Cannery project sailing though second phase

Boost for downtown housing

A year ago, the South County Cannery housing project appeared to
be in dire shape, its only hope a $675,000 bailout loan from
Gilroy’s City Council.
A year ago, the South County Cannery housing project appeared to be in dire shape, its only hope a $675,000 bailout loan from Gilroy’s City Council.

These days, seven of the first eight homes in the project’s second phase are sold or under contract, and the project’s builder – South County Housing – has long since deemed the bailout unnecessary. It may be a few years before the project’s third phase begins, but project and city officials say they are glad to see the housing project moving along.

“We’re trying to make lemonade of the lemons that the market has given us,” said Matt Huerta, director of development for the Gilroy-based nonprofit.

South County Housing, a non-profit community development corporation, specializes in mixed-income housing projects in Santa Clara, Santa Cruz, Monterey and San Benito counties. Its 210-unit Cannery project east of downtown includes affordable units in the 32-unit Alexander Place phase, which is now under way, and its un-built third phase. Meanwhile, the 39-unit Forest Park first phase of the project has been completely built and sold.

Huerta hopes the eighth home in the Alexander Place phase will sell within the next month. That sale would allow South County to renew a $1.5-million state construction loan it has combined with an additional loan from a private bank, and pave the way for construction of Alexander Place’s remaining 24 units.

All of those units have generally sold in the $270,000 to $290,000 range. The homes have been sold to buyers who make less than $82,800 – 80 percent of the area’s median income. Qualifying buyers can receive up to $80,000 in down payment assistance on those homes, Huerta said.

He attributed the recent improvement in home sales to an improved housing market in which banks are more willing to lend money than they were a year ago.

“After a year’s worth of the state and federal governments really attacking the problem, the confidence level for some of the banks to lend to folks who can demonstrate an ability to pay their mortgage has gone up,” Huerta said.

On the other hand, the prospects for success for the 139-unit third phase of the project, which consists of townhouses and condominiums along with 45,000 square feet of commercial space and a parking structure, are not so strong at this time, Huerta said. He described the condominium market in Gilroy as “nonexistent” these days.

“We just have to hold tight until there’s a better market for that product,” Huerta said.

Downtown developer Gary Walton said this week he was happy to hear about the cannery project’s progress. Although he said there is a higher demand for apartments these days than for condominiums, he believes the market is moving in the direction of projects like the South County Cannery complex.

“The market’s really been turned upside down, not only because of demographic changes but because it will be a lot harder to qualify for the traditional single-family, detached kind of home,” Walton said.

He said the popular Santana Row neighborhood in San Jose similarly started with rentals before it obtained the current energy and vitality that made people want to buy there.

People will increasingly become interested in walkable communities as gas prices increase, and the only true walkable area in Gilroy is downtown, he said.

“If you look around downtown, the homes don’t stay long on the market,” Walton said. “I think it’s really a trend that the city needs to take advantage of.”

Councilman Dion Bracco said he heard occasional complaints from Cannery project residents about maintenance issues related to the South County Housing management company.

Dennis Lalor, South County Housing’s executive director, was on vacation and not available for comment. However, Huerta said resolving maintenance issues resolves diligence on the part of the homeowners association in conjunction with the management company.

“It’s an impacted neighborhood that needs significant redevelopment, and that’s why we’re here,” Huerta said.

Regardless of any maintenance issues, Councilman Craig Gartman was glad to hear that people were buying townhouses within the project.

“I hope they keep selling,” he said.

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