Roundtable/ Urban 3
Publish Date: 04/26/2004
California Real Estate Journal
Continued from Roundtable/ Urban 2
Invested Developers
CREJ: What is going to make the difference with regard to product quality as we see downtown redeveloped?
SULSE: I shink Mark had a real vision, with a real commitment to downtown. What makes me very nervous is a lot of other developers who are overpaying. They are more “one-off,” buying speculative projects and fostering the disconnect with economics and opportunity costs are being forced up, to a point that is inappropriate.
WEINSTEIN: Jay and I were just kidding that those are going to be our future opportunities. We are going to buy them as foreclosures. But really, those projects will cost too much and they are not going to get financed.
TOSTA: Your hope is that they won’t. But developers will try to squeeze the deal out of the entitlement. That is where you get those oddities – those stressed-out looking buildings that don’t make sense. You can really end up with dogs - garbage buildings that become the capped teeth on the smile of the city.
SMITH: Public improvements such as streetscapes come in part through private development, such as to the streetscape. I am wondering what it will take to get to that next level, where the projects add up to something instead of these one-offs.
WEINSTEIN: I went to Dallas, I went Denver, I went to many cities. I met with the mayor and elected officials, and I asked, ‘How did you do it?’
Every one of the cities that was successful put more public money into infrastructure. They did the streets. They did the street lights. They did public parking. It was an investment to draw the other investments. I invest a dollar, I get tow dollars of sales tax. Unfortunately, we have run out of money in Los Angeles.
Everyone points to San Diego’s Gas Lamp District. Go down to the Gas Lamp District and see what is there.
LINDSAY: But there is a big difference there [or in San Diego]. There is a functional convention center with hotels and amenities servicing it, which allowed residential to grow up around it.
Headed for a Bust?
LINDSAY: I am a little worried that there is going to be a mini-bust following the mini-boom in downtown L.A. Money has been pouring in. People will make mistakes, and they will pay too much. They will get foreclosed. And lenders and investors are nervous already.
SULSE: Without a doubt.
LINDSAY: So If you look at the marginal project, you just say “no.” And things grind to a halt. And then the over-priced projects have to flush out of the system. And we have got to start over again.
Without the city investment in infrastructure to make us all believe, that will happen faster, not slower. If you look at the LoDo district in Denver, that happened.
SULSE: There is such a huge pent-up demand for housing right now. But under these types of projects, you can turn them and sell them so quickly that the one-off and tow-off developers are in and out. They have no lasting commitment to the downtown.
WEINSTEIN: Most of the loans that the people are getting wouldn’t allow a quick sell.
SULSE: No, I mean a quick sell as in there is such a pent-up demand from the homeowners to buy units that your absorption schedule is accelerated.
LINDSAY: We look at absorption schedules. And we would say, 36 months to absorb. And the developer says, “What, are you insane? This will be absorbed by the time I open the door.”
WEINSTEIN: But wait a minute, Jeff Lee [of The Lee Group] is doing tow more projects. He keeps doing nice projects.
SULSE: Jeff Lee, I think he is different. He was a visionary in the downtown, as were you. But I am also seeing three projects come across my desk a week. And they are with developers who I have not heard of. They are with one-off guys. It is the Mecca. It is the newest opportunity. And let’s face it, when there is so very little other opportunity in Los Angeles, you look for it where you can find it.
STARK: The success of downtown has brought in a lot of different players to the region that would normally stay away and say forget about it. And what you are seeing is a creeping out of downtown of the success of ground zero, downtown.
You are seeing projects that use the Adaptive Reuse Ordinance in Lincoln Heights, East L.A., South L.A., and in Mid-Wilshire. And you are seeing, if someone is going to live downtown and pay $3 a foot, others are going to pay $2.50 a foot to live in East L.A.
It is spurring thousands and thousands of units that don’t have the saturation and the capital infusion problem of downtown. It’s great.
Inclusionary Visions
PEREZ: We are at a place and time where the marginal pieces are actually much more attractive that they were, because of the nature of the squeeze on land supply. We are having to get really creative with recycling buildings and properties so that they are more functional.
The question that I have, and as a non-profit working with communities and constituents with many different [income] ranges, is – How are we going to address the issue of folks trying to get a house for their families?
STARK: You’re asking about inclusionary housing. And that is a bad word in the development community.
If we are going to reach that, the public sector has to provide incentives. And not in-lieu fee programs that are really just a politically expedient way to have someone pay some money and not produce any housing. It has to be an incentive-based program that allows you greater density, expedited fees, and maybe some soft money that’s available.
Mayor Hahn has had a great program of setting up a $100 million trust fund. For the first time in L.A. there is a dedicated source. It has to be incentives for the developing community.
Look at Mark. He took on his own personal inclusionary policy and cobbled it together with different financing from Century Housing and others. But there is more to building an affordable housing unit. You are building a mixed-income building with retail.
That unit has to be part of a larger development program that the city and communities embrace. That is often where the disconnect is between politicians and the communities. In San Francisco, the community is pushing for it. In Los Angeles, most of the communities and homeowners associations aren’t pushing for it.
TOSTA: Well, it really depends on the quality of the affordable product.
STARK: Here, it doesn’t matter.
WEINSTEIN: I think the affordable units are usually better than the regular.
I volunteered to do it because I thought it was the right thing to do. But I also did it because I could – my land base was lower and I had retail that made sense.
We all agree that we need to do something. But if you give a density bonus for an area where the community doesn’t want you to build higher, or you can’t afford the cost of a parking structure, it doesn’t work. It is not an idealistic challenge, but a business challenge.
The city of L.A. has millions of square feet of real estate they don’t do anything with. Huntington Park has real estate. They should give it to developers for zero, and have them build housing at the cost that people could afford.
TOSTA: Some of the best housing sites available are in public ownership because they are along the spine of the transportation infrastructure. The difficulty is that they are tucked away in different departments. It is amazing how public agencies don’t understand what they own.
continue to Roundtable/ Urban 4
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