CalHFA approves financing for 303‑unit Sutter Street mixed‑income tower in San Francisco

The California Housing Finance Agency on June 23 approved loans to finance the affordable portion of Sutter Street, a new‑construction, mixed‑income project in San Francisco that will occupy a single 22‑story building and be split into two separately financed condominiums.

The board voted to approve a $15,300,000 permanent loan and a $4,000,000 multifamily incentive program (MIP) loan for the affordable condominium after staff described a complex ownership and financing structure that required approvals from federal and local authorities.

The project developer, Martin McNerney Development Inc., will deliver a master development with 303 units, a parking garage, commercial space and a childcare center. Under the financing plan presented by Stephanie McFadden, CalHFA’s director of multifamily programs, the building will be aerially subdivided at construction closing. Condo 1 will hold 201 market‑rate units and the public parking garage; Condo 2 will hold the 102 affordable units that CalHFA is financing. "This is a very unique transaction," McFadden said, adding that the two condominiums will have separate ownership and financing stacks but will share building amenities.

CalHFA staff said the construction lender for both transactions is Berkadia and that Boston Financial and Monarch Private Capital will invest in the federal and state tax credits respectively. The senior construction financing is through HUD’s 221(d)(4) insured loan program; at permanent closing CalHFA will take out the financing for Condo 2 with a HUD risk‑share loan secured against Condo 2’s fee interest while Condo 1 will remain under HUD 221(d)(4) financing.

Under the ownership arrangement, condo 2 will pay a land‑use fee of $250,000 a year to condo 1 for 40 years. Housing finance officer Kevin Brown explained the land valuation: "The land value is about $30,000,000. The land value being attributed to condo 2 is about $10,000,000. Seven million of that is being capitalized upfront, and the rest of that is being paved into [a] land use fee, $250,000 a year, amortized over 40 years." McFadden said CalHFA will require a reserve equal to one year of the land‑use fee in case the payment harms Condo 2’s operations.

Because the two condos share the same building and amenities, fair‑housing scrutiny was an important underwriting issue. McFadden told the board that HUD’s Fair Housing Office reviewed and approved the unit allocation and that the HUD National Loan Committee approved the construction loan only after HUD’s fair‑housing concurrence; the city and county of San Francisco also approved the allocation. "HUD’s National Loan Committee who approved the construction loan for this whole project would not have approved this deal without concurrence and approval from the fair housing office," McFadden said.

Developer Patrick McNerney said parking will be a mix of public garage spaces and 28 new spaces in the new structure; he said about 12% of the new on‑site parking is earmarked for affordable units to comply with San Francisco’s inclusionary rules, and that the public garage is operated as part of the market condominium but open to all users. McNerney emphasized that residents in the affordable condominium will have access to the same on‑site amenities — including a two‑story gym, rooftop spaces, a game room, coworking and a party room — and that the project will include an on‑site childcare facility operated by a local provider with slots prioritized for building residents.

Board members pressed staff and the developer on fair‑housing analysis, the allocation of units across floors and how amenities and parking will be accessed and managed. Several board members said they were encouraged by the mixed‑income model and asked staff to track occupancy patterns and the project’s outcomes as a potential model for future developments.

After public comment (none) the board approved Resolution 25‑17. The roll call recorded unanimous approval of the resolution.