A dying mall near Apple’s headquarters is turning into a fight over Silicon Valley’s soul

Demolition begins on the parking structure at Vallco Town Center in Cupertino, Calif. on Oct. 11, 2018. The razing of the parking structure was a prelude to the eventual demollition of the aging and all-but-vacant walk-through shopping center which is the subject of an intense community conflict regarding proposed redevelopment of the site. less Demolition begins on the parking structure at Vallco Town Center in Cupertino, Calif. on Oct. 11, 2018. The razing of the parking structure was a prelude to the eventual demollition of the aging and ... more Photo: Cami Crawford 2018 Photo: Cami Crawford 2018 Image 1 of / 4 Caption Close A dying mall near Apple’s headquarters is turning into a fight over Silicon Valley’s soul 1 / 4 Back to Gallery

As Apple flourished in Cupertino, becoming the first American company worth $1 trillion, Vallco Shopping Mall rotted away in its shadow.

The 1976 mall was home to the retail giants of the 20th century: Macy’s, Sears and J.C. Penney, which all closed their stores in the last three years as foot traffic dwindled and shoppers shifted online. Today, Vallco is a cavernous, mostly empty space of 1.2 million square feet, with a handful of survivors such as Dynasty Seafood Restaurant and the Bay Club hanging on. On the other side of Interstate 280 is Apple’s new $5 billion headquarters, which includes a sleek visitor center and shop.

Since 2014, developer Sand Hill Property Co. has sought to transform the mall into nearly 2 million square feet of office space, more than 2,400 housing units and a 400,000-square-foot retail center.

Thousands of Cupertino residents have fought back. In 2016, Sand Hill Property submitted a ballot measure to win support for one version of the project, while opponents had a measure that banned office space and housing on the site and kept the retail size the same. Both measures were rejected by voters, throwing the project into limbo.

The notion of replacing Vallco with another mall seems utterly unrealistic: A quarter of America’s 1,100 shopping malls are expected to close within five years.

Opponents, who formed a group called Better Cupertino, say the project will exacerbate traffic, which is already miserable in the wake of Apple Park’s opening. The added office space will also worsen the region’s jobs-housing imbalance, they say.

“The rate of office growth is a lot faster than it used to be. It’s unsustainable,” said Liang Chao, co-founder of Better Cupertino and a City Council candidate who appears headed for election with some votes left to count. “When you talk about growth, it’s like our body. If I overeat, I’m overweight. Now, shall I continue to eat? You need healthy growth.”

Vallco’s potential transformation would have profound effects on Cupertino, a suburban city of 60,000. The years-long battle also reflects growing unease over the Bay Area’s booming economy, where jobs are plentiful but housing is scarce, particularly for less wealthy residents. Some city officials want job growth to slow down, but the roaring tech sector shows little signs of cooling.

“The hardest thing I’ve had to deal with is the idea that growth is infinite and unstoppable. Cities fill up,” said Michael Goldman, a city councilman in Sunnyvale, which borders Apple’s headquarters.

The negative effects of growth include people fleeing California because of high costs, and giant companies squeezing out smaller ones, Goldman said.

“We’re going to have three big companies,” Goldman said, referring to Apple, Google and Facebook. “You know where else had three big companies? Detroit.”

Cities in the region have few options to hit the brakes on job growth, but they have powerful control over land use. Projects can be stalled for years through city approval processes, ballot measures and lawsuits.

Photo: Sand Hill Property Co. Renderings of what Vallco Town Center will look like.

In the face of withering opposition, developers usually cut a deal, adding community benefits or scaling projects down.

Developer Sand Hill did the opposite at Vallco: Its recent plan doesn’t include more than $35 million in city fees compared with an alternative project. It doesn’t have a traffic mitigation plan and calls for taller buildings, up to 240 feet, close to the height of San Jose’s tallest towers.

Cupertino approved it in September.

The reason was SB35, a new California law that requires cities that haven’t met housing goals — and most in the Bay Area have not — to fast-track projects that include affordable housing. It is a powerful growth tool, exempting projects from years-long hurdles, including environmental reviews and public hearings.

Sand Hill’s approved plan includes 2,402 housing units, and its biggest concession is that 50 percent will be affordable, which qualifies it for SB35. Cupertino planned to add 1,064 housing units citywide between 2014 and 2022.

SB35’s author, state Sen. Scott Wiener, D-San Francisco, said he fully supports the Vallco project. State laws pushing for housing are critical when there are opponents who “want to freeze Cupertino in amber and who are unconcerned about whether anyone can actually afford to live in Cupertino,” Wiener said in a statement last month.

The battle isn’t over, but the developer has seized the initiative. It demolished a parking structure in October, and demolition of the mall is expected to begin early next year, according to a city spokesman.

A nonprofit called Friends of Better Cupertino, a Better Cupertino affiliate, filed a lawsuit against the city, saying that the project doesn’t comply with SB35. It alleges that the project isn’t two-thirds housing because it includes residential parking space, that it’s built on a hazardous waste site and that it doesn’t have enough green space. (On a list of answers to frequently asked questions on its website, the city denies there is hazardous waste at Vallco.)

