SAN JOSE — An apartment project, slated to rise at the corner of West San Carlos Street and Josefa Street in downtown San Jose, has obtained a construction loan totaling $112.5 million, according to documents filed on Aug. 26 at the Santa Clara County Recorder’s Office.

Aquino, as the 278-unit apartment hub is known, is being developed by an affiliate of San Jose-based real estate firm Urban Catalyst. It is set to break ground on Sept. 3.

Gathering areas and open spaces in Aquino, a 278-unit, eight-story apartment complex at 486 through 498 West San Carlos Street in downtown San Jose, concept. (BDE Architecture)

Swenson, a real estate and development firm, is the general contractor for the construction work.

The project’s total cost is expected to be $135 million, including the construction financing, said Erik Hayden, founder and managing partner with Urban Catalyst.

“Interest rates are still high, but the construction financing market is starting to come back,” Hayden said. “It is not all the way back yet, but things are improving.”

Overall development expenses, including materials, labor and money costs, remain elevated, Hayden said.

“Construction costs are 10% higher than usual,” he said. “We may be at the start of the next cycle of apartment development. If interest rates drop, we’ll see a huge run in new development. A lot of projects are shovel-ready right now. You’ll see more people jump in with projects.”

Urban Catalyst is active in the South Bay and has proposed several projects in downtown San Jose. In April, it opened a 176-room Marriott TownePlace Suites a short distance away from the Aquino site.

“A trend is starting to develop in the apartment market,” Hayden said. “People are breaking ground on apartment projects for the first time in a few years.”

Among those leading the trend, Santana Row is poised to produce its first residential project in more than a decade, a 258-unit apartment complex that would become part of the west San Jose mixed-use neighborhood.