SAN JOSE — Three downtown San Jose housing tower projects have encountered delays due to a murky economy, sky-high interest rates, and the withdrawal of a key tech partner from the highrises.
The housing towers are located in downtown San Jose’s South First Area, or more familiarly, the SoFA district, and together would produce a combined 474 residential units, once they are all constructed.
One unique feature of the three towers was the involvement of Nabr, a tech startup that uses software to automate and customize how people choose and design their homes and craft financing packages for potential ownership.
Nabr collected deposits from people who wished to rent the apartments in a program that would enable people to eventually own their apartments. At one point, Nabr reported the waiting list was in the thousands.
Now, however, Nabr has pulled out of the project of three towers and has returned all of the deposits. The tech startup, which in August 2022 had raised $48 million in a venture financing round, has decided to shift out of the San Jose market.
A real estate alliance headed up by Gary Dillabough, a busy San Jose-based developer, had proposed the three towers.
Two of the towers would be built at 420 South Second Street at East San Salvador Street. One of these two towers would provide 169 housing units while the other would contain 137 units.
Another tower would be located at 420 South Third Street between East San Salvador and East William Street. This highrise would produce 168 units.
“Nabr is doing a pivot and is looking at markets other than San Jose,” said Dillabough, a principal executive with San Jose-based Urban Community, a real estate development and investment firm.
The primary issue: Markets other than San Jose appear to be more fertile for Nabr’s software to automate and customize housing selections and apartment features, according to Dillabough.
“They are looking at markets that are growing more quickly,” Dillabough said. “Nabr wants markets that have a lot more demand.” Nabr is pivoting to regions with more housing units in the pipeline.
Nabr media relations didn’t respond to email requests for comment. The main Nabr webpage, dated 2023, offers no live links. The only departure point is a “contact us” button that opens a “send mail” dialog box.
“We are still going to do residential in all three towers,” Dillabough said.
The key issue here is the nature of the housing development in the three SoFA towers.
“We are going to take a look at a handful of options,” Dillabough said. “We would look at rental units but we may also think about having some for-sale units.”
Development projects of all types — housing, offices, retail, and hotels — face the challenge of landing financing with a forbidding backdrop of fast-rising interest rates and stubbornly high inflation.
Bay Area housing projects are forced to bear additional burdens: red tape, stringent environmental rules, activist opposition, and a city approval process that can be lengthy.
“There is still demand for housing,” Dillabough said.
Still, the projects will have to work through the Nabr exit and the current economic realities.
It’s entirely possible that Nabr could decide to jump back into downtown San Jose with its unique approach to providing customized tech-bolstered housing solutions, Dillabough said.
For now, however, the macroeconomic challenges facing real estate construction are obstacles the project must navigate before it can proceed.
Even so, Dillabough remains optimistic about the prospects for development of the three towers and their construction start.
“It will be a few months” before development can get back on track, Dillabough estimated.