Small Businesses Leasing Space in San Jose Threatened by the “Google Effect”

The Solution  Purchase Property with SBA 504 Program



San Jose California, the largest city in the Silicon Valley, is most commonly known for innovation, affluence, and it’s extremely competitive real-estate market.  Recent developments are predicted to increase competition and rental rates even further.  

In December of 2018, San Jose’s city council announced a compensation agreement with the tech giant – Google.  Google intends to build a “village” that would feature up to 6 million square feet of office, research and development, retail and amenity space near San Jose’s Diridon Transit station.  This transit-oriented project could bring more than 24,000 jobs, increased traffic volume and even higher real-estate prices. These trends are being coined as the “Google effect.”  Experts explain that just the project announcement alone has already impacted the rental market.    

“There was a lot of velocity on the leasing side that was driving a good narrative for sales of office buildings,” Cushman & Wakefield Executive Managing Director Eric Fox said. “But the announcement of the new Google campus has added what feels like rocket fuel to activity.”  

Colliers International research report similarly concludes that in 2018 the proposed development in San Jose ballooned.  Before Google began adding to its portfolio of owned properties, there was no new office development proposed by the city of San Jose.  However, in 2018 4.3 million square feet was proposed, suggesting the Google effect is both indisputable and remarkable.

Protect Your Business- Buy Your Building with an SBA 504 Loan 

San Jose small business owners who are currently leasing property will be in jeopardy of rent spikes and potentially being priced out of their buildings.  To hedge against the “Google effect,” it is more important than ever that small business owners realize the benefits of purchasing their building – and the SBA 504 program offers the most attractive package. 

The Small Business Administration’s (SBA) 504 loan program is an accessible and affordable financing solution to help businesses avoid fluctuating occupancy costs amidst a rising market. The SBA 504 loan allows small and medium sized business owners to finance the purchase or construction of commercial real estate and other fixed assets with long-term, below-market, fixed interest rates. Business owners that purchase their building through the SBA 504 program will gain stability and peace of mind knowing the potential rent increases brought forth by Google’s development project will not drive them out of the area. 

Dennis King, Director of the Small Business Development Center (SBDC), when discussing the implications of the new Google Campus, urges small businesses owners to seek SBA 504 real estate financing as soon as possible.   

“This Google Campus will nearly double the size of San Jose’s downtown area, it goes without saying- commercial real estate prices will go up.  The challenge then for small business owners will be to maintain their place in this new San Jose,” Dennis explains. “Since we don’t know exactly what that new San Jose will bring – now is the time to buy.  Buy your building with the 504 loan and secure your businesses role in the future.” 

According to Dennis, purchasing commercial property through the SBA 504 program is an obvious solution to combat the rising lease rates.  However, the decision to purchase real estate can be a major milestone in the life of a business, one that is often not taken lightly, especially when there are outside pressures such as the Google development project.  Fortunately, The SBA 504 loan is administered through nonprofit mission-based lenders, also known as CDCs, such as TMC Financing.   TMC’s mission is to help match business owners with the loan product that will best support their growth, gain long-term success and create a positive impact on their community.  

Bruce Whitaker, TMC’s SVP, explains, “It’s rewarding to help our clients buy their property because when a business can stabilize their building cost, it allows them to be a more successful. If a business leases their property, they are faced with increases in rent and/or being displaced when their lease is up. Now that these businesses have their own properties, they don’t have to worry.”  

Ultimately, by purchasing your building through the SBA 504 program you are not only protecting your business from volatile rent increases, but simultaneously setting your business up for success.  Your business will not be displaced by the Google project, but instead will reap the benefits of a developing city, such as increased foot traffic, new clientele and new networking opportunities.  

SBA 504 Loan Features 

Low Down Payment 

The low 10 percent down payment is one of the biggest attractions of the 504 program. Conventional loans often require a 20-40 percent down payment, an unattainable figure for many business owners.  With the 504 loan’s low injection, businesses retain precious working capital for operational costs. Renovations and soft costs can also be financed, allowing further cash savings. 

Long-term, Fixed, Interest Rates 

As previously mentioned, the 504 program allows borrowers to finance the purchase of their commercial property with below-market, long-term fixed  interest rates.  Ultimately, 504 borrowers can hedge against rising interest rates and stabilize their occupancy costs.  Business owners who know their occupancy costs can more easily budget and focus on future financial growth. 

About TMC Financing 

TMC Financing is an SBA Premier Certified Lender and a high-volume loan provider. TMC has over 35 years of expertise and has helped over 5,000 businesses. TMC operates in California and Nevada and is your best source for SBA 504 Financing.  

Contact a TMC loan expert to find out more about the pre-qualification process for 504 loans and how to put your business one step ahead.