The Gary Dillabough Effect: Transforming downtown San Jose, 20 buildings at a time

SAN JOSE — There’s Google and there’s Gary.

Everyone knows Google, the internet giant that has already spent more than $300 million buying up property on the edge of downtown San Jose to build a colossal campus here.

But Gary? By the end of June, he, too, will have spent about $300 million on properties downtown — scooping up 20 separate parcels in two years — including the historic-but-neglected Bank of Italy building that he has been lighting up to celebrate the Sharks’ run in the National Hockey League playoffs. He and his partners, including real estate investor Jeff Arrillaga, have assembled such a large collection of properties and in such a pattern — essentially running down the spine of San Jose’s downtown core — that he’s considering building a private power plant to serve them.

So who the heck is Gary? And what are his designs on downtown San Jose?

He is Gary Dwight Dillabough, a 56-year-old Baltimore-born former eBay vice president and venture capitalist who is betting his fortune that sleepy San Jose — a notorious underachiever in the world of vibrant metropolitan cities — can truly become what it has called itself for decades: “the capital of Silicon Valley.”

With his company Urban Community, he is promising world-class, eco-friendly architecture, lively public spaces and the integration of culture and art — all rich community experiences that have inspired him from Paris to Palo Alto. Along the way, Dillabough is charming everyone from civic leaders to street artists with his boyish enthusiasm and open arms. But is he for real?

“In my 30 years of being in Silicon Valley, and in civic leadership, someone who’s actually talking about the arts as part of the development, that’s a new phenomenon,” said Connie Martinez, director of SVCreates, a network of local cultural leaders. “All of it almost feels too good to be true, but there’s no reason for us to say he can’t and won’t deliver.”

Music, murals and pop-up parties

Since late 2017, Dillabough (pronounced Dilla-bō) has welcomed local artists looking for temporary canvases to paint murals on the sides of his old buildings and invited music groups to take over his parking lots for summer pop-up parties. He is sponsoring the San Jose Jazz summer festival and has offered to underwrite free tickets to the city’s Groundwerx clean-up crews. He and Arrillaga joined a homeless advisory board, PATH, and are planning to donate “a penny per square foot” to homeless programs from the Bank of Italy building, for starters, and encourage his future tenants to do the same.

And he’s found an ally in Glen Lenhart, the gregarious owner of Freshly Baked Eatery, a popular sandwich shop on the ground floor of a nine-story office tower on Third Street that Dillabough is renovating. He has promised that Lenhart won’t have to close during construction and has invited the five employees behind the counter to join him for an Earthquakes soccer game at his Avaya Stadium suite.

“Who does that today?” said Lenhart, who has owned the eatery for 30 years. “I’m loyal to him forever.”

If all goes according to plan, the Dillabough properties could rival the size of the proposed “Google Village,” but instead of stretching about a mile on the western edge of downtown around the Diridon train station, like the Google project is slated to do, the Dillabough properties would cut through the heart of downtown.

And instead of pursuing Google’s anticipated construction timeline of two decades or more, Dillabough wants to complete his vision in five to seven years, the timeframe it took Redwood City, for example, to reinvigorate its downtown and shed its “Deadwood City” moniker.

“We’ve burned the ships. We’re all in,” Dillabough said during a recent tour of the 14-story renaissance revival Bank of Italy building, where he can stand on the catwalk under the landmark cupola and survey his properties below. “We want to make it one of the best cities in the United States — and to stop apologizing for San Jose being okay.”

Poised for building boom

For years, San Jose has been so stigmatized by its rough-around-the-edges image that it hadn’t attracted a major tech company downtown since Adobe Systems built its headquarters here 25 years ago. Companies running out of space along the Highway 101 corridor chose San Francisco instead, proving something new to the Bay Area: that tech tenants can thrive in downtown high-rises, not just the sprawling campuses that have defined Silicon Valley for decades.

With San Jose’s built-in infrastructure — an international airport, downtown university, easy freeway access, wide streets, public transportation and picture-perfect weather — the city’s downtown has been poised for a building boom.

“If you’re looking to create some kind of interesting place, this has all the hallmarks to make that happen,” Dillabough said. “And that’s when we started to get excited about it.”

One more ingredient made the financial leap easier: the Republicans’ 2017 federal tax overhaul and Mayor Sam Liccardo’s successful bid to include downtown San Jose as one of the law’s designated “opportunity zones,” where investors can defer or eliminate capital gains on redevelopment projects they hold on to for more than 10 years.

“There’s all these data points that are out there,” Arrillaga said in a recent interview outside the sandwich shop. “And collectively you’ve got to go, you know what, this is going to take off.”

San Jose has been courted only to be disappointed before. In the late 1950s, Valley Fair shopping center turned its back on downtown, choosing a suburban site four miles away. In the 2000s, Santana Row did the same. The city paved the way to make a new home here for the Oakland A’s, but the San Francisco Giants blocked that plan. And just this week, Safeway announced it would be closing its downtown store.

While city leaders have been successful over the years attracting the Sharks, the Fairmont Hotel, the convention center and the bustling San Pedro Marketplace, the downtown of America’s 10th largest city has never fully realized its potential.

Then Urban Community — a partnership between Dillabough and Arrillaga, with Dillabough as the frontman — stepped in and made what commercial real estate brokers say is rare in the development world: “a concentrated purchase of high-risk urban assets” that in some cases have been languishing for decades.

“Dillabough has taken on buildings that I don’t think anyone else would have the temerity to do,” said Mark Ritchie, president of real estate brokerage Ritchie Commercial. The Bank of Italy building on the corner of Santa Clara and First streets, he said, “is on the top of the list.”

