Update, Thursday 3:50 p.m.: The Silicon Valley Business Journal has reported that Apple Inc. signed a major lease for space in San Jose. Citing unnamed sources, the business publication said the Cupertino-based company has reached an agreement to lease nearly 300,000 square feet in North San Jose. The deal, if confirmed, would mark Apple’s first major entry into San Jose in quite some time. Apple wouldn’t comment on the story.

This is Part 2 of two-part series looking at why San Jose, the third largest city in California, has faced fiscal problems while the tech boom is enriching the Silicon Valley communities around it. Read Part 1 here.

San Jose, the self-described “Capitol of Silicon Valley,” is barely in the black after years of deep deficits and painful cutbacks. Why?

You could say San Jose didn’t have the luck to be home to one of the tech firms that blew up in this latest boom, like Google, headquartered in Mountain View, or Facebook, based in Menlo Park. But the longer the boom goes on, the more San Jose finally may be getting a piece of the economic action.

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Consider the Whole Foods in downtown San Jose that opened last December. It’s got its own brewery, and it’s steps away from the SAP Center, a massive arena home to the San Jose Sharks. On warm summer nights, the open-air tap room is packed with people like Oz Rosario and his wife Jaime.

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"They did a tremendous job here," says Oz Rosario between sips of beer. "It’s just a great ambiance to come and catch some of the city vibe of what's going on here -- the re-gentrification."

The Rosarios came to San Jose two years ago because of his job in tech. He’s in product development at Verizon. They’ve got two kids under three years old. In many ways, they’re exactly the kind of affluent family Whole Foods expected to attract to this store when it signed the lease seven years ago.

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Rob Twyman, regional president for Whole Foods Northern California, explains the calculation. "We want to be sure it’s a fairly densely populated area: high proportion of college grads proportionately, and that the site itself is strong in terms of its access, visibility and there's an affinity for natural foods."

According to the US Census, the median household income in San Jose is $81,829. Compare that to $75,604 in San Francisco. But San Jose lags other cities in the region in capitalizing on sales tax revenues. People shop regionally without regard for city borders. So while Whole Foods has stores in nearby small cities -- Campbell and Los Gatos, and another coming soon in Santa Clara -- San Jose has only two.

San Jose officials say this city of a million people serves as a bedroom community for the region. But in order to provide those residents with the city services they require, urban planners say San Jose needs to pull in more retail and corporate development.

Silicon Valley tech companies are the city's natural target. To start with, the city is home to tech giants from previous tech booms.

"To be fair, Cisco Systems in North San Jose isn’t something to sneeze at," says Paul Krutko, who was San Jose’s Chief Development Officer for eight years. "Adobe headquartering in San Jose is nothing to sneeze at. Ebay, Pay Pal. Two IBM research centers."

But San Jose has been slower to draw in tech companies from this latest boom, even though many of them have expanded across the region with multiple campuses.

That said, the very fact San Jose has lagged behind the rest of the region may now prove to be its saving grace. Much of the rest of Silicon Valley is tapped out for big spaces, and San Jose now seems relatively open and cheap by comparison.

Going shopping for Class A office space in Silicon Valley? There's a wide range of geographic options, and prices. (Courtesy of Clark Steele and Laura Tu, Newmark Cornish & Carey)

At least one marquee firm that essentially sidestepped San Jose in the past is now reportedly circling back to sniff out big properties: Apple Inc. has been looking at two locations in San Jose for expansion, according to the Silicon Valley Business Journal. The Journal, citing unnamed real estate sources, also reported that Tesla Motors Inc. had looked at one of the same sites.

Apple and Tesla both declined to comment.

"I think San Jose has been able to attract a number of companies that couldn’t afford the rents in the higher priced areas," says Joe Horwedel, a former planning director for San Jose.

According to Kim Walesh, Director of Economic Development for San Jose, some of the tech companies that have moved into the city in the last 18 months include:

ABB
Barracuda Networks
Dice
Datawise
Naprotek
Protein Simple
Quanta Cloud Technologies
Univision
Spiraledge
Vander-Bend
Verizon

There's no telling whether Apple or Tesla will be added to the list, but news that they're considering San Jose is gratifying to Horwedel because it suggests his 31 years spent preparing the way for development in San Jose have been worth it.

"We worked through a lot of traffic mitigation," Horwedel says. "We worked through streamlining the approval process to go and be able to approve projects very quickly. So we set the table."

From San Jose's perspective, too many tech buses head out of the city every work day. (Rachael Myrow/KQED)

Paul Krutko, who was San Jose’s Chief Development Officer for eight years, agrees. "You have to do some of this work way in advance. Because if you aren’t prepared, if we didn’t do anything on the site [that Apple is examining], Apple [might say] 'We’d like to locate there,' and you don’t have the proper zoning, the entitlements, whatever, then they can’t develop it there. They’re going to go to another site."

A big table has been set. According to the mayor's office, 10.3 million square feet of office and R&D space is in the pipeline in North San Jose alone, the neighborhood Apple is considering.

"We've been growing at a record clip for really the last two or three years in terms of jobs," says Mayor Sam Liccardo. "What we're seeing in terms of demand for sites from employers has been incredible."

Santa Clara County Assessor Larry Stone says from the time he moved to Sunnyvale in 1970, "Everything historically has rolled from north to south: high tech companies, occupancies, vacancies, rents, roll from Palo Alto south to San Jose."

He says it is important that San Jose takes advantage of the current boom to lock in new tech companies. That's because while he doesn't think this tech boom is a bubble, he says he's seen enough economic busts to doubt that any boom lasts forever.

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"Because our cycles tend to be steeper, there's more pressure for cities to get with it before the inevitable downturn to come."

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