TO: HONORABLE MAYOR
AND CITY COUNCIL
FROM: Erik L. Soliván
Chris Burton
John Ristow
SUBJECT: See Below DATE: February 26, 2025
Approved
Date: 3/6/2025
COUNCIL DISTRICT: 4
SUBJECT: Approval of a Multifamily Housing Incentive Program Residential Tax and Fee Waiver for 905 North Capitol Avenue
RECOMMENDATION
(a) Conduct a public hearing to approve an economic development tax and fee waiver in connection with a reduction in construction taxes and a reduction of the Inclusionary Housing Ordinance in lieu fee for 905 North Capitol Avenue, which meets the requirements of the Multifamily Housing Incentive Program enacted by the City Council on December 10, 2024 in an amount of up to $4,905,022 pursuant to California Government Code Section 53083 and Open Government Resolution No. 77135 Section 2.3.2.6.C.
(b) Adopt a resolution approving the tax and fee waiver and authorizing the Housing Director, or his designee, to negotiate and execute documents and document amendments related to implementing the Multifamily Housing Incentive Program, such as project completion agreements.
SUMMARY AND OUTCOME
In compliance with the Multifamily Housing Incentive Program (MHIP), City Council approval will provide a total fee tax reduction and fee waiver in the amount of $4,905,022 for the development project located at 905 North Capitol Avenue. City Council approval will also allow the Housing Director, or his designee, to negotiate and execute project completion agreements with the developer of the 905 North Capitol Avenue project.
COUNCIL AGENDA: 3/18/25
FILE: 25-246
ITEM: 8.2
HONORABLE MAYOR AND CITY COUNCIL
February 26, 2025
Subject: Approval of a Multifamily Housing Incentive Program Residential Tax and Fee Waiver for 905 North Capitol Avenue
BACKGROUND
On December 10, 2024, City Council adopted the MHIP that allows for the reduction of fee and tax requirements, offering a 50% reduction to the Commercial, Residential, Mobile Home Park (CRMP), and Building and Structure (B&S) construction taxes for the first 1,500 units that obtain City building permits by December 31, 2025, and a 25% reduction in the B&S construction tax to projects that obtain City building permits on or after January 1, 2026. The MHIP also extends and expands the Inclusionary Housing Ordinance (IHO) $0 in lieu fee reduction, which was previously granted only for downtown high-rise developments.
To be eligible for the 50% reduction in the CRMP and the B&S construction taxes, and the reduction to a $0 IHO in-lieu fee, a project must meet the requirements as listed in the project eligibility criteria under Section 1: Proposed MHIP Parameters of the MHIP 1 staff memorandum.
ANALYSIS
The development project located at 905 North Capitol Avenue is included in the MHIP.
The development project must comply with its amended affordable housing compliance plan and record an Inclusionary Housing Agreement against the site, memorializing the requirements under the MHIP term of the IHO in-lieu fee reduction before building permit issuance. City staff will also execute an IHO agreement with the developer to ensure the additional requirements of the tax reduction are met.
905 North Capitol Avenue Project Description
The proposed multifamily development at 905 North Capitol Avenue is located on a
2.12-acre site. The development will consist of a seven-story, mixed-use building, with approximately 3,000 square feet of office space, one level of underground parking with 364 parking spaces, and up to 345 apartment units, including 17 restricted affordable units at 100% Area Median Income with a mix of studios, one-bedroom, and two- bedroom units. The Attachment, 905 North Capitol Avenue Project Renderings, in this memorandum, provides a visual rendering of the development.
Construction Taxes
The City’s construction taxes include the CRMP and the B&S, both of which are based on the valuation of construction derived from the most current building valuation data
1 File: 24-2305, Item 8.2, Meeting Date: December 10, 2024, Item Title: Multifamily Housing Incentive Program and North San José Park Fee Realignment, Web Link:
https://sanjose.legistar.com/View.ashx?M=F&ID=13583575&GUID=F101D3D4-D65C-407D-9B6C- 234BDE8EB26A
HONORABLE MAYOR AND CITY COUNCIL
February 26, 2025
Subject: Approval of a Multifamily Housing Incentive Program Residential Tax and Fee Waiver for 905 North Capitol Avenue
table published by the International Code Council or the developer’s stated construction valuation, whichever is higher. The CRMP tax rate on residential building construction valuation is 2.42%, and the B&S tax rate on residential building construction valuation is
1.54%, for a combined tax of 3.96%. Proceeds are used to fund city-wide capital improvement projects, such as repairs and redevelopment of existing recreational facilities, and transportation-related projects and improvements, such as pavement maintenance, complete streets, pedestrian safety, and traffic calming projects. Table 1 provides an overview of the construction taxes for the 905 North Capitol Avenue development.
