SAN JOSE — A big housing development in downtown San Jose has landed some financing for most of the land needed for the homes, a project that could produce 600-plus residences in the city’s urban core.
Urban Catalyst, the project’s developer, wants to build about 1,000 residences within two to three housing towers on North Fourth Street between East Santa Clara Street and East St. John Street.
Yet the developer still seeks an all-important bundle of construction funding for the project, even after landing new financing for three of the four land parcels needed for the housing towers planned for that block.
For now, however, Urban Catalyst has gained an important piece of the money puzzle the company must assemble if it’s going to build any of the towers now eyed on the downtown San Jose block.
“We got a new land loan,” said Erik Hayden, founder and principal executive of Urban Catalyst, the project’s primary developer.
An Urban Catalyst-controlled affiliate that owns the land sites has landed a combined $10.5 million in financing for the three downtown San Jose properties, according to documents filed on Dec. 29 with the Santa Clara County Recorder’s Office.
The just-financed sites are at 147 East Santa Street, 47 North Fourth Street and 49 North Fourth Street, the county property files show.
Beverly Hills-based Bolour Associates, which offers early-stage financing for projects whose developers are seeking construction financing, provided the $10.5 million in financing, according to the property documents.
The new loans have a term of about 30 months, or two-and-a-half years, according to Hayden.
Next up: Urban Catalyst is attempting to cobble together construction financing for the towers that would be built on the North Fourth Street block.
One or two towers, which would spout at the corner of East Santa Clara Street and North Fourth Street, would contain about 650 residential units.
A third tower, expected to be built at the corner of East St. John Street and North Fourth Street, would produce another 388 units.
All of these housing towers, whether grouped into two or three highrises, face a problem that is becoming more widespread by the day in commercial real estate.
Landing financing for new construction — even apartments, despite the housing crisis — has become trickier than ever.
Lenders demand financing models that oblige developers to come up with at least half — sometimes more — of the cost of building a new housing tower.
Put another way, if a housing project costs $200 million to build, a construction lender at present would insist that the loan would cover no more than $100 million of the cost, with the developer and its equity partners covering the remaining $100 million.
As a result, Urban Catalyst has begun to scout for an insurance package that would guarantee the operating income for the housing towers. The guaranteed income flow could make the project more attractive to construction lenders.
“Step one is to make certain the insurance product works for us,” Hayden said. “If the insurance works that could allow us to get a construction loan at favorable interest rates.”