San Jose · Santa Clara County, California · Updated September 2026
A San Jose file carries three local rules on top of the California ones: a city transfer tax that jumps at $5 million, a rent ordinance that allows one 5 percent increase a year on older apartments, and a property tax that resets to your price the day you buy.
By Michael McGovern, Founder | 25+ Years in Commercial LendingCommercial Mortgage Connection · Lending in all 50 states The short answer
A San Jose commercial mortgage is sized on what the property earns after local costs, and three San Jose rules move those numbers more than the rate does. The city's Measure E transfer tax applies to sales over $2.3 million and is charged on the whole price, at 0.75, 1.0 or 1.5 percent, so the rate jumps at $5 million and again at $10 million. Apartments with three or more units built before 7 September 1979 may take only one 5 percent rent increase a year. And under state law the property tax resets to your purchase price on closing, so the seller's bill understates yours, often by a wide margin on a long-held building.
- Measure E: a closing cost, not an operating cost, but it comes out of the same cash as your reserves. $72,000 on a $7.2 million purchase.
- The rent ordinance: one 5 percent increase in 12 months on covered buildings, reset to market only when a unit is vacated.
- The reset: the new tax arrives in year one; under the ordinance, the rent to pay for it arrives over years.
Facts verified 25 to 28 September 2026 against the San Jose Municipal Code, the City of San Jose Housing Department, the California Constitution, the Revenue and Taxation Code, the Civil Code and the State Board of Equalization. Nothing on this page is a rate quote or an offer.
What this page covers
- Measure E: the transfer tax with a cliff at $5 million
- San Jose apartment loans under the Apartment Rent Ordinance
- The tax reset, and why it lands harder here
- What the reset and the rent ordinance do together
- How a San Jose commercial mortgage gets sized
- Loan options for a San Jose property
- What a lender will ask you for in Santa Clara County
- When a San Jose deal does not pencil
- San Jose commercial mortgage FAQ
Measure E: the transfer tax with a cliff at $5 million
San Jose voters approved Measure E on 3 March 2020, adding Chapter 4.59 to the Municipal Code. It is a real property transfer tax, charged in addition to the city's older conveyance tax under Chapter 4.58. The City's Housing Department states that from 1 July 2025 it applies to property transfers over $2.3 million; the code adjusts that threshold for the cost of living every five years.
The detail that matters is how the rate is applied. Section 4.59.100 charges the rate on the total value of the consideration, including the part below each band, not only on the slice above it. So the tax does not rise smoothly with the price. It steps.
| Purchase price | Measure E rate | Measure E tax |
|---|---|---|
| $2,300,000 or less | None | $0 |
| $2,300,001 | 0.75 percent of the whole price | $17,250 |
| $5,000,000 | 0.75 percent | $37,500 |
| $5,000,001 | 1.0 percent of the whole price | $50,000 |
| $10,000,000 | 1.0 percent | $100,000 |
| $10,000,001 | 1.5 percent of the whole price | $150,000 |
Read the table as a negotiating tool. One dollar above $5,000,000 adds $12,500 of tax; one dollar above $10,000,000 adds $50,000. A price agreed at $5,050,000 carries $12,500 more tax than one at $5,000,000, a quarter of the extra $50,000 the seller receives. A price that sits just above either line is worth a second look before signing.
For the loan, Measure E is not an operating expense and does not touch net operating income. It is a closing cost that sits in your sources and uses next to title, escrow and lender fees. That still matters to underwriting, because it comes out of the same cash a lender wants to see left over after closing. On a $7,200,000 purchase it is $72,000.
San Jose apartment loans under the Apartment Rent Ordinance
San Jose apartment loans are underwritten against one of three rent regimes, and the building's date decides which. The City's Apartment Rent Ordinance covers apartments with three or more units that were built and occupied before 7 September 1979; the Housing Department puts the count at about 38,000 apartments. On those, the maximum allowable increase is one 5 percent increase in a 12-month period.
