Historic downtown San Jose office building may become housing highrise

SAN JOSE — The iconic Bank of Italy office tower in downtown San Jose may gain a new mission as a housing highrise, a conversion being discussed with the forbidding backdrop of an office market that continues to wobble.

The concept of converting the high-profile tower to residential units could be a winner for the property, considering the shortage of housing in the Bay Area and the post-coronavirus ailments that now afflict the office market in this region.

The principal owners of the landmark building have held discussions at San Jose City Hall regarding the potential concept, according to several sources, including some who have direct knowledge of the plans to convert the structure.

The building is owned by an alliance of local development firm Urban Community and Westbank, a top-notch developer with a global reach. Bay Area real estate entrepreneurs Gary Dillabough and Jeff Arrillaga head up Urban Community.

Dillabough, Arrillaga and Westbank declined to comment or couldn’t be reached to discuss the situation.

Real estate and property experts, however, believe the Bank of Italy building makes a lot of sense as a housing highrise. The building is located at 12 South First Street next to East Santa Clara Street.

“If this came to pass, that would add yet more affluent professionals to the downtown San Jose market,” said Nick Goddard, a senior vice president with Colliers, a commercial real estate firm.

Despite the current maladies affecting the office market in the Bay Area, experts believe the ailing sector will eventually cast off its frailties and recuperate, which in turn would intensify the demand for office space in downtown San Jose.

“When the office markets start their inevitable rebound, downtown San Jose housing will provide a rich vein of talent for urban employers and those who seek the excitement of an urban environment but want to flee the safety problems in San Francisco,” Goddard said.

The concept of office-to-housing conversions makes sense, said Bob Staedler, principal executive with Silicon Valley Synergy, a land-use consultancy.

“Residential conversions will create more vibrancy in downtown San Jose,” Staedler said. “If the Bank of Italy is no longer an office building, that will improve the office vacancy rate and create more demand for offices. Residential conversions need to be taken more seriously.”

Constructed in 1926 in a Renaissance Revival style, the 14-story Bank of Italy tower has a configuration that features smaller floors and cozy offices. Each office enjoys a separate window — which means plenty of sunlight for every prospective residence.

“This could be a spectacular conversion,” said Mark Ritchie, president of Ritchie Commercial, a real estate firm. “The small floor plates in this classic, beautiful building really lend themselves to residential conversions.”

Across the roadway, at 2 West Santa Clara Street next to South First Street, DivcoWest has undertaken a dramatic renovation and revamp of a 10-story office tower constructed in 1910. But now, this office tower also might be asked to tackle a new mission.

DivcoWest has filed a very preliminary proposal with San Jose city planners to explore non-office uses in the prominent tower.

The three new potential uses could be multifamily residential apartments, co-living residential units, or a hotel. Co-living projects sometimes feature shared facilities such as kitchens or bathrooms.

The discussions could mean that two long-time office towers across the street from each other might both become housing highrises in an uncertain commercial real estate market.

Additional housing also might bolster efforts to further spur the revival of the restaurant, retail, cocktail lounge and bar scene in downtown San Jose in the wake of the economic dislocations induced by the coronavirus.

“We need more residents, we need more employees, we need more business travelers and visitors, we need more students in the downtown,” said Scott Knies, a consultant and former executive director of the San Jose Downtown Association.

Dillabough and Arrillaga, by signing a slew of restaurants, bars and other merchants in the Fountain Alley building next to the Bank of Italy tower, are attempting to create a more vibrant scene in downtown San Jose.