San Jose Clears NVIDIA's Chip Lab as a Data Center Over Neighbors' Appeal

Head north past the new apartment blocks of North San Jose and you come to a plain two-story office building at 300 Holger Way, just south of Highway 237. Nothing on the exterior hints at the chip testing for NVIDIA that goes on inside. This week the building became the newest flashpoint in a fight that has taken hold in San Jose faster than any local issue in some time: whether the city should let the AI boom's data centers be sited next to the people who build the AI.

What the council decided

On Tuesday, October 20, the San Jose City Council put an end to an appeal against a special use permit for 300 Holger Way with a unanimous vote. Vice Mayor Pam Foley did not take part, citing a financial interest in the tenant. The permit, first approved by city planners on July 8, lets the existing research and development building run as a data center drawing up to 20 megawatts of power. It is limited to interior work like installing data racks and does not sanction any new construction.

Citizens for Responsible Industry, a labor-backed coalition joined by residents in the area, had put forward the appeal. They contended the city ought to have done a full environmental review rather than treat the permit as a routine in-fill project exempt from such scrutiny. In its July notice of exemption the city put the project down as the use of an existing 97,800 square foot building on 4.86 acres with no alteration to its footprint. Since nothing changes outside the walls, there is nothing for an environmental study to look at, according to the planners. The council was in accord.

Why a chip lab counts as a data center in San Jose

What is odd about the affair is the owner's claim that it is not in the business of building a data center here at all. Menlo Equities, the real estate company that owns the property, let it to NVIDIA on a ten-year deal about two years back, and the chipmaker has put more than $100 million into making it a lab for testing its computer systems, complete with a data hall supplied with 8.5 megawatts of power. Representatives for the owner say the permit is merely there to put what is already being done on a legal footing.

The need for that is a function of San Jose's code, which has a broad definition of a data center as any development that houses computer systems and their associated components. By that measure a room full of GPUs under test is a data center even if it never serves a customer on the internet. Menlo Equities said that without an explicit permit the research would be open to legal challenges.

Councilmember David Cohen, who represents North San Jose, said the definition was the real problem. "I'm frustrated that we're having this conversation because we're actually talking about a building that's not a data center, but we have a very strange definition of data center in our city code," he said at the meeting.

The neighbors' case, and the city's answer

The opposition had a different take on it. Kelilah Federman, attorney for the appellants, put it to the council that a facility using 20 megawatts cannot run on data racks by themselves. "The city's artificially narrow definition of the project ignored basic electrical and mechanical infrastructure required to support data centers, including power distribution and energy use, uninterruptible power supply and cooling systems that allow high density computing equipment to operate continuously," she said. To her mind the permit was an opening for something much bigger than the owner made it out to be, with noise and air pollution the city has not looked into.

Mothers Out Front Silicon Valley, the environmental group at the head of the residents' resistance across the city, called the decision a letdown and predicted more air and noise pollution for the neighborhood. City officials countered that such concerns are outside the scope of the permit: should the owner wish to install backup generators or a cooling plant, a new permit and its own review would be in order.

A city with 20 data centers and a pipeline behind them

All of the activity surrounding this 97,800 square foot building is what has made it a matter for the council. San Jose is home to some 20 operating data centers as of this summer, with six being built and five in the approval process. The city's planning page for data centers and other large energy use projects lists approved projects of 99 megawatts at 127 Great Oaks and 4160 Zanker Road (the latter with 224 standby generators) and 91 megawatts on Fortune Drive, while a 250 megawatt project on Disk Drive is under review.

Large data centers yield roughly $3 million to $7 million a year each in utility and property taxes, by the city's estimate, money a city with chronic budget shortfalls is not about to refuse. The offices along North First Street are filled by the same demand that is driving the pipeline: any AI model trained or served in Silicon Valley needs a building full of chips somewhere, and the industry is getting inventive in its search for one. A report from Sparknify this week on HPE's Spaceborne Computer-4, a fanless AI computer headed for a rover near the Moon's south pole, is a case in point. North San Jose is nearer at hand, and it has neighbors to contend with.