The ordinance has three exceptions an underwriter will ask about. Rent may be reset after a unit is voluntarily vacated or after a lawful eviction. A landlord may petition to pass through specific capital improvements, capped at three percent of the monthly rent and not treated as rent. And a fair return petition can win a permanent adjustment where operating expenses exceed income. Duplexes, condominiums, townhomes, single-family homes and units first rented after 7 September 1979 are outside it.
| Building | Rule | What the lender underwrites |
|---|---|---|
| Three or more units, built and occupied before 7 September 1979 | San Jose Apartment Rent Ordinance: one 5 percent increase in 12 months; reset on voluntary vacancy | In-place rents, grown at no more than 5 percent a year, with turnover as the only route to market |
| Older than 15 years but outside the city ordinance | State cap, Civil Code 1947.12: 5 percent plus the change in the cost of living, or 10 percent, whichever is lower, until 1 January 2030 | In-place rents, grown on the state schedule |
| Certificate of occupancy within the last 15 years | Exempt from the state cap | Market rents, tested against recent signed leases |
The practical question on any building is which row it sits in, and the City will answer it: the Housing Department asks owners to call City staff on 408-975-4470 to confirm whether a property is rent stabilized. Get that answer in writing before you model a single rent. A pro forma that assumes the state schedule on a building the city covers will overstate income from the first renewal.
The tax reset, and why it lands harder here
California taxes real property on its value at purchase, then lets that value rise by no more than 2 percent a year, under Article XIII A of the state Constitution. The base tax is 1 percent of that value plus voter-approved debt. A long-held San Jose building therefore carries a tax bill built on a price from years ago, and the bill resets to your price when you close. Buying the company that owns the building rather than the deed does not avoid it: Revenue and Taxation Code section 64 treats control of more than 50 percent of the owning entity as a change in ownership.
Two things can make the reset heavier in San Jose. Where a price is high relative to the rents a building produces, as in the example below, the gap between an old assessed value and a new price is wide. And on a building under the rent ordinance, the income to pay the new tax cannot follow quickly. The mechanics of the supplemental bill that arrives after closing, and why lenders never receive a copy of it, are set out in full on our Anaheim commercial mortgage page; they apply in Santa Clara County in the same way.
What the reset and the rent ordinance do together
Take a 24-unit San Jose building built in 1972, under contract at $7,200,000. The seller bought it long ago and the assessed value on the current bill is $1,900,000. In-place rents total $620,000 a year. Every unit is covered by the Apartment Rent Ordinance.
| Total rate on the bill | Seller's tax | Your tax | Added annual tax | Loan capacity lost |
|---|---|---|---|---|
| 1.10 percent | $20,900 | $79,200 | $58,300 | About $550,000 |
| 1.15 percent | $21,850 | $82,800 | $60,950 | About $575,000 |
| 1.20 percent | $22,800 | $86,400 | $63,600 | About $600,000 |
Now put the rent rule next to it. One full 5 percent increase on every unit adds $31,000 a year, which covers only about 53 percent of the $58,300 the reset adds. Even if every tenant stays and every unit takes the maximum increase each year, it takes close to two years of increases just to pay for the new tax, before any other expense grows. On a building outside the ordinance, the same reset could be absorbed at the next round of renewals; here it cannot.
Read the actual total rate from the seller's tax bill, because the voter-approved debt on top of the 1 percent differs by area. The point of the example is the order of events: the tax arrives in the first year, the supplemental bill with it, and the rent to pay for both arrives slowly. Lenders size on the first year.
How a San Jose commercial mortgage gets sized
Two tests run at the same time and the lower answer wins. Debt service coverage asks whether net operating income comfortably exceeds the annual payments, most often at a minimum of 1.25x. Loan-to-value caps the loan against the appraised value, commonly 65 to 80 percent depending on the property and the program.
In this example the first test wins, and by a wide margin. Say the building above nets $380,000 a year after the new tax, which is a 5.28 percent return on the price. At 1.25x coverage, annual debt service can be no more than $304,000, about $25,333 a month. At an example 7.00% rate on a 25-year amortization, that supports a loan of roughly $3,584,000, or about 50 percent of the price, far below any leverage cap. The rate is an illustration, not a quote.
So the cash question is larger than it looks. On this purchase the buyer brings roughly half the price in equity, plus $72,000 of Measure E at closing, plus a supplemental tax bill of about $43,700 for an October closing, plus reserves. Our guide to the loan-to-value ratio on apartment loans explains why coverage binds before leverage when prices are high against income, and the commercial mortgage rates page covers how the rate and term move that number.
