HOUSING DEPARTMENT
MULTIFAMILY HOUSING INCENTIVE
PROGRAM RESIDENTIAL TAX AND FEE
WAIVER FOR 210 BAYPOINTE PARKWAY
August 25, 2026 Item 8.2
City Council
Erik L. Soliván
Housing Director
Banu San
Deputy Director
Multifamily Housing Incentive Program (MHIP)
• In December 2025, the City released a Cost of Residential Development Study evaluating housing development feasibility under current market conditions
• Higher-density rental housing is generally not financially viable today due to elevated construction costs, high interest rates, and insufficient rents to cover development costs • The MHIP construction tax reduction and IHO fee waiver offer an efficient mechanism for closing the financial feasibility gap
• City Council approved MHIP on December 10, 2024, and amended the program on May 13, 2025 and January 27, 2026. Key program benefits include:
• IHO in-lieu fee reduced to $0 for developments that include at least 5% of units on-site at up to 110% area median income
• 50% reduction in the Building and Structure (B&S) and Commercial-Residential-Mobile Home-Park (CRMP) Construction Taxes for the first 3,600 eligible units through February 28, 2027 (Phase I) • 25% reduction in the B&S Tax for projects beyond the first 3,600 units or after February 28, 2027 (Phase II) • To qualify, developments must be listed on the Eligible Projects list last updated January 27, 2026 Slide 2
Investment Cycle Ahead
100
120
140
160
Construction Materials Prices
0 1
2 3
4 5
Ten-Year U.S. Treasury (%)
Construction costs increases are accelerating:
Building materials now cost roughly 55% more
than in 2020, a persistent increase that raises the
baseline costs of new housing production.
Financing costs remain elevated: The ten-year
U.S. Treasury is trending upward. As a benchmark
for both construction lending and asset valuation, a
higher rate makes projects costlier to finance and
raises the return investors expect, both of which
weigh on project feasibility.
4.47%
Q2 26 Ten-Year
U.S. Treasury
3.62%
Q2 26 Secured Overnight
Funding Rate ("SOFR")
67.2%
Odds of an interest rate
increase in Q4 26
Source: U.S. Bureau of Labor Statistics | Board of Governors of the Federal Reserve System | CME FedWatch
Investment Cycle Ahead
Tight Market Fundamentals: Citywide
vacancy rates declined year-over-year to 3.0%
while rents grew 3.4% to $3,027.
Rising Construction Costs: Building materials
prices increased 7.1% (more than twice the pace
of rent growth), which significantly raises the
total development cost of housing production.
Project Feasibility Impact: Increased costs
reduce developer-investor returns, making new
housing construction less economically viable
and leading to stalled projects.
Why MHIP Matters: MHIP helps offset high
building costs so projects can break ground and
deliver new housing.
Source: CoStar, Q2 2026 | U.S. Bureau of Labor Statistics 0 5
10 San José Apartment Vacancy Rate (%)
$2,000
$2,500
$3,000
$3,500
San José Average Effective Rents
Slide 4
210 Baypointe Parkway
Developed by SummerHill
Apartment Communities
Seven-story residential
building containing five
levels of residential space
over two levels of parking
277 market rate housing
units
15 moderate-income
housing units at 110% AMI
Slide 5
Proposed Tax and Fee Waiver
Inclusionary Housing In-Lieu Fee $3,339,520
50% Reduction of CRMP and B&S Construction Taxes on
the residential portion of the building $1,791,255
Maximum Total Fee
Waiver and Reduction
Up to $5,130,775
($17,571 per unit)
210 Baypointe
Midrise Apartments
(Subject)
For-sale
Townhomes
Slide 6
MHIP Production Progress
Development Developer Market-Rate Affordable Total
905 North Capitol Avenue Hanover Co. 328 17 345
498 West San Carlos Street Urban Catalyst 264 14 278
358 Hatton Street Federal Realty 245 13 258
0 Seely Building A Hanover Co. 377 20 397
Martha Gardens* Maracor/Pacific West 2 164 166
El Paseo de Saratoga Sand Hill Property 733 39 772
0 Seely Avenue Building B Hanover Co. 353 19 372
0 Seely Affordable Building* Hanover Co. 1 135 136
210 Baypointe Parkway** SummerHill Apartments 277 15 292 Total Units 2,580
(86%)
436
(14%)
3,016
(100%)
* These units will not count toward the IHO MHIP allocation, as the project is 100% affordable. ** Development discussed in this presentation.
Slide 7