Lendlease Scraps Google Construction Contract Worth $15B

Lendlease, an Australian contractor that teamed with Google four years ago to build $15 billion worth master-planned communities in Silicon Valley, has scuttled the deal.

The Sydney-based developer said its contract with Google to build four neighborhoods in the South Bay ended after the tech giant looked over its real-estate investments, the Wall Street Journal reported.

Lendlease said it will send Google a bill for any completed work, but didn’t disclose the tab.

“The existing agreements are no longer mutually beneficial given current market conditions,” Lendlease said.

The decision comes as tech companies lay off workers and shed offices during a broad shift to remote work. On the residential side, higher interest rates and construction costs have hindered homebuilding in Silicon Valley.

The office vacancy rate in Silicon Valley hit 17 percent in June, from 11 percent in 2019, according to CoStar Group. In Mountain View, more than one in five offices were empty.

The project by Lendlease and Google agreed upon four years ago was to include 15 million square feet of new offices, apartments, shops and restaurants in San Jose, Sunnyvale and around Google’s hub in Mountain view. Lendlease had hoped to start work in 2021.

Under the agreement, Google was to build the offices, and Lendlease was to develop the homes, hotels, shops and restaurants.

The search giant and the contractor knew each other. Lendlease was chosen in 2017 to build Google’s $435 million London headquarters, designed by Bjarke Ingels and Heatherwick Studios. Lendlease also worked with Google on a discontinued headquarters in Sydney.

But signs of a frayed partnership between Google and Lendlease began last spring, when they paused development of an 80-acre transit village known as Downtown West, next to Diridon Station in Downtown San Jose.

Google had also listed for sublease 1.3 million square feet of offices in Mountain View and Moffett Park. In February, the firm said it would incur $500 million in costs to shed offices as it laid off workers and went to a hybrid workplace.

“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, senior director of development at Google and once a top executive for Lendlease, told the Journal.

As of June, 12,900 of the planned housing units were approved for development in San Jose and Mountain View, according to Google.

A spokesperson said the company is still looking to work with both developers and capital partners to move the Bay Area developments forward, according to Reuters.

Last summer, Lendlease also paused its $1.15 billion, 47-story condo tower in Hayes Point in San Francisco, its largest investment in the Americas, after citing poor market conditions. The company said it will remove the project from its development pipeline.

— Dana Bartholomew