On Feb. 25, 2026, San Jose officials announced a new pilot program to convert nearly 200 units at The Fay, a downtown high-rise, into housing for middle-income earners. The city will master-lease 197 units and provide subsidies to lower rents as part of the initiative.
The program aims to address high vacancy rates and financial distress at The Fay, which opened in 2024 with expectations of revitalizing the area but has struggled to fill its one- and two-bedroom apartments. City leaders say the effort is intended to stabilize the asset and restore investor confidence in downtown projects.
Under the Lower Income Voucher and Equity program approved by the city council, San Jose will invest $11.2 million over an initial five-year period, with options for extension. The subsidy will reduce rents for all 197 units—150 one-bedroom and 47 two-bedroom apartments—to between 80% and 110% of area median income. Rent increases will be limited to the lesser of three percent or the Consumer Price Index after an initial flat period, scaling up to market-rate levels over ten years. The agreement also includes an equity payout provision for San Jose’s investment plus interest.
District 3 Councilmember Anthony Tordillos said, “This council has made clear many times that any future vision for downtown has to include a lot of new housing. Both the staff memo and today’s presentation highlight the risk of allowing this distressed asset to have its debt be written off at below market values (and how it) could have a broader destabilizing impact to our residential market downtown, lead to decreased valuations, decreased tax revenue down the line and higher construction costs as new investment into the downtown becomes more difficult. I think that this proposal rises to meet that challenge.”
Housing Director Erik Solivan said that there is strong demand among public sector employees for such housing and indicated plans to return later in the year with proposals regarding other distressed assets. Brian Kurtz, CEO of San Jose Downtown Association, supported the program: “Having public employees live where they work is a tremendous value, as it strengthens connections, it shortens commutes, supports local businesses and reinforces a sense of shared investment in place,” Kurtz said.
