The San José City Council has signed off on an $8.4 million construction-to-permanent loan for MidPen Housing, clearing a major hurdle for a 203-unit affordable housing complex planned next to the Capitol VTA light-rail station. The loan, pulled from the city's Housing Project Reserve, carries 4% simple interest and is set to be repaid from the development's annual net cash flow over a 55-year term. On the ground, that financing is expected to translate into roughly 201 income-restricted apartments, plus two manager units, with 51 of those homes reserved as permanent supportive housing and a new transit plaza and better bus circulation folded into the design.
According to a staff memo from the City of San José, the council signed off on a construction-permanent loan commitment of up to $8.4 million from the Low- and Moderate-Income Housing Asset Fund, secured by a leasehold deed of trust. The report spells out the 4% simple interest and the plan to repay the city from yearly net cash flow over the 55-year term. It also hands the Housing Director authority to negotiate and execute the stack of loan documents needed to close construction financing.
Transit Site, Design and AHSC Boost
Transportation agency materials show MidPen was picked in March 2022 to build on a ground-leased slice of VTA's 10.1-acre park-and-ride lot at West Capitol Expressway and Narvaez Avenue, and that the site pulled in roughly $49.3 million in Affordable Housing and Sustainable Communities (AHSC) funding for both housing and transit improvements, as outlined by VTA. MidPen describes an all-electric pair of buildings that would replace big swaths of surface parking with new housing, a transit plaza, protected bikeways and bus shelters, and would reserve 51 apartments as permanent supportive housing, according to MidPen Housing.
How the Financing Stacks Up
A project breakdown from the county pegs the total development cost at about $169.6 million and maps out the capital stack: roughly $78.4 million in tax-credit equity, about $53.5 million in private construction loans, a conventional permanent loan of about $33.2 million, and public financing that includes the city's $8.4 million loan, $11.57 million from County Measure A, and AHSC support that covers a $35 million loan for the housing component plus a $14.34 million grant for transit work, according to Santa Clara County. The same county analysis details the rent and income mix, with units serving households at roughly 30% to 60% of area median income, and sketches a schedule that targets a construction-financing close in October 2026, a November 2026 construction start and initial lease-up in mid-2028.
Why This Matters
Supporters argue that stacking affordable homes right on top of transit is a two-for-one: it trims transportation costs for low-income households, helps boost transit ridership and locks in long-term affordability near jobs. The MidPen Capitol Station project is one of several VTA-adjacent developments inching forward on that theory. Similar efforts have already produced openings like the Tamien Station Apartments earlier this year, according to a release from the Strategic Growth Council, a reminder of why agencies keep pairing housing production with transit investments.
Contract Protections and Contingencies
City housing staff highlighted a few guardrails built into the Capitol Station financing. The city plans to record an affordability covenant of at least 55 years that will sit senior to other liens, and the loan terms permit only narrowly defined rent increases, such as when Project-Based Vouchers expire or in a foreclosure scenario, to keep the project financially viable, according to the City of San José. Those protections are meant to balance long-term affordability with the complicated reality of subsidized housing deals.
Next up, the Housing Department will finalize loan documents and work with MidPen and its lenders to close on construction financing later this year. If the current schedule sticks, construction will run for about two years and the buildings should start welcoming residents in 2028. For neighbors, that could mean new sidewalks, bike lanes and bus shelters in addition to badly needed homes. For the city, it is one more bet on transit-adjacent, deed-restricted housing as a way to keep affordability within reach near jobs and rail lines.