A separate referendum was also submitted for 2020 to block the city’s alternative development plan, which prompted Sand Hill to pick the SB35 plan instead.

“We’re under way and we’re going, and we couldn’t be more excited,” said Reed Moulds, a managing director at Sand Hill Property. “We’re not going to be deterred.”

The $4 billion project has full financing to move forward, and no public funds are needed to build the affordable housing, Moulds said. Sand Hill’s equity partner is Abu Dhabi Investment Authority, the sovereign wealth fund with estimated assets over $800 billion. The project is expected to open in 2021 or 2022.

Photo: Sand Hill Property Co. / Sand Hill Property Co. Renderings of what Vallco Town Center will look like.

More delays would be costly; construction costs continue to rise because workers are scarce, Moulds said. “For a project of this size, we estimate our rate of escalation is $700,000 a day,” he said.

Moulds said that the office space will help pay for the affordable housing, while housing will help support stores and offices by providing foot traffic and giving workers places to live.

“All of these pieces work together to make a viable project,” he said. “We have other retail projects in Cupertino that are struggling to keep the lights on, not because business is bad, but because they can’t get people to show up to work because their housing is unstable.”

Vallco’s affordable housing levels are unprecedented, said Adhi Nagraj, San Francisco director of SPUR, an urban planning nonprofit think tank.

“To build 50 percent on site with no public subsidy is unheard of,” he said, adding that typical projects provide 10 to 15 percent.”

“You can imagine a lot of Apple employees who are now struggling, sitting in shuttles ... living in these new units,” Nagraj said. “This is a great reuse of a dying asset, which is a mall, and converting it to a growth asset.”

Project critics are doubtful that potential residents of Vallco will work locally. Young Apple employees already choose San Francisco because it’s more fun, said Steven Scharf, a Cupertino councilman who is “sympathetic” toward project opponents.

“A single person is not that interested in living in Cupertino,” he said.

Better Cupertino members said they support the housing but don’t want the office space because of traffic.

“I’m a numbers person, so I certainly looked at the numbers and said, ‘This is way too much,’” said Jim Moore, a 42-year Cupertino resident and retired IBM employee. “That is going to change the landscape of the city.”

But he’d be happy to see 2,000 units of housing, especially affordable housing, and a smaller shopping center.

Moore has owned his house for decades, and his daughter was born and raised in Cupertino and worked for a clothing store in Vallco. She was previously a Cupertino public school teacher until she had her first child. She lives in San Jose.

“She wasn’t able to live here. This is where she grew up. This is where we are. This is where her friends are,” Moore said. “So I’d like a good amount of affordable housing, but all the levels, not just the ones that would satisfy service workers.”

Cupertino’s median home value is $2.3 million, up 16.6 percent during the past year, according to Zillow. That’s more than 10 times the U.S. median, according to Trulia.

Vallco’s SB35 affordable housing plan includes low- and very-low-income units, but not moderate-income units that are typically available for teachers.

Not everyone wants affordable housing. At a September public hearing, Thomas Maiello identified himself as a public school student and gave a presentation opposing affordable housing.

“According to the sales pitch, the new housing units would include low-income high-density housing apartments,” his presentation said. “This would mean that we would have uneducated people living in Cupertino. A lot of other residents and I are concerned that this would make the current residents of Cupertino uncomfortable, and would split our city in half.”

The hostile reception for Vallco stands in sharp contrast to nearby Apple Park, the 2.8 million-square-foot headquarters, which has no housing.

“I was really pleased when I travel to have people say, when I said Cupertino, ‘Oh that’s the home of Apple.’ It was founded here,” Moore said. “My wife and I have iPads, and she has an iPhone. We like their products.”

Moore said Apple’s office project is different because the site was already office space, formerly occupied by Hewlett-Packard.

The project, which was approved in 2012, also came before much of the tech boom that has flooded the highways with traffic and led to soaring housing costs. In the wake of the recession, the possibility of Apple moving away helped spur the city to green light the plan, recalls Rod Sinks, Cupertino’s vice mayor.

Apple invested $75 million for infrastructure and transit improvements and paid $5.85 million for affordable housing, double what it was required. Cupertino is now studying a potential per-employee tax that would largely affect Apple.

Sinks, who has also voted in favor of redeveloping Vallco, acknowledged that traffic is a major problem, with no solution in sight.

“We are a transit desert,” he said. “The bus system is so ineffective, it’s almost never an option for anyone who has an alternative.”

But Sinks questions the idea of slowing down growth.

“Most of us moved to Silicon Valley because of the economic opportunity. The question is, are we affording our kids that same opportunity?” he said. “I think we’re beginning to have a change of heart about housing.”

Roland Li is a Chronicle staff writer. Email: roland.li@sfchronicle.com Twitter: @rolandlisf