San Jose has approved the scaled-down reconstruction of the El Paseo de Saratoga, which the developer claims will make the project more feasible as the city struggles to add additional homes.
In addition to constructing a senior assisted living and memory care facility, the most recent version of Sand Hill Property Co.’s project will provide 772 residential apartments, including 39 at 100% area median income.
Sand Hill representatives stated that the project needed to change course in response to the recession brought on by the pandemic, inflation, an increase in labor and material costs, high interest rates, and the collapse of the office market, even though the city had approved plans in 2022 for 994 units, 150 of which qualified as affordable housing.
According to land-use consultant Erik Schoennauer, the effects of the interest rate and capital markets’ seizure are beginning to lessen. When it comes to real estate development, it takes a while for the Fed’s lowering interest rates to have an impact on the market, but we believe that it is trending in the right way and that these adjustments affect the value proposition. Not constructing all of the affordable housing units in the development helps the pro forma because doing so would incur costs for the project.
Since buying the property for $146.6 million in 2019, Sand Hill had intended to renovate the signature project on around one-third of the 30-acre shopping mall located at 1312 El Paso and 1777 Saratoga Ave.
The developer’s original plan called for the construction of four structures, each between nine and twelve floors, with a combination of business and residential spaces.
However, in order to fulfill its contractual responsibilities, Sand Hill abandoned the residential portion of one of the buildings last year and instead requested permission for a one-story building anchored by a Whole Foods Market. Sand Hill plans to start building the market the following year.
The final modifications, which were accepted on Tuesday, now include a 7-story, 230,305-square-foot residential care facility, a 10-story structure with 374 units and 17,447 square feet of commercial space, and a 12-story building with 398 units and 14,139 square feet of commercial space.
Senior assisted living is in high demand, and because of its solid economic foundation, funding is also available for that kind of real estate asset, according to Schoennauer.
According to Sand Hill’s director of planning and entitlements, Steve Lynch, if the developer wasn’t dedicated to moving the project forward in the upcoming years, it wouldn’t have spent millions of dollars and made significant time commitments.
It also puts us in a strong position because, despite how bad 2024 was and how bad 2025 is looking, this project is one of the few multi-family projects that is likely to be completed and open in 26 and 27, Lynch said.
The project’s loss of over a hundred affordable housing units is one of its biggest changes.
Developers are required to supply at least 15% affordable housing or pay an in-lieu fee as part of the city’s inclusionary housing legislation. Instead, Sand Hill will provide over $13 million, which will be used to support other affordable housing initiatives in the city.
Former Vice Mayor Chappie Jones expressed disappointment about the loss of the affordable housing units, but he was reminded that 5% of something is better than 100% of nothing.
Additionally, San Jose’s multi-family development pipeline is in a slump due to market conditions; no new buildings are scheduled to begin construction in 2024. To help get shovels in the ground, city officials also unveiled a temporary incentive program on Tuesday.
It is crucial that this project becomes financially feasible since, despite the fact that San Jose has to add 62,200 units by 2031 to achieve its regional housing requirements assessment, or an average of 7,775 units annually, the city only issued 2,666 building permits in the most recent year.
The project’s district is represented by Vice Mayor Rosemary Kamei, who stated, “I certainly know that in this era of not having any housing starts, it’s really, really critical.” I’m happy that, with the help of our director and the housing department, we were able to reach the 39 that you’re going to have. I know that at one point, the affordable housing had been set at zero. I think this project will be fantastic.
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