The City Council voted 8-2 in favor of giving a tax break to developers who break ground by the end of next year. The bundle of incentives is aimed directly at the rental market.
A high rise apartment complex called the Carlyle has been in the works for years. The 21-story tower would bring nearly 350 apartment units to downtown San Jose. The hard part is finding an investor willing to fund a $130 million project that can't be built in phases.
"Their returns are affected by the time the money is out and so to defer some of these fees is very important," Barry Swenson Senior Manager Aaron Barger said.
To lure the Carlyle and other high rise apartment developments to downtown, city leaders say incentives are needed.
"What we know is that at the current level of fees, we're not getting high rises out of the ground, despite of the highest growth of rent anywhere in the country, so this is an opportunity for us to get 50 percent of something, which is always better than 100 percent of nothing," San Jose City Councilmember Sam Liccardo said.
The City Council passed a number of incentives that will reduce red tape by expediting the permit process, reduce taxes, cutting some building and construction taxes in half and reduce and defer certain fees until the project is ready to occupy.
Two council members voted no.
"Of course we want to certainly want to spur development, but at what cost and so we have to be very cautious about giving away too much," San Jose City Councilmember Ash Kalra said.
Supporters say the incentives will not only create hundreds of construction jobs, but they will also provide downtown businesses with built in customers.
"It's going to bring in a lot of foot traffic, the revenue is going to go up by a lot, keeps people employed," Billy Berk's Restaurant manager Saeed Azad said.
The high rise tax breaks are only good for the first 1,000 units to break ground by the end of 2013 and there's no guarantee developers will be lining up.
"It's still challenging and difficult a lot of hurdles to have challenges move forward with the equity funds," Barger said.
A developer who owns three sites suitable for rental properties in San Jose says the incentives could be enough to break ground on one of those sites.