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Dive brief:
- Lendlease and Google they have killed their 15 billion dollar project to develop and build four master-planned communities in Silicon Valley south of San Francisco, according to an announcement by the Australian construction giant.
- Following media reports, Lendlease issued a statement confirming the news on Friday. “The decision to end these arrangements followed a comprehensive review by Google of its real estate investments and a determination by both organizations that the existing arrangements are no longer mutually beneficial given current market conditions,” the statement said .
- Lendlease said it will be paid for the work it has already done in the concession and master planning process for the project, which was to include apartments, shops and offices. He said he has removed the initiative, known collectively as his San Francisco Bay Area Project, from his development portfolio but has left his financial guidance unchanged.
Diving knowledge:
The companies announced their original plans, which include development districts in San Jose, Sunnyvale and Mountain View, in July 2019. The project called for 15 million square feet of residential, commercial, hospitality and other projects in the San Francisco Bay Area, with Google overseeing the development of its own office space. Six months later, the COVID-19 pandemic devastated global real estate markets and fundamentally changed the outlook for office developments.
The confluence of rising interest rates and uncertainty in the real estate sector has hit Lendlease particularly hard in the San Francisco region. In August he announced it pausing its $1.2 billion, 47-story Hayes Point mixed-use development in the city, the company’s largest U.S. investment that followed the company’s layoff around 10% of its global staff in July.
The company has seen it earnings reports suffer, as it tries to transition to a leaner, more investment-oriented business model. Chief executive Tony Lombardo said in August that the company had saved more than A$170 million ($110.7 million) in cost savings from the reset phase. However, financial experts indicate that the company needs to recoup the change.
Other news related to the San Francisco Bay Area project also emerged in recent months. In September, Lendlease announced that it was appointing Meg Spriggsthen head of residence for the partnership with Google, to managing director of development for the Americas, starting October 1.
