Roundtable/ Urban 1
Publish Date: 04/26/2004
California Real Estate Journal
California may have invented suburban sprawl, but with little raw land left and demand for housing insatiable, developers are looking to the long-neglected urban core for housing development opportunities.
Historic office and industrial districts across the state are rapidly becoming vibrant live/work environments. The redevelopment process brings together developers, planners, lenders, architects and other visionaries and asks that they find ways around obstacles ranging from zoning and infrastructure limitations to security and public opinion, all while finding a way to turn a profit.
Seven experts from across this equation addressed the issue:
KATHERINE PEREZ is executive director of the Transportation and Land Use Collaborative of Southern California, a nonprofit group advocating for linkages between transportation and land use;
WILLIAM LINDSAY is founding partner of Pacific Coast Capital Partners, an investment firm and lender focusing on rehabilitating urban real estate;
MELANI SMITH is director of planning for Melendrez Design Partners, an urban-oriented landscape and planning firm;
JAY STARK is COO of Phoenix Realty Group, which manages the Genesis Work Force Housing Fund;
NANCY SULSE is vice president and regional manager of Fremont Investment & Loan, a real estate lender that has underwritten several residential projects in downtown L.A.;
TIMOTHY TOSTA is an attorney with Steefel, Levitt & Weiss in San Francisco who has shepherded plans and entitlements for numerous redevelopment projects in the Bay Area and across California;
And MARK WEINSTEIN is president of MJW Investments, a developer, owner, and manager of real estate that is currently developing Los Angeles’ largest adaptive reuse project, transforming nine historic buildings in the garment district into a mixed-use neighborhood.
Too Much Too Soon?
CREJ: Some people say San Francisco is five years or more ahead of Los Angeles in turning its downtown into to a 24-hour, mixed-use community. Tim, set the scene for us. What do we have in store?
TIMOTHY TOSTA: San Francisco has tried a number of things. They have tried to build housing on the top of high rises. The difficulty with those efforts, which were in the early ‘80s, is that the housing didn’t have enough critical mass to create any kind of center that gave rise to retail or any kind of sense of place. So what you had was these isolated pods of housing, with people who were extremely wealthy and could afford to be kind of disengaged from the streets.
The city attempted to build up the outlying areas immediately around the central business district, with densities of maybe 1,000 or 2,000 units in a redevelopment area. There’s this one area called South Beach, where a tremendous amount of housing has been built. Again there was a problem of critical mass, of getting available retail and a sense of place. Wonderful location. Five or six projects. But just not enough density. Mixed income of 15, 20 percent affordable units; rental and condo missed use. The neighborhood is just coming into its own now, 20 years later, basically because of a lack of adequate vision as to what it is they wanted to create.
San Francisco is now developing Mission Bay, which is a large Catellus project. The process was more inclusive of the public than any prior process. As consequence, I think we are getting the densities [of units we need - ] thousands of them downtown. And that kind of density is really what is required to make the retail happen.
Nothing about it has been a logical progression. I think what we have had is a lot of starts, a few misses, and a couple of successes. It has been what I would call choreographed lurching. And we have learned from the experience. And we have learned from the experience.
WILLIAM LINDSAY; I think the time frame you gave, 20 years, is right.
If you look at the number of for-sale units that have come on-line South of Market, it didn’t start exploding until ’96, ’97, ’98. And now the city has gone vertical South of Market. The worry I have for San Francisco, from an investor’s perspective, is the same worry I have for downtown rental housing in Los Angeles: too much all at once. The capital exploded into the marketplace.
MARK WEINSTEIN: I would argue that this is not a case of too much, too fast. I think that is the very thing that creates critical mass.
L.A. and Orange County have serious challenges. Several years ago I did an independent study that showed that downtown needed 8,000 units a year just to keep pace with the depth of the market. And actually, the demand for condos is even greater. Eighty percent of all the hits we get on our Web site are for the condos. We have a waiting list of 570 people of 64 condos. We have pre-leased almost half of our projects we have got national retail tenants signed up.