Those neighbors have been making their presence known. On October 15 they were out in force at City Hall for a listening session in which staff put forward a first draft of uniform standards for data centers and research facilities of 20 megawatts and up. The proposal would do away with open-loop cooling that uses drinking water in favor of recycled water or closed-loop systems, require carbon-neutral electricity, and hold diesel backup generators to the strictest federal emission rules with testing limited to 25 hours a year as against the state's 50. It also calls for noise and sewer discharge monitoring and a 1,500 foot radius for mailed notices instead of 1,000. Many speakers wanted a moratorium until the rules are set in stone. Mayor Matt Mahan demurred. "It isn't realistic for us to live in a world where no new data centers are built," he said, promising standards that are category-defining in every area people are worried about.

What it means if you live or work in North San Jose

For the tech workers who have put down roots in the apartment towers along River Oaks and North First over the last ten years, this is no abstract matter of policy. The Holger Way building is part of the same grid as their daily commute and lunch haunts, and more and more their homes. Then there are the practicalities: a backup generator is silent until the power fails, cooling systems are always on, and the demand placed on PG&E's aging local grid is a question of reliability and, over time, rates for everyone.

Set against that, the building has been running chip tests since NVIDIA moved in without the neighborhood noticing, and at 20 megawatts it is small next to the 99 megawatt projects approved a few miles off. This week's decision is more about the legal designation of the building than the building itself. It is the precedent that changes: a contested data center permit reached the council in the middle of the standards debate and passed with not one no vote.

Will San Jose become the Bay Area's data center capital, or hit pause like its neighbors?

San Jose will most likely keep saying yes, with strings attached. The draft standards come before the council on December 8 and 15, and if adopted they would give the city a rulebook most of its neighbors do not have. San Francisco put an emergency 45-day moratorium on data centers in place on October 16, Oakland passed its own 45-day pause on October 6, and Richmond, Gilroy and Oakley have followed suit. Santa Clara is at work on a policy update that will not be ready until late 2027. Should the standards stand, San Jose may well be the one large Bay Area city open to data center business while able to say exactly what it wants in exchange.

But the risks are just as real. The Sierra Club's local chapter, Mothers Out Front and residents contend the draft is light on enforcement where it should be firm, leaning on terms like "encourage" and "monitor", and makes no headway on low-frequency noise or the urban heat island effect. Green Foothills cautions that the council has no legal authority to turn down a project in a permitted zone that meets every standard, and the city says it is not looking to change its zoning. Every approved megawatt is also a claim on PG&E capacity the city needs for new housing, and a string of generator-backed facilities running through an outage on a hot afternoon is the scenario residents keep pointing to.

There is no letting up of the controversy. Labor is divided: the building trades back the standards as a source of union construction work for years to come, while the coalition behind the Holger Way appeal has invoked environmental law to press for a harder line. Councilmember Cohen and other supporters of the standards argue that a moratorium would be economically disruptive for little sure gain. Residents counter that these decisions are irreversible and that a few months of delay is worth it to get the rules right. Each side can make of this week's vote what it will: supporters see a city in working order, opponents see a 20 megawatt permit approved five days after the unveiling of the rules meant to govern it.

What to watch in the coming months is whether the December votes keep the 20 megawatt threshold and the 25-hour generator cap; whether the standards are applied to projects already in the pipeline, as the city has promised to try; whether Menlo Equities or NVIDIA put in for the equipment the permit does not cover; and whether the San Francisco and Oakland moratoriums are extended. The next disputed permit to reach the council will show whether this vote was about one unusual building or the direction of the city.

For now, San Jose has made up its mind that the AI boom's buildings belong here, and those living next door have resolved to hold the city to its word on the rules.

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