Downtown San Jose mixed-used office, retail project hits double milestone

Downtown San Jose developer Urban Catalyst has landed the construction financing and necessary permits to turn a shuttered movie theater into a new office and retail space.

The company said it obtained a building permit for the 100,000-square-foot project and secured a $56.2 million senior construction loan through Rialto Capital. Jordan Angel, a managing director at JLL Capital Markets, arranged the loan.

“Bringing this mix of new retail and office into a long-shuttered building is the very definition of urban revitalization,” Erik Hayden, Urban Catalyst’s founder and CEO, said in the statement.

Dubbed “Paseo,” the three-story development is located at 201 S. 2nd St., a desirable address in San Jose’s core thanks to its proximity to a light-rail station and San Jose State University. It also sits on the Paseo de San Antonio, which is lined with storefronts and connects the university to the heart of the city’s downtown.

“The Paseo de San Antonio is a `restaurant row,’ and we are going to be adding to that,” Hayden told The Real Deal on Monday.

Urban Catalyst is negotiating with three different full-service bar and restaurant operators to lease most of Paseo’s ground-floor retail space, which totals about 25,000 square feet, Hayden said. He declined to disclose those operators’ names but said he plans to announce them once the leases are complete. Nick Goddard, a senior vice president at Colliers, is the listing broker for the retail space.

The project’s 75,000 square feet of Class A office space is spread across its top two floors. All of it is still available for lease, and Urban Catalyst is targeting a single tenant to occupy both floors, Hayden said.

Each floor includes a built-in mezzanine level and catwalks that connect to a rooftop garden. Those features and the 35-foot ceilings on each office level make it unlike any other workspace in downtown San Jose, Hayden said. Jeff Arrillaga, a vice chairman at Newmark, is the listing broker for Paseo’s office space.

Swenson Builders, which Urban Catalyst hired as the project’s general contractor, plans to begin construction immediately, Hayden said. That work is slated to wrap up in July 2022, according to Urban Catalyst’s news release. Most of the existing building’s interior has been knocked down by Buccaneer Demolition Inc., although some structural demolition work remains, Hayden said.

Paseo is the first of six projects in Downtown San Jose that Urban Catalyst intends to begin constructing during the next 12 months, Hayden said. All of them are part of a fund created by the developer that’s focused on “Opportunity Zones,” which were created by the 2017 Tax Cuts and Jobs Act to spur development in low-income communities.

Those zones allow investors who invest unrealized capital gains in opportunity zone funds to defer paying capital gains income tax on that money through Dec. 31, 2026.