Loan options for a San Jose property
Most San Jose requests land with one of five kinds of lender. Which one fits depends on the property type, its condition and how long you intend to hold it.
| Loan type | Best for | Key terms | Watch for |
|---|---|---|---|
| Local or regional bank | Owner-occupied office, research and industrial space with a banking relationship | Terms vary by bank; personal guarantees are common | Shorter terms and balloon payments |
| Portfolio lender | Unusual files, foreign nationals, or owners of several properties | Held on the balance sheet of the lender, with more flexible underwriting | Pricing varies widely |
| Fannie Mae Small Mortgage Loan | Existing, stabilized buildings with 5 or more units | Up to $9 million, 5- to 30-year terms, up to 80% of value, at least 1.25x coverage | Needs a stabilized property; yield maintenance or a declining prepayment premium |
| HUD 223(f) | Long holds on existing apartment buildings | Terms up to 35 years, up to 83.3% of value for market-rate properties, building completed at least 3 years | Slower approval; not for substantial rehabilitation |
| Bridge loan | A building bought for turnover, a renovation, or a hard closing deadline | Short term, sized on cost or as-is value, often with an interest reserve | Higher cost; the refinance has to work on regulated rents, not hoped-for ones |
For apartment programs compare the options on our apartment building loans page, or the broader commercial mortgage overview for office, retail and industrial.
What a lender will ask you for in Santa Clara County
A complete package moves faster than a strong one that arrives in pieces. For a San Jose property, expect this list.
- Written confirmation of the rent regime for any apartment building: city ordinance, state cap or exempt. The City's Housing Department is the source.
- The rent roll with move-in dates and the date of each unit's last increase, so the lender can see which units can take an increase this year and which have not turned over in years.
- The seller's current tax bill, for the total rate, and a reset calculation on your price with the supplemental bill for the closing month.
- A closing statement estimate that shows Measure E at the right band, and the cash left after closing.
- The entity ownership history if you are buying an interest in the owning company rather than the deed.
- Trailing 12 months of income and expenses, the last two years of statements, and every commercial lease over a meaningful size.
- Borrower package: schedule of real estate owned, net worth and liquidity after closing, and credit for every key principal.
One date to put on the calendar. Under Revenue and Taxation Code section 1603, appeals of the regular annual assessment are filed between 2 July and 15 September, extended to 30 November only in counties where the assessor does not send value notices by 1 August. Check this year's Santa Clara County deadline with the Clerk of the Board before you rely on either date. If the appraisal on a purchase comes in below your price, that window is the route.
When a San Jose deal does not pencil
Some files should not be forced. If the numbers work only on the seller's tax bill, the price is wrong, not the loan. If a covered building's plan needs rents to reach market faster than turnover allows, the plan is wrong, not the building. If the price sits a few thousand dollars above $5,000,000 or $10,000,000, look at the Measure E band before anything else.
The fix is usually one of three: a lower price, a partner who brings the equity that coverage demands, or a bridge loan with a refinance plan written on regulated rents rather than hoped-for ones.
The goal is not simply to close a San Jose commercial mortgage. It is to close one the building can still carry after the reset, the supplemental bill and the transfer tax have all been paid. For contrast, our Chandler commercial mortgage guide covers Arizona, where a sale does not reset the tax at all, and the NYC commercial mortgage page covers a rent stabilization regime even tighter than San Jose's.
San Jose commercial mortgage FAQ
How much is the Measure E transfer tax in San Jose?
Nothing on transfers of $2.3 million or less since 1 July 2025. Above that, San Jose Municipal Code section 4.59.100 charges 0.75 percent on transfers up to $5,000,000, 1.0 percent up to $10,000,000 and 1.5 percent above, each applied to the whole price. That makes $37,500 at $5,000,000 and $50,000 at $5,000,001.
Is my San Jose apartment building covered by the rent ordinance?
It is if it has three or more units and was built and occupied before 7 September 1979, unless it is one of the exempt types such as a condominium, townhome or duplex. Covered buildings may take one 5 percent increase in a 12-month period. The City's Housing Department confirms coverage on 408-975-4470.
