HOUSING DEPARTMENT
DOWNTOWN RESIDENTIAL INCENTIVE
PROGRAM TAX AND FEE WAIVER FOR THE
GATEWAY TOWER AND BANK OF ITALY
DEVELOPMENTS
March 24, 2026 Item 8.2
City Council
Erik L. Soliván
Housing Director
Banu San
Deputy Director, Housing Department
Housing Development Feasibility
• In December 2025, the City released a Cost of Residential Development Study evaluating housing development feasibility under current market conditions. • Higher-density rental housing generally not financially viable today due to elevated construction costs, high interest rates, and insufficient rents to cover development costs. • San José's targeted incentives, including the Downtown Residential Incentive Program, which covers both new construction and commercial-to-residential conversion, offer an efficient mechanism for closing the financial feasibility gap.
• City Council originally approved the Downtown Residential Incentive Program in 2007, with the most recent amendment on January 27, 2026.
Slide 2
Downtown Residential Incentive Program
New Construction (Phase I: First 7,000 Units):
• IHO in-lieu fee reduced to $0 for eligible residential high-rise developments located in the Downtown Planned Growth Area
• Parkland In-Lieu Fees: 50% reduction
• Building & Structure Construction Tax (B&S) and Commercial, Residential, Mobile Home Park Construction Tax (CRMP): 100% waiver of B&S and CRMP Taxes • High Road Incentive Option: Projects meeting skilled apprenticeship and prevailing wage requirements receive an increased Parkland In-Lieu Fee reduction from 50% to 75% Slide 3
Gateway Tower at 470 South Market Street
• Developed by Core Affordable Housing
• 100% affordable (up to 70% AMI) 15-
story mixed-income residential
community
• 220 dwelling units and approximately
3,320 square feet of ground floor
commercial space on an approximately
0.50-gross-acre site
• Construction expected to start in May 2026
Slide 4
Slide 5
Proposed Tax and Fee Waiver: Gateway Tower
B&S and CRMP Construction Taxes N/A*
IHO In-Lieu Fee N/A**
Parkland In-Lieu Fee (Standard) $1,606,000
(50% waived)
Parkland In-Lieu Fee (High Road) $2,409,000***
(75% waived)
Total Fee Waiver and Reduction Up to
$2,409,000
* Gateway Tower is exempt from B&S
and CRMP construction taxes due to
receiving HUD Section 8 project-based
vouchers (SJMC Section 4.46.032)
** As a 100% affordable project, Gateway
Tower is not subject to the Inclusionary
Housing Ordinance
*** If the project qualifies for the High Road
Incentive option.
Slide 6
Office-to-Residential Incentive Program
Office-to-Residential Conversion (Phase I: First 500 Units):
• IHO in-lieu fee reduced to $0 for eligible residential high-rise and commercial-to-residential conversion projects located in the Downtown Planned Growth Area
• Parkland In-Lieu Fees: 50% reduction
• Building & Structure Construction Tax (B&S) and Commercial, Residential, Mobile Home Park Construction Tax (CRMP): 100% waiver of B&S and CRMP Taxes • Developed by Westbank
• Adaptive reuse of the historic Bank of
Italy building (1925), preserving a
Downtown landmark while activating an
anchor asset.
• Construction start: April 2026
Slide 7
Bank of Italy at 12 South First Street
Slide 8
Proposed Tax and Fee Waiver: Bank of Italy
B&S and CRMP Construction Taxes N/A*
IHO In-Lieu Fee $2,887,422
(100% waived)
Parkland In-Lieu Fee $795,700
(50% waived)
Total Fee Waiver and Reduction $3,683,122
* Bank of Italy is exempt from B&S and
CRMP construction taxes as a historic
landmark subject to a historic preservation
permit (SJMC Section 4.46.030(F))
2026 Year-to-Date Downtown Residential
Development Applications
Slide 9
Development Developer Project Type Over
120% AMI
Below
120% AMI
Total
Units
Gateway Tower Core Affordable New Construction 0 220* 220 Bank of Italy Westbank Conversion 0 109** 109
Total 0 329 329
* Gateway Tower affordability mix breakdown:
• 120 units (55%) at 30% AMI
• 26 units (12%) at 50% AMI
• 48 units (22%) at 60% AMI
• 24 units (11%) at 70% AMI
• 2 market-rate manager units
** Bank of Italy Rent Projections (average):
• Studio: $2,775 (under 100% AMI)
• 1 Bedroom: $3,361(under 100% AMI)
• 2 Bedroom: $4,499 (under 110% AMI)
HOUSING DEPARTMENT
DOWNTOWN RESIDENTIAL INCENTIVE
PROGRAM TAX AND FEE WAIVER FOR THE
GATEWAY TOWER AND BANK OF ITALY
DEVELOPMENTS
March 24, 2026 Item 8.2
City Council
Erik L. Soliván
Housing Director
Banu San
Deputy Director, Housing Department