101 Ash St. low-income housing project hits financing snag

The redevelopment deal for the city of San Diego’s 101 Ash St. property is still pending as the development team planning to lease and convert the office tower into apartments for low-income families works to close a roughly $8 million gap in financing for the $252 million project.

The hole in the budget, which the developer attributes to a fundamental shift in the affordable housing financing market, means the high-stakes deal will not close this month as planned.

Instead, the parties anticipate finalizing the transaction in the fall.

“Due to changes in federal law, the tax credit financing landscape has adjusted and required our team to identify additional funds. As a result, we've adjusted our timeline to close no later than September as we work toward addressing that component,” said Kelly Moden, a project executive with 101 Ash Venture LP. The development entity consists of housing developer MRK Partners and Moden’s Create Dev LLC real estate firm.

The delay temporarily puts off the conversion of the asbestos-ridden building into a residential complex with hundreds of apartments deed restricted for low-income families. It also means the city remains responsible for hundreds of thousands of dollars in ongoing property management costs.

“The city continues to work collaboratively to close this transaction this fall and allow for the immediate construction of approximately 250 new, affordable homes at this vacant city-owned building,” Christina Bibler, who heads the city's Economic Development Department, said in an emailed statement. “Deals are becoming increasingly difficult to close given the ever-changing affordable housing financing environment.”

Built in 1967, the 21-story office tower at 101 Ash St. takes up a full city block in downtown San Diego and was the longtime home of Sempra Energy until 2015. In early 2017, the city entered into a 20-year lease-to-own deal to acquire the building and use it for a portion of its downtown workforce. The transaction unraveled after a bungled remodel resulted in asbestos contamination. In 2022, San Diego bought out the lease for $86 million in a controversial settlement agreement.

In July, the city approved a 60-year lease agreement with 101 Ash Venture LP. The development plan calls for 247 units deed restricted for families earning 30% to 80% of the area median income, or what's considered affordable housing. The project includes three unrestricted manager units, 25,000 square feet of retail space and a 4,000-square-foot child care center.

At the time, the parties entered into a ground lease disposition agreement, giving the developer a two-year window to secure the federal housing subsidies needed to fund the project.

In December, the California Debt Limit Allocation Committee awarded the 101 Ash St. project a $63.8 million allocation of tax-exempt bonds, which are issued to private investors and act as a construction loan. The bond award also entitles the development team to another form of financing called 4% low-income housing tax credit equity. The financial subsidy allows the 101 Ash developer to trade future tax breaks for upfront cash from investors to cover up to 30% of project costs.

The developer now anticipates receiving $73.2 million in tax credit equity financing, with investors buying $9.7 million worth of annual low-income housing tax credits at a rate around 75 cents on the dollar. The investors then claim the tax credits annually for 10 years.

The 75 cents-per-dollar price is, however, substantially lower than the development team anticipated. The group originally expected to receive 86 cents on the dollar.

The lower price is a product of fluctuating tax credit financing dynamics that have shifted the balance of power to investors, Sydne Garchik, president of MRK Partners, told the Union-Tribune.

The One Big Beautiful Bill Act, signed into law last year, reduced the amount of bonds a project needs to qualify for federal tax credits from 50% of costs to 25% of costs. The change means bond funding can be allocated to a larger number of projects, increasing the number of deals available to tax credit investors, she said.

“That’s a big win for our space,” Garchik said. “Unfortunately, on the flip side of that is … we’ve oversupplied the market with tax-exempt bond deals. When we flood the market with supply, pricing goes down because now investors have way more deals that they can pick from, and they’re being very choosy and very selective.”

The 101 Ash team also expects to receive less funding from tax credits associated with historic properties, with the equity price also around 75 cents per dollar. The team now anticipates receiving $24.9 million in historic tax credit equity.

As a result, the project’s current financing deficit is hovering around $8 million, Garchik said.

“The big shift … is that we were expecting $117 million of tax credit equity, combined from federal and historic (sources). Today, our projected combined (tax credit equity) is $98 million. … (We) made up about half of the shortfall with more debt,” she said.

The tax credit equity price has always been a market-based rate that fluctuates with factors such as inflation and interest rates pushing pricing up or down, said Peter Lawrence, chief public policy officer at Novogradac. Novogradac specializes in providing tax, accounting and audit services to affordable housing developments.

The federal change is just one factor affecting the price, he said.

In the first three months of 2026, the median price for a 4% housing credit property in California was 83 cents, according to Novogradac. The median is based on pricing provided to Novogradac by market participants. The first-quarter figure is down modestly, Lawrence said.

The affordable housing finance expert said it’s common for underwriting expectations to change between when a developer first applies for bonds and when it’s ready to secure a tax credit equity investor.

“It’s not unusual for things to change,” Lawrence said. “(An $8 million) financing gap is larger than normal.”

Garchik did not provide specifics on how the 101 Ash development will make up the difference, but said she is optimistic about the options that the team is exploring.

“We are actively working on trying to fill the hole with possible solutions that we are running in tandem and hoping to make progress on over the coming weeks,” she said.

In the meantime, the city continues to foot the bill to maintain the 101 Ash tower.

San Diego is budgeting roughly $219,000 per month in the upcoming fiscal year for a property management contract that includes 101 Ash, Civic Center Plaza and the former King-Chavez High School building, according to a report prepared by the Office of the Independent Budget Analyst. The report estimates that the city will save $1 million on the contract in the new fiscal year if the 101 Ash developer takes over the site by December.

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This story was originally published June 9, 2026 at 2:23 PM.