Hanover Chases Fee Waiver for 345 Apartments in San Jose

The City of San Jose dished out sweeteners to attract developers for housing, and Hanover Company took the bait.

The city waived $4.9 million fees and taxes for the Houston-based developer to build a 345-unit apartment complex at 905 North Capitol Avenue, in north San Jose, the San Jose Mercury News reported.

Without the waiver of in-lieu fees and 50 percent reduction of construction taxes approved by the city last year, the seven-story project would have never gotten off the ground, officials say.

“It’s a great thing all around, but I think it comes with the recognition that we have to be able to right size our fees and processes and regulations and figure out how to be flexible and meet the market and allow that investment to flow,” San Jose Mayor Matt Mahan told the newspaper.

Plans by Hanover include 345 apartments, of which 328 units would be market-rate and 17 affordable for moderate-income households on a 2.1-acre site near the Penitencia Creek Light Rail Station. The building will contain 3,000 square feet of offices.

Scott Youdall, a regional development partner at Hanover, credited the city’s program with helping move the project along after it was approved three years ago.

“When this project was originally entitled and approved, in the face of rising interest rates, we had not been able to get this project capitalized and started, but with the help of this incentive, we have been able to put the capitalization in place,” Youdall told the Mercury News.

Rising interest rates and higher labor and material costs have curtailed office and market-rate projects over the past few years, leading San Jose to dangle more incentives.

Market conditions have especially hindered multifamily development.

After averaging one new multifamily development per year, the city didn’t see a single apartment project of more than 20 units break ground last year.

To help spur housing development, the city approved the new multifamily incentive program in December.

The initiative reduces park fees and a 50 percent cut in construction taxes for the first 1,500 units for projects in certain growth areas that applied by June 2022 and received building permits until the end of this year. A city analysis found that 35 projects qualified for incentives.

Hanover, founded by Murray Bowden in 1982, has developed multifamily residential and industrial properties in 12 states, including more than 56,000 apartments and $12 billion in project capitalization, according to its website.

Last month, Hanover landed a $120.4 million construction financing to build 1,140 apartments atop a historic persimmon orchard in north San Jose. It’s not clear if the city incentives applied to plans to redevelop the Tsukuda Fruit Stand and orchard at 2620 Seely Avenue.

— Dana Bartholomew