Architectural rendering of the proposed Related Urban mixed-use-development project in Santa Clara, California
On January 29, the Cornell Baker Program in Real Estate hosted guest speaker Kenneth A. Himmel ’70, president and CEO of Related Urban. During his talk, Himmel discussed the challenges and benefits inherent in taking on massive development projects with high barriers to entry. The project at the center of the discussion, a 240-acre site in Santa Clara, California, where the Related Companies have proposed building a new city center, was also the destination of the Baker Program’s first domestic student trek, which took place just a week before Himmel’s campus visit.
“It’s an incredible experience to first see the site and then hear from one of the best developers in the industry,” said Harrison Willis, MPS RE ’17, a student who went on the trip and also attended Himmel’s lecture. “You can hear from a man who has done it all that there’s no one set of circumstances or one mold for a developer to fit into.”
The Santa Clara project will include more than one million square feet of retail, 1,360 residential units, 5.7 million square feet of office space, 440,000 square feet of food, beverage, and entertainment space, and 700 hotel rooms—and it will require building over a landfill.
Himmel, who is leading the development of the project, explained the skills and strategies needed to manage the bidding and approval processes for such a daunting municipal project. Himmel said that Related has been negotiating for two years with the City of Santa Clara to build the mixed-use project. Because the development has an upfront price tag of up to $800 million for cleanup of the landfill and infrastructure development, Himmel said Related convinced the city to write down the land value to “almost zero,” arguing that the highest land bid might not be the best bid if it means that a developer takes on too much upfront cost to execute the project successfully.
“Why would the city agree to do that? Because by spending $7.5 to $8 billion in a community over 15 years, creating the jobs, creating the real estate tax base, creating sales-tax revenue, and spending the money—at the end of day not only a private sector person but a municipality would say it’s in the public interest to do this,” Himmel said.
He went on to explain how Related specializes in taking on projects too challenging for other developers, and how they “derisk” them completely before bringing in investors. In New York, Related spent seven years laying the groundwork for Hudson Yards, the largest private real estate project in the history of the U.S., which is now being built on Manhattan’s west side. The $20 billion project, which will take another eight years to complete, will create a city-within-a-city of retail shops, skyscrapers, parks, arts and performance space, a hotel, a school, and housing on a 28-acre parcel that sits almost entirely above a working rail yard.
Hudson Yards will feature the first Neiman Marcus in Manhattan and a 40,000-square-foot food hall with specialty restaurants, cafes, and food bars developed by Danny Meyer, CEO of the Union Square Hospitality Group and New York’s top restaurateur. Himmel is also partnering with chef Thomas Keller, of French Laundry fame, to develop a variety of restaurants, as they have done at Time Warner Center.
Using Time Warner Center as an example, Himmel explained why Related maintains ownership of every project they build. Time Warner Center, which attracts 18 million visitors a year, has quadrupled in lease value since the project started, creating $1 billion in value.
“There are very few developers who get all the components of this business,” he said. “The model today for how to be successful in attracting the right audiences and the right traffic is about how you put all the uses together and work with the best planners and designers and put together the best merchandising program.”
“It’s the restaurants, it’s the public space, it’s the mix of merchandising, and it’s the one-stop experience that people talk about today,” Himmel said. “Young people are no longer interested in buying things. They are much more interested in experiences. It’s what we bring to the business—we bring the experience.”