The Los Gatos Planning Commission approved several cost-saving measures for the developers of the North 40 to help ensure that the number of affordable housing units in the second phase of the project doesn’t decrease any further.

The commission voted 5-2 on Oct. 29 to agree to conditions of approval that would enable developers Grosvenor Property Americas to complete regrading the site and building 127 for-sale townhomes before the nonprofit Eden Housing can construct a 67-unit affordable housing building.

Representatives from Grosvenor and Eden said at the meeting that building the affordable units before or at the same time as the townhomes as per the town’s requirement would put financial strain on both their projects.

Grosvenor argued that if the townhomes were finished first, they could sell those homes and use the cash to fund the rest of the project infrastructure and reduce the need for financing and the associated interest payments.

When asked why Eden Housing couldn’t help provide the affordable housing first, director of real estate development Dixie Lira-Baus said the nonprofit “simply can’t” finance its own projects.

“We can’t get the (net operating income) high enough to be able to afford carrying that kind of debt load on a project that will have restricted rents,” Lira-Baus explained.

According to the town staff report, the North 40 project is faltering in providing affordable units for those with very low or moderate incomes. The project was initially supposed to have 184 units for very low income tenants, 89 units for low income tenants, 92 units for moderate income tenants and 87 units for above moderate income tenants. However, the current version of the project only has 67 units for people with very low incomes, 10 units for those with low incomes, no units for people with moderate incomes and 373 units for people with above moderate incomes.

This creates a deficit of housing for people with very low or moderate incomes and opens the town to the state’s No Net Loss law, which means that additional sites will need to be identified to make up for the deficit.

The Los Gatos Community Alliance submitted a letter to the commission criticizing the legality of the project. Alliance members expressed the concern that the project wasn’t following the town’s Housing Element, which was approved in June 2024, and called on the state Department of Housing and Community Development to answer their questions. However, town attorney Gabrielle Whelan said North 40 developers are entitled to operate under the rules that were in place when its application was deemed complete in 2023. Commissioners Susan Burnett and Rob Stump cast the dissenting votes, saying they wanted to wait for a response from the state.

In addition to the affordable housing building and townhomes, the second phase of the project is made up of a several acres of open space known as The Meadow; a seven-story, 255-unit mixed-use residential building with 7,800 square feet of retail space on the ground floor; and two one-story commercial buildings with 7,200 square feet of retail space. Ten units in the mixed-use residential building would also be affordable, bringing the total number of affordable units to 77.

In a post on its website in June, the alliance acknowledged that Grosvenor’s plan for the North 40 is more attractive than previous suggestions to develop the site, but said they would like to see at least 130 very-low and low-income units.

“This project was always meant to be a cornerstone of our town’s affordable housing strategy,” read the post. “It’s time for Grosvenor and the town to fulfill that promise.”