The San Jose Planning Commission has signed off on changes to the previously approved El Paseo de Saratoga Shopping Center urban village project — including reducing it by a few hundred residential units and scrapping most of its affordable housing in exchange for a $13.9 million payment.
Representatives from Sand Hill Property Co. said that the developers needed to adjust the project to match market conditions since the city first approved plans in 2022 for 994 units, including 150 that qualified as affordable housing.
The latest configuration shows the project will create 772 residential units, including 39 at 100% area median income, in addition to building a senior assisted living and memory care facility.
“I was really excited about the initial project and the current land use at El Paseo is very old-fashioned and very much not making full use of the land,” Commissioner Justin Lardinois said. “I’m really excited to see mixed-use development there. I’m disappointed that the project really has across-the-board reductions … but at the same time, I recognize that when these things go through a many-year planning process, the economic conditions do change.”
Sand Hill has planned to redevelop about one-third of the 30-acre shopping center at 1312 El Paseo and 1777 Saratoga Ave. in southwest San Jose after purchasing the property for $146.6 million in 2019.
The original 150-unit affordable housing component was based on the city’s inclusionary housing policy, which requires residential developments to set aside 15% for affordable housing or pay an in-lieu fee.
“This is the maximum we think we can bear in the project,” said Steve Lynch, director of planning and entitlement at Sand Hill. “I mean, that’s the bottom line. We’d love to do 15%. We’d love to do more than that, but again, as we’re just running numbers over and over and over, this is what we still think — we can have some inclusionary housing in the project, which is really important.”
The mixed-use development has undergone several changes to its residential and commercial components due to high interest rates, labor and material costs, and drastic changes in the office market.
A report released last month by commercial real estate firm JLL showed that the Bay Area’s largest markets continued to flounder, with Silicon Valley hitting a 22% vacancy rate in the third quarter of 2024.
The plans originally envisioned all four buildings — ranging from 9 to 12 stories — containing both apartments and commercial space.
One of those buildings included constructing a Whole Foods market with housing built on top.
But last year, the city approved an amendment to Sand Hill’s permit that shifted the 11-story building into a single-story structure anchored by the supermarket. Lynch said the developer expected to break ground on the supermarket next year.
Sand Hill, which is now working with real estate firm Holland Partners and Sunrise Senior Living, also envisioned offsetting the loss of some of the residential space in that building by making two other buildings more dense.
Along with the supermarket, the new configurations now call for a 12-story building with 398 units and 14,139 square feet of commercial space, a 10-story building with 374 units and 17,447 square feet of commercial space, and a 7-story, 230,305 square-foot residential care facility.
“We need to bring it down to where we think we have a project that we can fill right with people that want to live there,” Lynch said. “A thousand units is a lot of units to move, particularly in this portion of the city (where) this isn’t sort of near your job base, necessarily, so (with) these factors coming together, we think these reductions have sort of hit that right spot.”
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Housing Director Erik Solivan said that the in-lieu fee could also help finance other affordable housing projects in the city, including a 100% below-market-rate development Sand Hill is eyeing.
“We’re able to bring affordable units back on-site to the project and then also look at ways in which we’re able to finance the sort of parent, sibling deal to this … which then gives the city the benefit of both market Rate units and affordable units on-site and off-site, therefore adding more housing supply to the city,” Solivan said.