I would argue that the critical mass is happening. And we need more units, not less, to really make a difference.
Los Angeles, unlike San Francisco, is a bunch of independent places. We are not going to be San Francisco, Chicago, or New York. We are Denver and Dallas.
I can understand from a structural basis, too much too fast. But in essence it becomes the place to be. And it can fulfill the demand the other places can’t, because there is no land. The cost of land and buildings is too much. Where else do you go?
NANCY SULSE: it’s hard to say whether it’s coming on too much too fast, when my bigger concern is that we don’t have a real understanding of truly what is coming on. How many units are actually coming on-line? You can get ranges from 3,000 to 8,000. Then, if you try and carry it down to which ones are really viable projects, that is a whole different sort of set.
TOSTA: I think that the too fast or too slow question is not as important as how on target is it going to be in the end. Architects call it a sense of place. Is a community being created there, or is it just a bunch of units coming together? San Francisco really had too much eclectic, cutting-edge stuff coming together at the end that really didn’t create a sense of place.
KATHERINE PEREZ: If you are just having units for the sake of units, that is not going to move L.A. further along. The demographic shifts command a different kind of attention towards how those units are going to be in the built environment.
There are places like Huntington Park and the southeast cities, which are incredibly overcrowded. The demand is there, and the supply is very weak. When you have lots of families crammed into units and they are looking for alternatives, you need to create alternatives at that price point, where they can enter the market.
My concern is that all these things are going to be at market or above market. And then folks who have families, they are not going to be served.
TOSTA: The first major downtown San Francisco residences were extremely high-end. And the reason that that worked is that if you couldn’t find a grocery store, you went out to dinner, or you had someone bring in a fine meal. The issue of schools was irrelevant because most of the folks were empty nesters.
So I’m still wondering, is there really a vision, or is there just a rush to fill a market? Because, absent that, market forces don’t necessarily result in communities.
Market Rate, Affordable and Workforce
CREJ: How do we define affordable and workforce affordable?
STARK: Our workforce fund focuses on the working families earning between $45,000 to $95,000. What does that mean? That means folks who are middle management, teachers, government workers, younger people who are trying to buy their first home close to family, friends and work, and who are tremendously underserved in this market.
When we look at the demand side of the equation, we are pretty enthusiastic, because we are not in the late ‘80s, where you have an over-built number of homes. We are tremendously under-built. And so I agree with Mark, that the depth of the market, while it might be difficult to gauge in the short term, there is a resonance that we think has a long-term sustainability for this kind of housing.
WEINSTEIN: I don’t think Jay is saying that we should just go out and build buildings. He is very careful about where he builds his stuff.
We have nine buildings. We have golf on the roof. We have basketball. We have a lot of different amenities. And I think that our project is workforce affordable. I volunteered it to be 20 percent affordable and low income. I came up with the concept that the average unit should be 750 feet, so the rent could be about $14,000. You couldn’t do it any less or else we would lose money.
About what to do in Huntington Park – I happen to know Huntington Park, and I don’t know where you are going to get the money to provide family housing. Land costs ‘X’. Construction costs ‘Y’. And even if you just break even, Nancy is not going to finance a project that doesn’t have a net operating income that meets the bank’s criteria. She has regulators.
So my concern is that there isn’t enough money. Southern California better do a better job in grabbing the bond money and park money that was voted in.
TOSTA: What is L.A.’s inclusionary requirement?
WEINSTEIN: Well, there is none.
STARK: What we look for, and I think what you talked about in terms of neighborhoods, is a story. And the basis of that story is the public investment. Are there rails? Are they spending hundreds of millions of dollars on really creating these new transit corridors? Most of the projects we are working on are at or near transit stations. We are leveraging off that public investment to make a private investment.
continue to Rountable/ Urban 2
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