ULI: Higher financing costs, market uncertainty squeezing new housing in Santa Clara

Santa Clara — Speakers from the Urban Land Institute told the Santa Clara City Council on March 11 that rising financing costs and market uncertainty are the main reasons many new housing projects are not proceeding despite a sizable pipeline of planned units.

"Money is impartial. It just looks for the highest returns for the lowest risk," said Eric Tao, a ULI volunteer and multifamily developer. Tao and fellow ULI volunteers explained that with Treasury yields much higher than during the 2019 boom, institutional investors now demand larger returns (higher cap rates) that reduce the price they will pay for completed assets — and therefore the price a developer can pay for land.

Why it matters: Santa Clara officials and developers in the audience were shown how the change in capital markets squeezes the part of a project that funds land acquisition. The presenters said that short‑term market shifts can make previously viable projects infeasible and that local policy choices can either blunt or worsen that effect.

ULI’s core findings and local context ULI presenters described four interconnected pressures on development financing: higher Treasury yields and lender underwriting standards; elevated construction and insurance costs; weaker demand for some property types (notably office and certain retail); and the lingering effects of pandemic-era and post‑pandemic shifts such as hybrid work.

Libby Seifel, a real‑estate economist, summarized the arithmetic: "The more uncertainty, the higher the return investors demand — and that pushes down values." She illustrated that many multifamily and office assets are trading at values 15–70% below 2018–19 prices depending on product type and location.

Drew Hudasic, chief investment officer at Saris Regis, added that the result is often a largely fixed stack of project costs — hard construction, fees and required returns — while the only variable that moves quickly is land value. "When the whole thing moves a little bit, the land value just spikes like a roller coaster," Hudasic said.

Local details presented by City Manager Jevon Grogan set the scene for those conclusions: Grogan said the city currently has about 7,200 housing units under review or under construction, roughly 4.6 million square feet of nonresidential projects in the pipeline, and 58 data centers operating or recently built within the city.

Practical implications and recommendations ULI presenters emphasized three levers local governments can use to improve feasibility for projects the city wants to see: lower costs, increase revenue or certainty, or both.

- Lower costs: presenters pointed to parking requirements, fees and permitting timing as modifiable inputs. "When we look at land for apartments, the very first thing we do is ask how many parking spaces do I need to build, and what's that going to cost me?" Hudasic said.

- Increase revenue: presenters said cities can support a more robust local economy (jobs, foot traffic) and consider targeted use of public funds or tax incentives where legally permissible to close feasibility gaps.

- Reduce uncertainty: presenters urged clearer, more predictable permitting schedules and rules. "Anything you can do to increase certainty is helpful," Seifel said, noting institutional capital heavily weights policy and regulatory risk when allocating funds.

Technical points emphasized in the presentation included: higher cap rates reduce asset values even if income remains stable; lenders tighten underwriting and reduce loan-to-cost ratios when losses occur, which increases the equity a developer must raise; and insurance and other operating costs have risen and are being priced into pro formas.

Questions from the council and public Council members asked presenters about how Santa Clara compares to neighboring cities, parking and the practical prospects for innovations such as mass timber and modular construction. On mass timber, Hudasic said it is an emerging building type that has produced successful projects but that lenders and investors are cautious because they seek abundant comparables and long performance records. "Mass timber is a technology to watch," he said, "but it’s not a silver bullet."

On parking, presenters said the market still expects parking in most contexts and that technology (automated valet, mechanized stackers) and shared public parking solutions can help. The panel suggested shared or public garages as a way to reduce per‑project parking costs while supporting active ground‑floor retail.

Councilmember questions also probed fees and timing. Presenters and staff discussed strategies such as tiered or transit‑sensitive fees, staged fee payments (e.g., at certificate of occupancy), and using limited public subsidies strategically to avoid triggering more costly prevailing‑wage requirements in some circumstances.

Conclusion and next steps ULI left the council with three clear options: help lower developers’ costs where feasible, use public policy or targeted revenue tools to improve returns, and reduce regulatory uncertainty to lower perceived risk. No formal action or vote on those ideas was taken at the study session; the meeting concluded after a public question period and networking.

The panel urged the city to use planning tools — such as form‑based codes and clearer timelines — to increase certainty so that, when capital conditions normalize, Santa Clara can capture growth. "It's not that you turn a spigot and see development tomorrow, but you can turn some dials and set the table for development to happen earlier rather than later," Hudasic said.

Votes and formal actions: The only formal action recorded in the meeting minutes was a motion to adjourn, which passed by voice vote.