San Francisco-based Pacific Coast Capital Partners, began building townhomes, apartment buildings and retail space on the old IBM land, including a Target and a Safeway.
One of the developers was ROEM, which in 2018 owned about $680 million worth of land, buildings and taxable property in Santa Clara County, making it the valley’s largest developer primarily focused on affordable housing, according to the media collaborative analysis. In 2015 and 2016 the company developed three apartment buildings on the campus. Lexington Luxury Apartments, with 387 market-rate units, has a gym, saltwater pool and outdoor BBQ space. The company sold that building, where rent for a studio starts at $2,255 a month.
The two other apartments, Oak Grove Apartments and Charlotte Park Apartments, have a combined 334 units rented to families earning 60% or less of the area’s median income. That housing is helping to fill a gap that threatens the region’s economy, according to Stephen Emami, vice president at ROEM.
“Not everyone is working at a tech company. We have a lot of people that just are in part of the workforce, even firemen, police officers, teachers, people that work here, they can’t” afford the rents, Emami said.
Median rent in the county has increased from $797 in 1960 in 2018 dollars to $2,305 last year, according to census data. Even well-paid workers are having trouble finding affordable housing, spurring Google to launch a $1 billion plan to build housing in the Bay Area, including some 15,000 units on land it already owns. ROEM has struggled with its own workers being unable to afford housing.
“As a business owner or a company, we can’t afford to have all of our employees coming in two hours away,” Emami said. “It just won’t last.”
ROEM’s Oak Grove units were a lifeline for Dana Mancha and her family, which includes her husband, three kids, two dogs and a baby on the way. She estimates that she signed up for 81 waiting lists for affordable housing units before finally scoring a home. For about three years they lived in a studio apartment in San Jose, cooking in a crock pot because there was no kitchen.
Mancha is studying full-time to be a dental assistant, and her husband is an auto technician. She said the income range for affordable housing is much higher than people expect – up to almost $94,860 in annual household income for a family of five. Rent at an affordable apartment like hers is capped at $1,976.
“When you hear low income, a lot of people are like, ‘Oh, $50,000 and under,’ ” she said. “But that’s not the case at all.”
Mancha’s second child was born while they were still living in the studio and was a toddler when they moved into their new two-bedroom apartment.
“When we walked in the door, we recorded the whole thing, and she was so shocked,” Mancha said. “She didn’t know where to go because it was so big. She grew up in, like, literally a box, and then to this it was like, ‘wow.’ “
Where the valley goes next
The future is never foreseeable, but Santa Clara County property records offer their own set of clues.
The companies that own the biggest chunks of valley land – and particularly those that can afford to expand, such as Google and Apple – are those that make profits at a level beyond most of American industry. Only those companies can afford what a developer such as Sobrato must charge to support his own real estate costs.
“Because of the productivity level from those average employees in Silicon Valley, you know, they earn about $500,000, $600,000 a year for the average company,” Sobrato said. “So a corporation can afford to pay these extremely, extremely high rents.”
Development, too, is a high-end game, mostly restricted to players such as Irvine and Jay Paul and Sobrato, and only government subsidies allow an affordable housing builder like ROEM to do business.
Lately, the costs are squeezing even the mega-owners. Facebook CEO Mark Zuckerberg (whose company’s headquarters is just north of Santa Clara County in Menlo Park) said in a recent employee meeting, streamed online, that the social media giant plans to expand mostly outside of the valley from now on because the local infrastructure – housing and transportation – can’t support its growth here.
Big Players By Category
Here are the top 10 landowners, ranked by the total assessed value of their holdings in single-family residential, multi-family residential and commercial property.
Source: Analysis of Santa Clara County Assessor’s data for FY 2018
In the residential development sector, Sobrato notes that he and his peers are mostly sidelined, as a recent slowdown in rent growth – though welcomed by residents who struggle to afford the current level – is taking the anticipated profit out of construction.
“This year we’re not seeing the big increases we did in the past,” he said. “So there are many, many projects that could start that are stalled on the apartment side.”
Longer term, he pointed at everything from increased construction costs – building offices used to cost $8 a square foot in 1960 compared to $400 today, he said – to the requirements of the California Environmental Quality Act, known as CEQA, as barriers to building that could ease the housing shortage. Another culprit: cities that resist new housing, affordable or otherwise.
Those developments that are profitable enough to build, on the high end of the market, are less likely to help alleviate the housing crisis for middle and lower income families, according to Corianne Scally, a principal research associate with the national think tank Urban Institute.
“I definitely think it’s helpful to build,” she said. “But I don’t think that it’s helpful to only build at one end of the market.”
When ROEM gets something built, it’s usually filled almost immediately. A recently opened affordable housing complex with 116 apartments the company built in Mountain View opened on a Friday and was fully leased by Monday.
Moving forward almost certainly requires entirely new approaches. Sobrato suggested building housing for teachers and municipal workers on existing government-owned land as a way to address at least one part of the affordability crisis.
“These schools have a lot of green space, soccer fields, football fields, you name it, and some of these areas could be repurposed into dense housing,” he said. “But if the school district decides to do that, the neighbors usually come out in force objecting.”
Another way, in the minds of some, is for big landowners such as Stanford and Google to take on new responsibility for housing their own employees. Stanford is encountering those demands from Santa Clara County officials as it seeks permission to expand academic space; even Google’s $1 billion plan is not enough for housing advocates and labor leaders in San Jose, who are insisting that the search giant construct more affordable housing as the price for its downtown aspirations.
Lane, with SV@Home, suggests an approach that doesn’t rely on multi-billion dollar developers. For example, a few properties in a street of mostly single-family homes might become duplexes or triplexes, and homeowners could be encouraged to add backyard housing units that can maximize existing space.
“We have to revamp all of the approaches now,” Lane said. “We need to rethink how we do development.”
Whatever the future of development in Silicon Valley looks like, Mancha and her family are happy with their present — they received an offer from another affordable housing complex recently for a bigger place, but she doesn’t think they’ll accept.
“We really don’t want to move from here,” she said. “The community’s great. We have access to all the stores.”
From her window, she can see what remains of the old IBM complex — the dilapidated and boarded up cafeteria building. Trees have started growing out of the building’s roof, and two kittens — one golden and the other black — peek out of a hole in the back entrance. Parts of a modernist statue that once was a focal point of the corporate campus sit in a parking lot across the street, and neighborhood kids sometimes sneak into the old building.
It’s a vision of the valley’s past that — if looked at in a particular way — might offer a cautionary tale of things to come.