Dollars and Sense

What is Gary Dillabough’s Urban Community?

 

Inside his office at WeWork on East Santa Clara Street, venture capitalist-turned developer Gary Dillabough stands at a white board that maps out how to build and revitalize a city.  The center of that city is downtown San Jose.  His diagram illustrates:

  • “Hardware” including office, residential, retail, recreation and education.
  • “Exceptional User Experiences” that incorporate safety, great street scape, social justice, art, collaboration, communication, ownership and community.
  • “Software / operating systems” such as transportation and basics of resiliency – energy, water, food, health and wellness.
  • “Ultimate User Experience (UUX)” takes a deeper dive into the specific technologies required to create this environment, including buildings, access modes and social user experiences.

Dillabough points at “Community” in the middle of it all.

“This is a great community,” says the front man for a small group of investors known as Urban Community.  “But it seems like until now, San Jose gets it pretty right – maybe 85 percent of the time – and then lags on the final 15 percent.  We’re in this to get it to 100 percent.”

“The dollars we’ve invested are all long-term dollars,” Dillabough continues.  “We’re not going to be here three to five years and then leave town.”

In the past 18 months, along with partners Jeff Arrillaga and Brad Buss, Urban Community has forged deep into the downtown San Jose real estate market, investing more than $215 million in landmark buildings, surface parking lots and developments still in planning.

Why downtown?

“The area is turning a corner,” Dillabough says.  “If you go down Market Street, it looks and feels pretty good.  But go down Santa Clara right now, it’s the Achilles heel of downtown.  It just has to be fixed – starting at First Street.”

Dillabough’s ground zero for downtown revitalization are the Bank of Italy building and the Bank of the West (former Walgreen’s) building at 12 S. First St. and 2 W. Santa Clara St.  Both buildings fold perfectly into Dillabough’s forte to enhance the UX in older structures.

“Buildings can be so much more than concrete and glass,” he says.  “We want to create environments that make people more productive and integrates better into their lives.  Our approach is placemaking – where we live, work and have a few glasses of wine.”

Dillabough and his team want to enhance the Bank of Italy’s historic character while modernizing the structure into an energy-efficient and smart building that is a prototype for retrofitting landmark high rises.

“These old buildings are challenging with antiquated windows, air conditioning and ventilation,” he explains.  “But we want to renovate them to become Class A office space and build to scale and get as close to net zero as we can.”  Net zero is the practice of matching energy consumed with renewable energy created on site.
 

Crediting Chris Friese of Lift Partners for pooling the Bank of Italy’s various office condo owners and making the acquisition of the entire
building possible, Dillabough plans to take the building remodel “the last yard” starting in the first quarter of 2019.

“We’re going to embrace the Bank of Italy building and bring it back to its old glory,” he says.

Dillabough’s ideas for upgrading the building’s exterior is replacing single-pane windows that rattle in the wind and allow outside heat and chill to come inside with double-hung panes of ultraviolet high-tech electrochromic glass that tints like sunglasses.

By insulating the exterior, Dillabough believes the windows can be opened and closed day and night, reducing energy use by more than 50 percent.

“That should eradicate all the ACs hanging out the windows,” he says, adding that preservationists support getting rid of the air conditioning units, too.

Other immediate Urban Community rehab projects are the Fountain Alley buildings at 30 E. Santa Clara, the Moir Building at 227 N. First St. (with Swenson) and 152 N. Third St.

“The 152 North Third building has the one-of-a-kind Freshly Baked deli,” Dillabough said.  “We want to highlight the energy of Freshly Baked owner Glen Lenhart throughout the building.  It will be awesome when we are done with it.”

Dillabough’s enthusiasm spills over into the larger development sites Urban Community oversees, notably Museum Place, the Fountain Alley parking lot and the Valley Title property in SoFA. 

He quotes immigrant tailor turned New York City real estate mogul Joseph Durst, who 100 years ago proffered building separate office and residential towers and locating them close to transit.

“That’s the smart approach that is finally being adopted in the valley today,” Dillabough says.  “That’s what we need to talk about with Museum Place.  There’s an opportunity for shared parking and improved asset utilization.  Residents need parking at night and weekends; offices need the parking during the week.”

