Program to turn high-rise into homes

San Jose pilot program will convert nearly 200 units at downtown high-rise into housing for middle-income earners

The city will master-lease 197 units at The Fay in which it will provide a subsidy to lower rents and create more moderate-income housing

When The Fay opened in 2024, San Jose officials believed the 23-story, 336-unit high-rise could be transformative, not only by adding much-needed housing but also by boosting foot traffic near the southern gateway to downtown.

Instead, the housing development at the corner of Market and Reed Streets in the city's swanky SoFA District faced high vacancy rates and bankruptcy, casting a shadow over other potential downtown projects.

San Jose is now turning to an innovative pilot program to help stabilize the financially distressed asset and restore investor confidence.

Under the Lower Income Voucher and Equity program approved Tuesday, the city will master-lease nearly 200 units - providing a subsidy that will lower rents and create more affordable housing for moderate-income households - and enter into an equity agreement that will see San Jose recoup all of its investment, plus interest.

"This council has made clear many times that any future vision for downtown has to include a lot of new housing," said District 3 Councilmember Anthony Tordillos, who represents the area. "Both the staff memo and today's presentation highlight the risk of allowing this distressed asset to have its debt be written off at below market values (and how it) could have a broader destabilizing impact to our residential market downtown, lead to decreased valuations, decreased tax revenue down the line and higher construction costs as new investment into the downtown becomes more difficult. I think that this proposal rises to meet that challenge."

Read the full Mercury News article.