Person falling down a mineshaft
I read that the city of San Jose is trying to attract a manufacturer to its borders. They gave an electric car company Tesla Motors a rent-free lease on 89 acres of land.
A little background, please bear with me. I used to live in New York City, where the city government would fall all over itself to give tax breaks and freebies to companies who would stay in NYC. The pattern was predictable: a company would threaten to move to New Jersey, the city would offer incentives, and the company would stay. In reality, the company never had any intention of moving to New Jersey. Even today, with the rents in NJ being as much as 50% lower, it is very difficult to get companies out of Manhattan.
Now, we have the city of San Jose, near the heart of Silicon Valley, which wants a manufacturing operation within its borders. It has offered a doozy of an incentive: land. The most precious resource, and the city gives it away like candy. I think this deal is tremendously one-sided, and the company should be commended for negotiating such a sweetheart deal. The city, on the other hand, should have its head examined.
The city of San Jose, California, will give the Tesla company a lease on 89 acres of land, upon which the company will build a 650,000 square foot manufacturing plant. 89 acres of land is almost 4 million square feet, so I wonder what will happen to the remaining 3.7 million square feet.
There is an entire discussion that goes around how building a factory in San Jose makes no business sense. (see the comments) Why would you build a manufacturing facility that is (1) far away from parts suppliers, (2) in a pro-Union state, (3) in an area that has the highest cost of living in the ENTIRE country? It is good that Tesla is private, if it was public then the shareholders would have unceremoniously dumped the CEO for such a bad decision.
The San Jose Mercury news, normally a sober newspaper, has a columnist Scott Herhold who likes this idea. Obviously I don’t but this is a business blog so I am not going to make ad hominem attacks.
But I want to concentrate on the giveaway of 89 acres and how it could be better used.
San Jose and the Bay Area are both in very severe need of housing. An ‘average’ home in San Jose costs 1.2 million dollars, among the most expensive in the country.
I live in an apartment building that has four floors and 48 units. It is a good mix of singles, one bedroom and two bedroom units. The building’s footprint is 120 feet square, so about 14,000 square feet of land.
In 89 acres of land, we could build up to 13,000 units of housing. (89 acres x 44000 sq feet per acre / 14000 square feet for building). If we make the units large, so that they can be live/work, perfect for techies, then maybe we take it down to 10,000 units.
That is a far better use of the land than giving it to Tesla.
