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Santa Clara County loaning developers $21m to cover increased construction costs at Palo Alto site

Santa Clara County loaning developers $21m to cover increased construction costs at Palo Alto site
Written by Publishing Team

In approving a long-wanted residential project for Peninsula educators, Santa Clara County supervisors on Tuesday agreed to loan developers $21 million to help cover rising construction expenses.

Cost estimates have risen from $62 million when the project was proposed about four years ago to $87 million today, although the county loan will be repaid over time with rent from the developers’ future tenants.

There are many reasons for the significant price hike, including the impact of the pandemic on the construction industry in general, said Doug Shoemaker, president of Mercy Housing, which is working alongside the Adobe communities to build teacher housing in Palo Alto.

“We were all hoping costs would flatten out or come down 18 months ago, but with the supply chain and commodities, we’re seeing 8 to 12 percent inflation in the construction world,” Shoemaker said. “Whatever way you break it down, it’s not specific to this project.”

Another factor is the increase in the size of the project from 93 apartments to as many as 110.

“We would like to offer this project at a lower cost,” Shoemaker said. “It’s just a case in Northern California.”

Materials such as wood and steel have seen big price jumps, Consuela Hernandez, who oversees the county’s Office of Supportive Housing. Labor costs are also a challenge, as construction crews have to navigate COVID-19 protocols that can sometimes require more hands.

As a result of all of that, each housing unit will cost about $792,332, according to county numbers. Hernandez said this is the second time that money has been offered to a developer because of the cost increase. In early 2021, the county provided a $3 million loan to a San Jose project at 201 Bassett Avenue.

“We are seeing a range of issues for all the development processes across the county,” she said. “Everything is everywhere.”

The apartments are on a 1.5-acre site at 231 Grant Ave. , across the street from the County Supreme Court Building, you’ll go to Peninsula teachers who are not eligible for low-income benefits but cannot afford expensive district rents.

Supervisors noted that teachers regularly have to commute hours away from their jobs due to the high housing costs on the peninsula, which has contributed to high school turnover in the area.

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