Silicon Valley Business Journal
By Katherine Conrad | April 30, 2010
$28M Japantown project in San Jose corners federal stimulus funds
Cornerstone at Japantown, an affordable housing project in San Jose, is finally under construction thanks to $2 million from the federal government.
The money from the American Recovery and Reinvestment Act was only a part of the $28 million cost of the 53-unit project. But without it, the project would still be on the drawing board, said Chris Neale, director of development for Core Homes, an affiliate of Core Builders.
“The glue that made it happen was the stimulus money,” Neale said. “The challenge is to layer a stack of different sources of money to equal the cost of the project. Now my project cost equals my project sources.”
The other funding came from a variety of lenders. The California Community Reinvestment Corp. is lending $3.8 million. Hudson Housing Capital is providing equity of about $13 million. Santa Clara Housing Trust contributed $500,000 for pre-development expenses. The city of San Jose contributed $7 million, and JPMorgan Chase & Co. provided a $13 million construction loan.
Neale cautioned that the numbers don’t add up because some of the money funded pre-development costs.
Multiple lenders are key
While the list of lenders seems long, Mary Murtagh, CEO of EAH Housing in San Rafael, said it’s not at all unusual in the world of affordable housing projects. EAH, the co-developer on the project, has been working with Core on Cornerstone since 2007, and it will manage the project once it’s built.
“With affordable housing projects, it’s always multilevel funding, and it’s always a challenge,” Murtagh said. “We put the jigsaw puzzle together until it’s done.”
This project, however, had the added challenge of struggling to obtain financing during the worst economic downturn since the Great Depression.
“Any financing is very difficult right now,” she said. “Cornerstone at Japantown is not different, but the timing and the economic situation made it tougher, and Core did a great job. Most market-rate developers think it isn’t worth doing.”
Another significant partner was the city of San Jose, Neale said.
Kristen Clements, manager of project development for the city, said Cornerstone appealed to San Jose officials for a number of reasons, namely because it will offer two- and three-bedroom units to families making $28,650 to $68,370 a year.
“This is a good project in a good location with the right level of deep income targeting; it serves lower-income people,” Clements said. “The financing was pulled together by Core. They came to us years ago, saying this is what we would like to do.”
Clements said the project is an unusual one because it’s affordable townhomes for families. Originally, the project was to be built as a for-sale product. But when the housing market tanked, lenders would not make construction loans and so the project was redesigned as affordable rental.
“This is really smart in a down market to get started on rentals,” Clements said.
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