Alphabet’s Google has scrapped a development deal to build $15 billion worth of homes, offices and

retail space in California’s Silicon Valley. Google and Australian developer Lendlease “mutually
reached” a decision to end their San Francisco Bay Project for four master-planned districts in the cities
of San Jose, Sunnyvale and Mountain View, Lendlease announced Friday. “The decision to end these
agreements followed a comprehensive review by Google of its real estate investments, and a
determination by both organizations that the existing agreements are no longer mutually beneficial
given current market conditions,” Lendlease said in a statement. A Google spokesperson told CNN on
Saturday that it is still looking to deliver on its housing commitment but Lendlease would not be its
exclusive developer. The tech giant said it is broadening its relationships and will work with both
developers and capital partners to move the Bay Area developments forward. The spokesperson added
that Google will continue to advance mixed-use entitlements and invest in infrastructure. “As we’ve
shared before, we’ve been optimizing our real estate investments in the Bay Area, and part of that work
is looking at a variety of options to move our development projects forward and deliver on our housing
commitment,” Alexa Arena, Google’s senior director of development, said Friday in a statement. “We
appreciate Lendlease and the work the team has done to get us to this point.” Construction was
expected to start on the project during Lendlease’s 2026 fiscal year. The announcement comes amid a
period of deep cost-cutting and layoffs for Google and during a time when commercial real estate is
faltering. Friday’s announcement also is the latest in a series of setbacks for tech giants’ large-scale
community investments and adds uncertainty for Google’s much-touted plans to help address the
affordability crisis in the tech-laden Bay Area. Billion-dollar investments In June 2019, Google made a
$1 billion pledge to help develop more affordable housing in the increasingly unaffordable region. An
office sits vacant on October 27, 2022 in San Francisco, California. According to a report by
commercial real estate firm CBRE, the city of San Francisco has a record 27.1 million square feet of
office space available as the city struggles to rebound from the Covid-19 pandemic. The US Census
Bureau reports an estimated 35% of employees in San Francisco and San Jose continue to work from
home. ‘Broken promises.’ Tech industry’s real estate pullback leaves communities reeling At the time,
Google said it would repurpose at least $750 million of the land it owns for at least 15,000 new homes
priced for a variety of income levels and put $250 million toward a developer incentive fund to build
5,000 affordable housing units. “Our goal is to help communities succeed over the long term, and make
sure that everyone has access to opportunity, whether or not they work in tech,” Google CEO Sundar
Pichai wrote in a blog post in June 2019. A month later, Google partnered with Lendlease to redevelop
its landholdings for a 10- to 15-year project valued at $15 billion. Earlier this year, Google said 12,900
residences had been approved in Mountain View and San Jose, and more than 3,800 affordable modular
homes and other affordable units were under construction. “We’ve made steady progress, but it hasn’t
been without its challenges,” Scott Foster, Google’s vice president of real estate and workplace
services, wrote in the blog post. “And while we expect more periods of slowdown and others of
acceleration, we remain committed to working alongside local governments and organizations to
address the rising need for housing in our community.” Tumultuous times The announcement comes
during a tumultuous period for Alphabet and other tech firms that have cut tens of thousands of jobs
after drastically scaling up during the pandemic. A commercial space sits vacant on October 27, 2022 in
San Francisco, California. According to a report by commercial real estate firm CBRE, the city of San
Francisco has a record 27.1 million square feet of office space available as the city struggles to rebound
from the Covid-19 pandemic. The US Census Bureau reports an estimated 35% of employees in San
Francisco and San Jose continue to work from home. Can AI save commercial real estate in San
Francisco? Alphabet, which added 50,000 jobs during the past two years, announced in January it
would slash 12,000 jobs, affecting about 6% of its workforce. The company, which has emphasized
broader cost-cutting efforts, laid off hundreds more employees in September. Although the US
economy has remained remarkably resilient following the Covid-19 pandemic and despite wars
overseas, high inflation and sharply rising interest rates, the commercial real estate industry has been
on much shakier footing. Office and retail property valuations have fallen since the pandemic brought
about lower occupancy rates and changes in where people work and how they shop. The Federal
Reserve’s efforts to fight inflation by raising interest rates have also hurt the credit-dependent industry.
Regional banking stress only added to those woes. Lending to commercial real estate developers and
managers largely comes from small and mid-sized banks, where the pressure on liquidity has been most
severe. About 80% of all bank loans for commercial properties come from regional banks, according to
Goldman Sachs economists.