Table 1 – Construction Tax Overview
905 North Capitol
Avenue Development
Standard CRMP and B&S Construction Taxes $1,722,277
50% Tax Reduction $861,139
CRMP and B&S Taxes to be Received $861,138
Inclusionary Housing Ordinance
The IHO was adopted to require all residential developers constructing new or modified rental or for sale residential units to comply with a base requirement of 15% on-site affordable housing units within the development. The original IHO obligation allowed developers to pay a reduced in lieu fee and provide 5% of their total units to construct affordable housing. The IHO in lieu fee methodology is based on the net residential square footage calculation. The current fiscal year fee for mixed compliance is $13.80 per net residential square foot for projects located in the Moderate Market Area. Table 2 provides a summary of the projected total IHO in lieu fee waived for the 905 North Capitol Avenue development.
Table 2 – Waived IHO In Lieu Fees
Development Market
Area
FY 24-25
IHO In Lieu
Fee Rate
Net
Residential
Square
Footage
Waived IHO In
Lieu Fee
905 North Capitol Avenue Moderate
Market $13.80 293,035 $4,043,883
HONORABLE MAYOR AND CITY COUNCIL
February 26, 2025
Subject: Approval of a Multifamily Housing Incentive Program Residential Tax and Fee Waiver for 905 North Capitol Avenue
Table 3 provides a summary of the total proposed tax and fee waiver for the 905 North Capitol Avenue development.
Table 3 – Proposed Tax and Fee Waiver
IHO In Lieu Fee $4,043,883
50% reduction of CRMP and B&S construction
taxes on the residential portion of the building $861,139 Total Tax Reduction and Fee Waiver $4,905,022
EVALUATION AND FOLLOW-UP
City staff will execute agreements with the developer of 905 North Capitol Avenue as required under the San José Municipal Code Sections 4.46.039.11 4.47.089 and monitor project construction to ensure the MHIP requirements are fulfilled. The project must still comply with the affordable housing compliance plan and record an Inclusionary Housing Agreement against the sites prior to building permit issuance.
COST SUMMARY/IMPLICATIONS
The project aligns with the City’s Envision San José 2040 General Plan to spur the development of multifamily residential in identified growth areas within the City of San José.
Table 4 addresses the requirements set forth in the City of San José’s Resolution No. 77135 for the publication of information related to an economic development waiver of more than $1,000,000.
Table 4 – City of San Jose Cost/Benefit Evaluation
a) Accountability MHIP suspends 50% of construction taxes for eligible developments and allows for payment of taxes to be
delayed until the issuance of the first Certificate of
Occupancy, and an IHO In-Lieu Fee Reduction to $0 to
the IHO in-lieu fee for projects meeting certain conditions.
b) Net Fiscal Impact The project is estimated to generate a one time revenue of $861,138 in construction taxes. The construction tax revenue forgone is $861,139. The IHO in-lieu fee revenue forgone is $4,043,883.
HONORABLE MAYOR AND CITY COUNCIL
February 26, 2025
Subject: Approval of a Multifamily Housing Incentive Program Residential Tax and Fee Waiver for 905 North Capitol Avenue
c) Net Job Impact Based on estimates from the developer, the project will create approximately 498 full-time construction jobs
through the sub-contractors; 90% of these construction
jobs will generate an annual salary above $60,000. The
recipient will provide health insurance to all employees. d) Housing Impact This project will deliver 345 new market-rate (above 120% of Area Median Income) housing units and 5% or
17 moderate-income units at 100% of Area Median
Income. Based on the reported net job impact above, no
new extremely low-income housing units would be
required for employees hired to implement the project.
e) Source Of Funds The program does not provide funds directly to the projects. It is a suspension of 50% of construction taxes, and a reduction to $0 of the IHO in-lieu fee. The project is estimated to generate a one time revenue of $861,138
across multiple funds.
f) Neighborhood
Impacts
No significant impacts are anticipated on traffic or public infrastructure, given that funding being transferred to the traffic capital fund to mitigate the one-time revenue
reduction.