“We need to figure out how to get more people downtown,” he continues.  “It’s too vacant during the day.  We need more people working here to help small business to thrive.”

Diilabough is excited about the street-level mix of restaurants, retail and the expanded Tech Museum as
part of Museum Place.

Tim Ritchie has a great vision for The Tech,” Dillabough says.  “We want to do something special for the city there.”  

All of his projects are located near key parts of downtown. “We want to create five to six catalytic places that are comfortable to everyone,” he said.  “The example that already exists is San Pedro Square.  Museum Place can also be one of those.”

Dillabough is viewing his various properties as part of a “system” where the mix of residential and commercial uses reinforce one another while also strengthening the districts where the projects are located:

  • Historic District:  “Our Historic District is a lot like Redwood City, which used to be known as ‘Deadwood City.’  They’ve done an amazing job there, but downtown San Jose has more bones … and way better infrastructure.”
  • Fountain Alley:  “We’ve brought hope to some problems areas.  I used to be nervous when I walked through Fountain Alley.  Now, thanks to the police presence (Dillabough supports a storefront for a police security office), I think it has improved.  On a scale of 1-10, Fountain Alley is still a 4, but I think it can be a 10.  We’ll see what we can create there – it will be part of the office- residential algorithm.”
  • St. James Park:  “It was a tragedy that they ran light rail down the middle of the park.  But we think people like access to nature and dipping toes into the grass and gardens. That’s what St. James Park can become – an important access point to nature for apartment dwellers and office workers.”
  • SoFA:  “SoFA needs more offices to bring more life into the neighborhood during the daytime.  With the Valley Title block, we’ll work within the tapestry that has already been created.  Swenson’s doing this – The Graduate is a great project.  We’ll look to build something that cascades into the district, not something with sheer walls.  We’ll definitely reach out to the community and get their thoughts.”
  • West side:  “Google was not a bellwether for us.  Our plan started before that.  They made us look smarter.  They want to create something that’s really world-class and exceptional.  It will be an amazing asset for the city.  I’m excited about them coming down to San Jose.”

Urban Community’s buying spree will cool, says Dillabough, as he and his partners attempt to maneuver soaring real estate costs as well as construction and materials costs to bring buildings online.

He will continue to spend most of his hours at WeWork on downtown projects, and admits that some of the
development may be used to provide homes and business for the other side of his house, Navitas Capital.

“Venture capital and real estate development complement each other and are working together more often,” he says.  “It’s the perfect storm where tech and buildings dance together more effectively.”

Urban Community is all in.

“Downtown San Jose can be one of the best in the United States – hands down,” Dillabough says. 

Urban Community deals

  • Bank of the West / Walgreen’s Building, 2 W. Santa Clara St. (with DivcoWest), $14.5 million, March 2017
  • Camera 12 Cinemas (with Imwalle), $726,000 + undisclosed price for ground lease, June 2017
  • Bank of Italy building, 12 S. First St., Lido Nightclub Building, 30 S. First St. plus small parking lot in between, $30.6 million, December 2017
  • Fountain Alley buildings, 30 E Santa Clara St., $6.03 million, February 2018
  • Fountain Alley parking lot, 35 S Second St., $25.7 million, March 2018
  • Moir building (St. James Hotel), 227 N. First St. (with Swenson) $1 million renovation, under way
  • Museum Place, adjacent to Tech Museum at ParksideHall, terms not disclosed, June 2018
  • St. James Plaza, 152 N. Third St., $40 million, June 2018
  • Valley Title property, 300 S. First St. plus parking lot bounded by First, Second, San Carlos and San Salvador streets, $61.5 million, September 2018

ABOUT GARY DILLABOUGH:  Gary Dillabough never had any real estate holdings involving downtown San Jose prior to his recent surge of acquisitions for Urban Community, a small group of developers/investors including Jeff Arrillaga and Brad Buss, that began a year and a half ago.

With a bachelor’s degree in civil engineering from Cal Poly-San Luis Obispo, Dillabough gained an expertise in smart, energy-efficient buildings while serving as managing partner at venture capital firms Navitas Capital and The Westly Group, and before that in various leadership positions at eBay.  He has also served on numerous boards of directors including the Lucile Packard Hospital Foundation, One Million Lights and View Glass.