Mixed-use project in San Mateo hits agreement hurdles

Early planning discussions kicked off in 2021, and the project’s uniquely wide scope has necessitated several development partnerships, including Prometheus, Harvest Properties and nonprofit developer Alta Housing. While the reward is high, it also means there are several agreement hurdles that all parties must agree to, Planning Manager Manira Sandhir said. And due to the complicated nature of securing affordable housing funds, certain parts of the development, such as the underground parking garage, must be constructed first.

“The complex nature of the project and the construction phasing with the shared underground garage presents some challenges,” Sandhir said. “Affordable housing cannot apply for the federal tax credit financing, which is the final step in the funding process and is essential for the project’s success until that parking garage is close to completion, because the tax credit finances require that construction commence within 180 days of receiving funding.”

But like many proposed developments through the city and county — both market rate and affordable — unideal financing conditions have indefinitely paused or even scrapped much-needed residential projects. Sandhir added that, in exchange for receiving substantial benefits from its lease agreement with the city, developers also needed to provide assurance that it would contribute to the city’s affordable housing even if the proposed 71 units fell through.

“The commercial project currently benefits from city land contributions as well as state density bonus concessions and waivers tied to the affordable housing piece and contributions,” Sandhir said. “But given this phasing issue, it is possible that the commercial project could be built and tenanted without completion of the affordable housing units.”

Despite city staff’s preference for a $10 million developer contribution to the city’s affordable housing fund in the event the project doesn’t come to fruition — on top of a secondary $3 million deposit — the City Council agreed to the developer’s preferred $6.5 million total contribution, which would be refunded if the affordable housing development moves ahead.

“When we started on this path, [the developer] said to us, ‘We could move forward and build 30-something units on our own and this would be a straightforward process,’ and we said that’s not what is in the best interest of the community,” Councilmember Amourence Lee said. “They stretched themselves and sought out an affordable housing partner and more than doubled the total number of units that would be produced for families.”

The permit and construction schedule also presented challenges, as the city banked on counting the below-market-rate units toward its Regional Housing Needs Allocation, a state mandate that requires the city to permit 7,015 units between 2023-31. Forty percent must be for low-income households. While initial plans aimed for both construction and permitting to finalize around 2031, tough lending conditions and an unusually complex development led the council to agree to a slight extension that would push for permit completion by 2031 and construction by 2037.

“The city has given extensions to other developers over the last year or so due to suboptimal conditions for financing so I think it’s reasonable to consider, in addition to the complexity of the project, some additional buffer time to complete the project,” Councilmember Adam Loraine said.