A rendering of the proposed project at 7 Linden Ave. in South San Francisco.
South City rejected a developer’s proposal to change the number and rental rates of low-income units on a 543-apartment project on Linden Avenue, after an incorrect underwriting assumption led to financing challenges.
The city approved the massive project at 7 S. Linden Ave. in 2023, with 81 affordable units, 54 of which would be priced at 60% of the area median income and 27 priced at 50% of AMI. The apartments will be a mix of studio, one- and two-bedroom units.
The project is currently under construction, but recently, Essex asked the city to amend its agreement to allow for either slightly higher rents in some of the below-market-rate units or allow for fewer BMR units.
Leaving the agreement as is would result in a 2.2% reduction in value of the project, according to an independent analysis the city commissioned.
“Essex, in their project financing and underwriting, assumed that in the 54 low-income units, the rents would be calculated at 80% area median income, not 60%, so they’ve come back … to account for that cost to the project of the lower-priced units,” said Nell Selander, director of Economic and Community Development, during a meeting Dec. 11.
Lauren Krause, vice president of Development at Essex Property Trust, said the project will be completed regardless, but recent lending conditions have made it difficult to find an additional capital partner under the current terms of the agreement.
“Due to challenging market conditions, Essex has not started a new construction project from 2020 to 2025. After almost five years we decided to move forward on a single project at the end of 2024, and it was 7 South Linden,” Krause said. “We made this decision despite tough economic market conditions and political uncertainties at the federal level.”
Krause added that they still decided to break ground on the project, despite the financing challenges, due to tariffs and inflation potentially worsening in the near term.
Most councilmembers were hesitant, or outright opposed, to the proposal to change the number of low-income units, stating that it would set a risky precedent to relax affordable housing requirements, especially as the project has proven to be financially feasible enough to move forward.
“Why should we grant it to you when you've broken ground?” Councilmember James Coleman said during the meeting. “We’d need some sort of guarantee that there will be some future investment in South San Francisco in our community beyond the project here.”
Mayor Mark Addiego said Essex’s argument is “less than compelling.”
The project will move forward as originally planned, with no updates to the level and amount of affordable housing units.
(650) 344-5200 ext. 102
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(3) comments
Yes good for the council. Redwood City should take note, they continually let the developers off the hook for the units they promised and let them pay into a fund that is then used to design ghetto type projects consisting solely of low income housing with insufficient outdoor space, tiny apartments, insufficient parking, no nearby public open space, unsafe locations for large youth population, inadequate transportation (no transportation for those working swing or graveyard shifts). They then pat themselves on the back for taking care of the poor. The best way to help our low income population is not to isolate them in inadequate housing. Let's not let developers off the hook. Let's provide adequate housing for everyone.
The article doesn’t say who is at fault for the 60% vs. 80% underwriting miscalculation. If it is the city, I’d say Essex is in the right to ask for allowances. If it is Essex, I’d say the city can insist on pushing back on Essex. It sounds like this may end up the California way – in the legal arena. Or…Perhaps Essex needs to begin value-engineering their units to make the numbers work out. Or make up the difference on further development phases. Or push for new candidates in South City.
Good for the Council!
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