Completed for A.P Giannini in 1929, it was the tallest building between San Francisco and Los Angeles for decades. While other developers shunned the beleaguered edifice with cheap rents and boxy air conditioners hanging out the windows, Dillabough saw it as a jewel and has already started the restoration he believes will bring dynamism back to downtown’s critical intersection.

Ritchie applauded Dillabough for trying to capitalize on what the now-defunct San Jose Redevelopment Agency started — revitalizing downtown.

“You could call this the San Jose Re-Dillabough Agency,” Ritchie said. “This is absolutely fascinating. He has an open door to partnering with the other developers and property owners downtown. He is picking up passengers on the way and everybody is getting on board.”

‘A risk with this”

Dillabough and his partners — mostly wealthy tech executives, including former Cypress Semiconductor COO Brad Buss and WeWork billionaire Adam Neumann — have the millions to purchase this string of properties. But do they have access to the billions for construction, whose costs have soared in the double digits and stopped many a shovel from turning? And with all the talk about expensive design and community goodwill, will his investors get the returns they are expecting?

“It’s possible for anyone to get over-extended and get caught in the wrong spot, so there is a risk with this,” said David Buchholz, a senior vice president at Colliers International. “But I don’t believe Gary Dillabough leverages his properties with traditional financing. His financial backers are tied to Silicon Valley.”

Alongside the skeptics who question whether Dillabough can deliver are those who worry about some of the impacts if he succeeds. Dillabough’s plan to attract more tenants to his new office and residential buildings — like the Google project that would attract high-paid tech workers — could also exacerbate the affordable housing crisis.

“San Jose has been trying to build up downtown for years and years — and we believe it’s at cross purposes,” said Jeffrey Buchanan, the public policy director of the non-profit Working Partnerships. “We’re not in the luxury condo and townhouse crisis. We’re in an affordable housing crisis.”

Since 2017, Dillabough has bought into seven “neighborhoods” around the city’s downtown, each with its own identity, with plans to tap into or radically improve each area’s unique vibe. In the SoFa arts district where he bought the Valley Title building and surrounding parking lots, he envisions commercial and residential buildings that will welcome the arts community and provide a view corridor or architectural homage to the historic California Theater across the street.

In a building next to the Tech Museum of Innovation, he is planning an office building with retail facing a promenade, plus room for the Tech Museum’s expansion. At Fountain Alley along Second Street, he pictures a “cascading residential high rise with a European-style plaza. “I would love to have this become something like you’d see in St. Mark’s Square,” in Venice, although on a much smaller scale, he said on a recent tour. “How fun would this be?”

The list of projects goes on, including his investments in the Jose Theater on Second Street and the empty Camera 12 theaters, whose futures are still uncertain.

“This is at a scale that is unprecedented for the downtown,” said Bob Staedler, president of San Jose-based Silicon Valley Synergy, a land use and planning consultancy.

What Dillabough is doing, he said, “is as important as what Google is doing.”

How he got here

So where did Dillabough come from and why San Jose? He grew up with his family hopscotching across the country, including a stint in Burlingame where his father worked as a civil engineer and pointed out bridges and dams on family vacations.

Dillabough earned a degree in civil engineering himself, from Cal Poly, San Luis Obispo, and landed his first job as a broker at Cornish & Carey in San Jose, where he met Arrillaga, the nephew of Bay Area real estate magnate John Arrillaga. They’ve been friends ever since, living two doors apart in Los Altos and raising their children together for a decade before the Dillaboughs moved to Atherton.

Dillabough went on to work at eBay, where he was one of the first 100 hires and the head of environmental affairs, and became a managing partner at venture firms Westly Group and Navitas Capital. But he always told Arrillaga he would come back to real estate. He started with retrofitting small office buildings in Sunnyvale on property owned by his wife’s family, using sustainable technology his venture firms had invested in.

Then, in early 2017, he set his sights on San Jose.

The Dillabough-Arrillaga duo rented a six-by-nine foot WeWork space on Santa Clara and Second streets and hit the streets on foot, with Dillabough usually in jeans and a fleece pullover.

An early tour guide introduced them to a small group of 30-somethings who started two successful bars — Paper Plane and Original Gravity — and recently opened a third, MiniBoss arcade, across from their WeWork office.

“Gary just loved their whole story, how they’ve been boots on the ground,” and enlivened empty downtown storefronts, said Joshua Burroughs, a real estate investor with Urban Catalyst who introduced the five.

As Arrillaga put it, those three young entrepreneurs– George Lahlouh, Johnny Wang and Dan Phan — “gave us a perspective of how they saw the progress of what was happening in San Jose.”

With introductions from City Councilmember Raul Peralez, Dillabough also met Brendan Rawson, executive director of San Jose Jazz, who said Dillabough is not only financially supporting the summer festival, but is opening up his properties for his spring “pop-up” events around town.

“He doesn’t talk a lot about his projects,” Rawson said, “but this idea of supporting the evolution of downtown and supporting the projects of others.”

Dillabough says his gestures are as strategic as benevolent. Hiring artists to paint on construction barriers might deter vandalism. Keeping construction crews happy might encourage better quality work. Funding homeless projects might help find a home for the people living on the streets around his projects. And spending extra for beautiful, sustainable buildings and supporting culturally vibrant events might draw more high-profile tenants to the city willing to pay more.

Dillabough insists he’s here for the long-term. And while he doesn’t expect to solve all of downtown San Jose’s problems, he’s excited to get started.

“I’m rooting for him,” Martinez of SVCreates said, “because rooting for him is rooting for our community.”