Lendlease and Google End Development Deals for $15 Billion San Francisco Bay Area Projects
Lendlease Group and Alphabet’s Google have mutually decided to terminate development services deals for four master-planned districts worth $15 billion in the San Francisco Bay Area. This move comes as developers continue to withdraw from California’s real estate market.
Lendlease Group and Alphabet’s Google have announced the termination of their development services agreements for four master-planned districts in the San Francisco Bay Area. The deals, valued at $15 billion, have been discontinued as developers increasingly exit California’s real estate market.
Lendlease Secures Contract from Google
In 2019, Lendlease Group won a contract from Google to develop residential and retail spaces in Sunnyvale, San Jose, and Mountain View. The project aimed to introduce approximately 15,000 new housing units to the region. However, due to the decline in demand for office space caused by remote working, both companies have decided to end their collaboration.
Challenges in California’s Real Estate Market
California’s commercial real estate market has been severely impacted by the rise of remote work, resulting in reduced demand for office space and declining property values. Several companies, including Unibail-Rodamco-Westfield, have withdrawn from the market. The exit of Lendlease and Google further highlights the challenges faced by developers in the region.
Project Details and Future Prospects
The partnership between Lendlease and Google involved the development of up to 15 million square feet of residential, retail, hospitality, and office space. However, Alexa Arena, Senior Director of Development at Google, stated that they are exploring various options to move their development projects forward and meet their housing commitments. As of June, 12,900 housing units were approved for development in San Jose and Mountain View.
Although Google is still interested in working with both developers and capital partners to continue the Bay Area developments, Lendlease has decided to remove the San Francisco Bay project from its development pipeline. This project, which was expected to commence construction in fiscal 2026, would have had a negative impact on medium-term earnings.
Implications and Outlook
Analysts at UBS stated that while market expectations for the project had decreased over the past 12-18 months, this change will negatively affect earnings in the medium term (FY26-28). Despite this setback, Lendlease maintains its forecast for fiscal 2024, with the core operating return on equity expected to be at the lower end of the 8%-10% range.
In conclusion, the termination of the development deals between Lendlease and Google highlights the challenges faced by developers in California’s real estate market. The shift towards remote work has significantly impacted the demand for office space, leading to declining property values. Both companies are now exploring alternative options to fulfill their housing commitments and move their projects forward.
