The city Redevelopment Agency is finalizing a deal to sell two prized downtown properties to Silicon Valley developer John Michael Sobrato for $20 million.

Mayor Chuck Reed said the sale will allow the city to buy the last two parcels around Diridon Station needed for a baseball stadium.

“It’s all part of the strategy to get through the economic crisis by selling property to fund the acquisition of other properties,” Reed said. “It’s a land-banking strategy.”

City Councilman Sam Liccardo, who represents downtown, said Sobrato’s purchase is a sign of a turnaround.

“In these very difficult economic times, Sobrato’s willingness to invest in the downtown is a sure sign of our coming resurgence,” he said.

Regarding the $20 million price tag, Liccardo said, “I believe the taxpayers are getting their money’s worth. And the downtown is getting an opportunity to have a first-rate developer create something iconic that represents the economic resurgence of the next decade.”

Reed agreed: “The Sobratos can deliver — they actually build stuff.”

The mayor said he would support either office or condo towers on the parcels.

“I don’t know the specifics, but we’d love to have them put up another building downtown,” he said.

San Jose Redevelopment Agency Director Harry Mavrogenes said the report regarding the sale will be sent to the City Council early next week. The council is scheduled April 13 to consider a resolution to sell the properties, but the RDA has asked the council to defer the decision to April 20.

According to the agency’s agenda, the city agrees to sell the parcels, currently used as parking lots at 285 S. Market St. and 8 E. San Fernando St., to Sobrato Interests III.

Sobrato was on vacation and could not be reached to discuss his plans for the properties.

Banking on the future

Unlike past contracts to sell downtown land, Reed said the agreement to sell the two properties to Sobrato does not hinge on developing a building. This is a straight-cash deal, he said.

“We’re going to get money,” the mayor said. “This is not a back-end interest in some development. We’re getting this cash, which we can use to make sure the agency can continue to operate. My strategy all along has been, ‘Let’s trade land for land.’”

San Jose has identified a 14-acre site at the western edge of downtown near the HP Pavilion for a 32,000-seat major league ballpark. If Major League Baseball allows the Oakland Athletics to move to San Jose, the team would be responsible for financing the estimated $461 million stadium.

The city’s gift to the project would be the land. So far, San Jose has spent $26 million acquiring the bulk of the 14-acre site, but two more parcels valued at up to $20 million need to be purchased.

Third time’s the charm

It’s not the first time the properties, known as Block 2 and Block 8, have been on the sales block. Block 8, a 1.5-acre site fronting Market Street, was in contract to be sold for $27 million in 2007. That deal fell apart when the city, the San Jose Downtown Association and Mineta San Jose International Airport could not agree on building heights.

Block 2, located on San Fernando Street, was to be sold to the Dutch entity Living Tomorrow and Chicago-based Mesa Development LLC for $1 provided the city shared in the revenue from the proposed hotel/high-rise condo development. That deal also crashed, a victim of the housing downturn.

Urban West Associates developer Mike Kriozere spent almost seven years and $2.5 million trying to build twin condominium towers on the Block 8 site before being stymied by the dispute with the airport over how high the structures could be built. But, he said, had he built the project, “it would have been a disaster” with the downturn in the market.

“Had we started, we would have had a (condo) building going up for prices we couldn’t have sold,” he said. “The city could have sold it to us and we’d have been left holding the bag.”

Given his relationship with San Jose, Kriozere asked the city in a letter to offer Urban West the first right of refusal if San Jose decided to sell the land for less than the $27 million Kriozere had agreed to pay.

“I think it would have been fair to offer it to us since we spent so much time and so much money,” he said.

The city acknowledged his letter, Kriozere said, but did not tell him about Sobrato’s intention.

“Ten million dollars apiece for the two blocks is a good deal for the buyer,” Kriozere said. “I have investors that might have taken a hard look if the city would have told me that they would entertain an offer for $10 million. I knew the Sobratos were interested. But the city never came back to me.”

Reed said Kriozere had no right to expect another shot at the property.

“A deal is a deal. He had an agreement, it expired, now it’s over and we’re doing the best we can do to move it forward,” the mayor said. “It was way past the expiration date before we terminated. We stayed with it to keep hope alive.”

Nonetheless, Kriozere, who built One Rincon Hill, a 400-unit, 60-story high-rise next to the Bay Bridge in San Francisco, said he would be interested in partnering with Sobrato on the development of the parcel.

“Right now, no one will build. But we could hold it for investment,” he said. “Perhaps one day it would make sense for the Sobratos and us to discuss the property. They have the expertise, and the site could be a mixed-use property with residential hotel, an office tower and a condo tower.

“That makes sense.”

Sobrato certainly has decades of experience building commercial and residential projects. The Cupertino-based company owns more than 86 commercial properties in Silicon Valley and more than 400 acres of land throughout Santa Clara and Alameda counties. The firm has built 8 million square feet of office and research-and-development projects, and it owns 30 apartment communities totaling 7,300 units along the West Coast.