The nonprofit San Francisco Housing Accelerator Fund has pioneered an approach to affordable housing development that it hopes can be replicated across the state. And now it has a successful test case: 1633 Valencia. 

The affordable community for 145 formerly homeless seniors in the Mission was unveiled Tuesday, completing construction just 19 months after breaking ground, at a cost of approximately $525,000 per unit. That’s about half of the $1 million per unit cost for most Bay Area housing projects.

More than 90% of the apartments are already occupied. 

Such radical savings were possible because the developer, Mercy Housing, and its partners and lenders were aligned from the very start and made compromises rather than waiting for ideal settings — declining interest rates or the return of federal or state funding — according to Housing Accelerator Fund CEO Rebecca Foster. 

HAF provides developers with fast, flexible loans through a private fund fueled by the likes of Apple and Silicon Valley real estate billionaire John A. Sobrato. The remaining construction costs are paid through a combination of low-income housing tax credits, tax-exempt bonds, and bank loans.

“Most affordable housing projects have 10 to 12 layers of financing,” Foster said. “We’re cutting that down to three.” 

Rather than follow the industry template of soliciting public money before construction — which would have triggered more applications and locked in strict rules for how 1633 Valencia could be built and operated — Mercy Housing used HAF’s private funding upfront to provide its partners with the financial certainty to start construction quickly.

“Rather than figuring out how to achieve time and cost savings, developers are often jumping through hoops required by their capital,” Foster said.

Since HAF’s private dollars replaced what would have been the initial pot of government funding, Mercy Housing had the flexibility to move money between budget line items based on where needs emerged. 

For example, when construction at 1633 Valencia was complete, Mercy Housing moved unspent money earmarked for potential construction overruns into its lease-up reserve — the fund that carries a building through the fragile months between opening day and full occupancy. 

For the seniors moving in, that means a stable landing instead of an unsettled period in which building management is scrambling to cover bills while waiting for rents to flow.

Budgets in affordable housing development are typically siloed by funding source and use. Without HAF’s financing, Mercy would have had to find ways to fund both reserves. That may appear to be a small technicality but, when multiplied across line items in a complex budget, can cause costs to escalate dramatically.

Unlike loans from commercial banks, which are beholden to investors, those from HAF are low-interest and can be repaid over time. Those funds are then redeployed into other housing projects. 

“We are patient and long-term capital,” Foster said. 

With HAF’s financing secured, Mercy Housing turned its attention to building smarter — starting by bringing back the architect and contractor from a 2022 project at 833 Bryant St. and reusing elements of that design.

However, rather than relying on modular construction — which at 833 Bryant sparked union tensions (opens in new tab) — the designers of 1633 Valencia used select prefabricated elements where practical, Foster said.

Rents are set for households making between 30% to 60% of the area’s median income. The property’s 145 studio apartments have private bathrooms, kitchenettes, in-unit furnishings, and air conditioning. Only residents aged 55 and older who met the San Francisco Department of Homeless and Supportive Housing definition of homelessness were allowed to apply. On-site case management services are provided by the Felton Institute.

Senior housing developer Sequoia Living purchased the vacant 1-acre lot for $13.5 million in 2022. The nonprofit selected Mercy Housing to develop a portion of the site while it pursued a separate 126-unit senior housing development. Eventually, both buildings will share a landscaped courtyard. 

The lesson Foster wants the housing industry to take from 1633 Valencia isn’t just that private financing is faster — it’s that flexibility between partners has a dollar value. She said that when lenders and developers can adapt to what a project needs, rather than what a traditional funding process demands, the savings follow.

HAF hopes to expand its pool of investors to bring funding to more affordable housing developments. In December, its private fund expanded from $50 million to $100 million (opens in new tab), and money is already being deployed across the region, including in Santa Cruz and San Jose, where a 195-unit complex near the Berryessa BART Station broke ground last week. 

But private philanthropy isn’t growing as quickly as the housing crisis worsens. Developers and lenders need to start rethinking how they work with one another now, Foster said. 

“What do both sides actually need from each other to make [a project] happen?” she said. “Up until now, no one really thought to ask.”