San Jose, CA ---- The Palladium Company and the San Jose Redevelopment Agency announced today that they have called off negotiations to redevelop a five-block area in downtown San Jose.

“Palladium and San Jose together have concluded after careful and detailed review that the market at this time does not support the large, mixed-use project we originally envisioned,” said Ken Wong, Palladium’s Western Region Partner.

“While we still believe that the vision we advanced would be an effective way to revitalize San Jose’s downtown area, it is unrealistic until a much stronger market returns. In light of this conclusion, we agree the appropriate action is to end our negotiations.”

Mayor Ron Gonzales said, “Although we are disappointed that the current economy means we will not move forward with a full-scale project at this time, we are fortunate to have a great number of other projects under way that will enhance the downtown and strengthen business.”

According to San Jose Redevelopment Director Susan Shick, the negotiation process clarified both redevelopment challenges and opportunities that show that downtown San Jose is a strong and attractive market for the long-term.

“We will continue to pursue the recommendations of the Urban Land Institute in June 2000 to create a historic mixed-use district. The work we have done in the last year has positioned downtown San Jose to keep moving forward with retail revitalization,” she said.

Shick noted that the Agency’s environmental studies and financial analyses prepared for the Palladium negotiations will continue to provide practical guidance for both public and private investment.

“Palladium believes in the long-term fundamentals of downtown San Jose,” Wong said. “I certainly would not rule out future investments in the downtown area at a later time by Palladium or its affiliate, the Related Companies.”

Wong commended the strong commitment of the San Jose Redevelopment Agency to work with Palladium toward the revitalization of the downtown area.

“Unfortunately, the efforts by the Agency and our Palladium team together cannot change economic conditions now affecting the retail development industry both locally and nationwide,” he said.

The Redevelopment Agency issued a request for qualifications in response to the recommendations of a survey team from the Urban Land Institute.  ULI recommended that the city seek to create new retail, office and residential space in a catalyst redevelopment project.

San Jose selected the Palladium Company from among more than a dozen firms that submitted proposals. The Palladium proposal anticipated 500,000 square feet of retail space, a 350-room hotel, 350,000 square feet of office space and more than 1,000 downtown homes.

Five major anchor sites comprised the project: Mitchell Block bounded by St. John, West Santa Clara, North First and North Market; Fountain Alley along First Street; Zanotto’s parking lot; a parcel at First and San Fernando; and Block 3 at South Second and West San Fernando.

Since responding to the Redevelopment Agency RFQ in the fall of 2000, Palladium has invested more than $3.5 million in the project, including fees of $375,000 to the Agency. It has been engaged in exclusive negotiations with the Redevelopment Agency for the past year. The Palladium proposal would have required approximately $1 billion in private investment.

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About Palladium: The Palladium Company is a leading national developer of mixed-use projects in urban centers, and it remains involved in several other major developments in various parts of the country. The company’s “Victory” project in Dallas is in an advanced financing stage. Additional residential development is proceeding at recently opened CityPlace in West Palm Beach, Florida. The Palladium at AOL Time Warner Center in New York City is under construction with completion expected in the fall of 2003 and with major tenants already in place.