Can I raise rents to market after buying a San Jose apartment building?
Only as units turn over. Under the Apartment Rent Ordinance a unit's rent can be reset after it is voluntarily vacated or after a lawful eviction; otherwise increases are limited to one 5 percent increase a year, plus any approved capital improvement pass-through of up to three percent of the monthly rent.
Does buying a San Jose property reset its property tax?
Yes. Under Article XIII A of the California Constitution the taxable value becomes the value at purchase and then rises no more than 2 percent a year, and buying more than 50 percent of the owning entity counts as a change in ownership under Revenue and Taxation Code section 64. Underwrite the tax on your price.
Do I need a lender based in the Bay Area?
No. A commercial loan is decided on the numbers of the property and the strength of the borrower, and lenders across the country finance Santa Clara County property every week. What matters is that the lender knows the building's rent regime, underwrites the tax on the purchase price and sees the Measure E cost in the closing cash. A broker with a national lender network can compare local banks against agency and portfolio options side by side.
Sources
- San Jose Municipal Code, Chapter 4.59, Real Property Transfer Tax. Section 4.59.100: rates of 0.75, 1.0 and 1.5 percent applied to the total consideration, in addition to the Chapter 4.58 conveyance tax, with the threshold adjusted every five years. Checked 28 September 2026.
- City of San Jose Housing Department, Measure E Real Property Transfer Tax. Approved 3 March 2020; from 1 July 2025 imposed on property transfers over $2.3 million. Checked 28 September 2026.
- City of San Jose Housing Department, Learn About Rent Stabilization. Apartment Rent Ordinance coverage, the one 5 percent increase in 12 months, exceptions, capital improvement pass-through and fair return. Checked 28 September 2026.
- California Civil Code, section 1947.12. The state rent cap and the 15-year certificate of occupancy exemption, in effect until 1 January 2030. Checked 25 September 2026.
- California Constitution, Article XIII A, Section 2. Full cash value as the value when purchased or changed in ownership, rising no more than 2 percent a year. Checked 25 September 2026.
- California Revenue and Taxation Code, section 64. Change in ownership on acquiring control of more than 50 percent of a legal entity. Checked 25 September 2026.
- California Revenue and Taxation Code, section 1603. The regular assessment appeal period, 2 July to 15 September, extended to 30 November where value notices are not sent by 1 August. Checked 28 September 2026.
- California State Board of Equalization, Supplemental Assessment. The supplemental bill after a change in ownership, in addition to the annual bill. Checked 25 September 2026.
- Fannie Mae Multifamily, Small Mortgage Loan Program Term Sheet. Loan amount, term, maximum LTV and minimum DSCR. Checked 22 September 2026.
- US Department of Housing and Urban Development, Descriptions of Multifamily Programs, Section 207/223(f). Mortgages up to 35 years, 83.3% of value for market-rate projects, and completion at least 3 years before application. Checked 24 September 2026.
Michael McGovernFounder, Commercial Mortgage Connection. Michael wrote and reviewed this guide drawing on a career that began at Bear Stearns & Co. in 1997, ran through structuring billions of dollars in CMBS and MBS in the F.A.S.T. group at Bear, and selling mortgage product at Lehman Brothers, and now spans more than $1 billion in originated mortgages.
Buying or refinancing in San Jose? Send us the rent roll, the tax bill and the price.
Senior-led review of the rent roll, the rent regime, operating statements, the tax bill and the price, with the reset, the supplemental bill and Measure E worked into the numbers before any lender sees them, the loan options priced side by side, and a loan review response within 4 hours. Call 888-656-9812, live operator 24/7.
Facts on this page were verified against the cited San Jose, California, Fannie Mae and HUD sources between 25 and 28 September 2026. Tax rules, rent rules, program limits and lender appetite change, and the example rate and figures on this page are illustrations, not offers or quotes. Nothing on this page is a loan offer, a rate quote, legal, tax or insurance advice, or personalized financial advice; all financing is subject to lender approval, credit review and property underwriting, and no approval is guaranteed. Broker licensing and closing rules vary by state. Commercial Mortgage Connection is a commercial mortgage brokerage, is paid when loans close, and sells the service described on this page. Equal Housing Opportunity.
