Construction on The Kelsey Civic Center, a 112-unit affordable housing project across from San Francisco City Hall, was supposed to begin this week.
But the lender for the project’s $52 million construction loan was Silicon Valley Bank.
On Friday — the date the project’s financing was slated to close — regulators shut down the bank, known for its ties to the tech community but also a financing source for local developers. The Kelsey and its co-developer are now talking to other potential lenders, and hoping that any delays can be minimized.
“SVB was an important player in the tech scene and the startup scene, but they were also a really important player in the affordable housing scene,” Micaela Connery, co-founder of The Kelsey, said by phone.
No state is under more pressure to build affordable housing than California, which is losing residents partly because of chronic housing shortages caused by sky-high rents and home prices. More than 1.2 million households lack access to an affordable rental home, according to the California Housing Partnership, and sprawling tent encampments of unsheltered residents are common in major cities.
The fallout of SVB comes as Governor Gavin Newsom and California’s attorney general are ramping up enforcement of a new state law intended to increase the state’s critically low housing stock. The median single-family home price is about $750,000, more than twice the US median.
The aggressive push is pitting the state against local authorities that Newsom accuses of obstructing his plan to add 3.5 million new homes in California, including affordable units. Last week, Newsom and Attorney General Rob Bonta announced the state is suing the Orange County community of Huntington Beach for failing to comply with the new multifamily zoning laws intended to create more housing.
On Sunday, Newsom praised the Biden administration for their actions to protect SVB depositors, which he said in a statement had “profoundly positive impacts” on several pillars of California’s economy, including “affordable housing projects that can continue construction.”
Developers of lower-cost housing say they’re confident other lenders will step into the void left by SVB. But underwriting takes time, and any delay often adds to a project’s overall price tag. Rising interest rates and inflation are already lifting construction costs.
Laura Foote, the executive director of YIMBY Housing, a nonprofit that advocates for housing growth in the region, said the sector was heartened by the federal government’s actions over the weekend. Affordable-housing developers “are very stressed about the delays, but they’re not yet saying ‘oh my gosh, and now this building won’t get built,’” said Foote.
Silicon Valley Bank has invested and loaned more than $2 billion to fund affordable housing projects in the Bay Area between 2002 and 2021, where it says it’s helped build or rehabilitate about 10,000 affordable units. In its 2022 ESG report, the bank outlined a plan to invest more than $1 billion more in residential mortgages in low- and moderate-income areas in Massachusetts and California by 2026.
The Kelsey “will find a path forward,” said Connery. “The big loss is schedule. Any delay is an opportunity cost.”
— With assistance from Kriston Capps and Karen Breslau.
©2023 Bloomberg L.P.