The California Housing Finance Agency board on May 20 approved permanent financing commitments for three new modular, mixed‑income apartment projects and approved a later increase to an earlier loan commitment to cover cost overruns.

The board voted to approve a $44.9 million first‑lien permanent loan and a $4 million subordinate gap MIP loan for Julien Street Studios in San Jose (Resolution 20514); a $28.5 million permanent loan and a $4 million MIP subordinate loan for Vera Avenue Apartments in Redwood City (Resolution 20515); and an amendment increasing the permanent loan on Terracina at the Dunes in Marina to $21.25 million (Resolution 20516), a $3.7 million increase from the commitment made during construction.

The three new projects are high‑rise mixed‑income developments that use modular construction, which staff and several board members said reduced per‑unit costs. Stephanie McFadden, CalHFA director of multifamily programs, told the board Julien Street will be a seven‑story building in San Jose with 305 units and a total development cost per unit of about $498,000; Vera Avenue is a seven‑story project in Redwood City with 178 units and a roughly $581,000 per‑unit cost. Both projects expect federal and state low‑income housing tax credit equity and private activity bond allocations from CDLAC.

Developers requested two exceptions to CalHFA standard underwriting for the Julien Street and Vera Avenue loans: (1) acceptance of a city density‑bonus agreement that will be recorded senior to CalHFA’s deed of trust (staff said CalHFA will obtain a standstill agreement to preserve agency restrictions); and (2) allowing the borrower to receive more than 50% of surplus cash to repay deferred developer fee within a 15‑year period to preserve tax credit eligible basis. McFadden said staff’s recommendation was to grant these exceptions within TCAC and CDLAC limits.

Board members pressed staff about the exceptions and the projects’ affordability targeting. Director Velasquez and others highlighted that although some units are governed by MIP rules allowing up to 120% AMI, the TCAC‑restricted units average 60% AMI and in practice these projects’ restricted units will be at or below 70% AMI. “We either have to align the policy with the reality of what's being financed or change the policy,” Velasquez said.

Several directors praised the modular approach as a way to reduce cost and accelerate delivery. Director Lamont noted modular construction’s lower per‑unit cost compared with other recent projects; Director Russell said the architect and modular manufacturing experience were key and asked whether there are multiple modular manufacturers available to keep competition; Justin Hart of Corporation for Better Housing (managing general partner on two projects) said the manufacturing partner is Harbinger at Mare Island and that modular can provide cost and schedule certainty through earlier factory production.

On Terracina at the Dunes (Marina), CalHFA staff told the board the project had construction‑to‑permanent conversion delays and cost increases tied to the pandemic, supply chain issues and a variable construction loan interest rate that reset higher than underwritten; the developer requested a $3.7 million increase to the permanent loan and CalHFA underwrote the increase and will apply a modestly higher permanent interest rate. Staff said construction and lease‑up are complete and the project reached its 90‑day performance period in May.

Votes and outcomes: the board recorded up‑or‑down votes on the resolutions. Resolution 20514 (Julien Street Studios) and Resolution 20515 (Vera Avenue Apartments) were approved; Sotelo abstained on Resolution 20515. Resolution 20516 (Terracina increase) was approved; Director Russell recused from that item and left the room before discussion.

The board also debated local engagement and the meaning of “local support”: Kevin Brown, CalHFA housing finance officer, explained that CalHFA circulates notices to localities asking for input but will not force responses; some jurisdictions do not reply. Board members said the difference between projects that are “by right” and projects that seek explicit local support merits further discussion in future strategic sessions.

CalHFA staff and board members signaled interest in continuing to use modular construction where feasible, while acknowledging supply chain and supply‑side constraints. The agency will require standard closing and standstill agreements to protect CalHFA’s recorded restrictions where local density bonus agreements are senior to CalHFA deeds of trust.

Notes: CalHFA staff said the projects will use CDLAC allocations, federal and state tax credits, recycled bond proceeds during construction, and standard CalHFA MIP and TCAC restrictions. The board’s approvals reflect staff underwriting with exceptions described at the meeting.