Table 5 addresses the requirements set forth in the State of California Assembly Bill 562 (Government Code 53083) for publication of information related to an economic development subsidy and a public hearing.
Table 5 – State of California Cost/Benefit Evaluation
a) Name/Address of Benefiting
Business Entity
HTHC North Capitol LLC.
1780 S. Post Oak Lane
Houston Texas, 77056
b) Start and End Dates for the
Subsidy
Projects are eligible for the subsidy per the MHIP
after the issuance of building permits prior to
December 31, 2025. The subsidy will become
finalized upon payment of taxes, prior to the
issuance of the first Certificate of Occupancy,
subject to conditions therein.
HONORABLE MAYOR AND CITY COUNCIL
February 26, 2025
Subject: Approval of a Multifamily Housing Incentive Program Residential Tax and Fee Waiver for 905 North Capitol Avenue
c) Description of the Subsidy,
Estimated Total Amount of
Expenditure of Public Funds
or Revenue Lost
The City shall suspend 50% of construction taxes
on the high-rise constructed at 905 North Capitol
Avenue and shall allow payment of the taxes to
be delayed until the issuance of the Certificate of
Occupancy. The City shall also provide a
reduction to $0 in the IHO in-lieu fee. The
estimated economic development subsidy is
$4,905,022.
d) Statement of Public Purpose
To encourage the development of multifamily
residential development, spurring increased retail
amenities, attracting more employers, increasing
transit use, and improving public life in San José.
The aggregation of these factors will increase the
economic vitality of the City and will translate to
increased property tax and sales tax revenue for
the City .
e) Projected Tax Revenue The project is estimated to generate a one time revenue of $861,138 in construction taxes.
f) Estimated Number of Jobs
Created, Broken Down by
Full-Time, Part-Time, and
Temporary Positions
Based on estimates from the developer, the
project will collectively create approximately 367
full-time construction jobs; 90% of these
construction jobs will generate an annual salary
above $60,000.
COORDINATION
This memorandum has been coordinated with the City Attorney's Office, the City Manager’s Budget Office, the City Manager’s Office of Economic Development and Cultural Affairs, and the Parks, Recreation, and Neighborhood Services Department.
PUBLIC OUTREACH
The memorandum will be posted on the City’s website for the March 18, 2025 City Council agenda.
COMMISSION RECOMMENDATION AND INPUT
No commission recommendation is associated with this action.
HONORABLE MAYOR AND CITY COUNCIL
February 26, 2025
Subject: Approval of a Multifamily Housing Incentive Program Residential Tax and Fee Waiver for 905 North Capitol Avenue
CEQA
Mitigated Negative Declaration for the 905 North Capitol Residential Development Project, File Nos. H21-015/ER21-061.
PUBLIC SUBSIDY REPORTING
This item includes a public subsidy as defined in the City’s Open Government Resolution section 2.2.10 and is in the amount of $1,000,000 or more. An informational memorandum, as described in Open Government Resolution Section 2.3.2.6.C, was posted at least 28 calendar days prior to the City Council meeting at which the subsidy will be considered
2. The Director of the City Manager’s Office of Economic Development and Cultural Affairs has been informed of this subsidy to ensure that it is tracked appropriately.
/s/ /s/
Erik L. Soliván Chris Burton
Housing Director Planning, Building and
Code Enforcement Director
/s/
John Ristow
Transportation Director
For questions, please contact Banu San, Deputy Director, Housing Department, at [email protected].
ATTACHMENT: 905 North Capitol Avenue Project Renderings
2 Date Posted: February 18, 2025, Information Memorandum Title: Approval of a Multifamily Housing Incentive Program Residential Tax and Fee Waiver for 905 North Capitol Avenue, Web Link:
https://www.sanjoseca.gov/your-government/departments-offices/housing/resource-library/information- memos
ATTACHMENT: 905 North Capitol Avenue Project Renderings