Dive Brief:
- Lendlease and Google have killed their $15 billion project to develop and build four master-planned communities in Silicon Valley south of San Francisco, according to an announcement from the Australian construction giant.
- Following media reports, Lendlease issued a statement confirming the news Friday. “The decision to end these agreements followed a comprehensive review by Google of its real estate investments, and a determination by both organisations that the existing agreements are no longer mutually beneficial given current market conditions,” the statement said.
- Lendlease said it would be paid for work it has already done in the entitlement and master-planning process for the project that was to include apartments, retail shops and offices. It said it has removed the initiative, collectively known as its San Francisco Bay Project, from its development pipeline, but left its financial guidance unchanged.
Dive Insight:
The companies announced their original plans, which included development districts in San Jose, Sunnyvale and Mountain View, in July 2019. The project called for 15 million square feet of residential, retail, hospitality and other projects in the San Francisco Bay Area, with Google overseeing the development of its own office space. Six months later, the COVID-19 pandemic ravaged global real estate markets and fundamentally changed the outlook for office developments.
The confluence of rising interest rates and uncertainty in the property sector has hit Lendlease particularly hard in the San Francisco region. In August, it announced it was pausing its $1.2 billion, 47-story Hayes Point mixed-use development in the city, the firm’s largest investment in the U.S. That followed the firm laying off about 10% of its global staff in July.
The company has seen its earnings reports suffer, as it tries to transition to a slimmer, investment-oriented business model. CEO Tony Lombardo said in August the company had saved more than $170 million Australian dollars ($110.7 million) in cost savings from the reset phase. Nonetheless, financial experts indicate the company needs to pick up the turnaround.
Other news related to the San Francisco Bay Project emerged in recent months as well. In September, Lendlease announced it was appointing Meg Spriggs, then head of residential for the partnership with Google, to managing director of development for the Americas, effective Oct. 1.