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HOUSING OPPORTUNITIES IN THE AGE OF ECOMMERCE–TRENDS, PERSPECTIVES, CHALLENGES & OPPORTUNITIESORANGE COUNTY HOUSING SUMMIT, SEPTEMBER 2017
TOPICS COVERED
Housing Market Information/Trends
Retail Market Trends – Housing Effect
Redevelopment Trends
City/Developer Perspectives
Challenges
Opportunities
HOUSING MARKET INFORMATION & TRENDS - OVERVIEW
Housing crisis in CA and OC well documented
High demand & low supply = increased prices
Tremendous job growth/low unemployment
Median home prices > than pre-recession
OC deficit = 60,000 units (OCBC Workforce Housing Scorecard, 2015)
Demand for “urban” living (walkable, near transit, services & entertainment)
RETAIL MARKET TRENDS – HOUSING EFFECT
Brick and mortar retail changing (redeveloped centers)
Ecommerce hurting B, C and D shopping center/malls the most (other parts of US more affected than OC to date)
Experiential retail strong (Irvine Spectrum)
Changing retail = housing developed adjacent to strong retail centers
OC REDEVELOPMENT TRENDS
Cities adopting specific plans for underutilized office/R&D/industrial property
Sampling of Projects Developed/Planned to Date
Mall redevelopment projects (residential component)
Five Lagunas, Bella Terra
Adjacent/near mall
Villages & Park apartments (Irvine)
Brea Place
Lofts at City Place
Apartments & condos adjacent to Main Place (Santa Ana)
Pacific City (Huntington Beach)
ORANGE COUNTY DEVELOPMENT TRENDS (CONTINUED)
Former car dealerships – Garden Grove Galleria, Westside Costa Mesa
Former office/R&D/manufacturing
Irvine - Central Park West & multiple project in Irvine Business District
Santa Ana – DTSA & OC Register building
Anaheim – Platinum Triange
Laguna Niguel – Gateway District
Costa Mesa – Westside
CITY PERSPECTIVE – KEY CONCERNS
NIMBYS
High density a tough sell in OC at present time
Traffic often largest concern (& change character of existing neighborhoods)
City revenues extremely limited
Prop 13 + Redevelopment dissolution = more reliance on Sales Tax and TOT to fund Services
Unfunded Pension Liabilities
Commercial tax base = sustain levels of service
Can be hesitant to convert commercial property to housing
How much will additional services cost?
CITY PERSPECTIVE – SAMPLE HOUSING DEVELOPMENT PROJECT
Project - 250 apartments & 80 townhomes
No commercial (not mixed use)
Costs to provide service > revenues to City
Cities with strong commercial base can absorb
Difficult for cities with significant budget deficit
Property Tax $ 200,000
Resident-Derived Sales Tax 40,000
Total Revenues $ 240,000
Less City Expenditures (Police,
Community Services, Environmental
Services & Public Works) $ (300,000)
NET NEW REVENUE TOTAL $ (60,000)
Revenue Category1-Year Recurring
Revenues, 2016$
CITY PERSPECTIVE – BUT ON THE FLIP SIDE…….
Workforce/Affordable Housing/Sufficient Housing Critical to Economic Development
Attract/retain businesses-employees must be able to live in area
Amazon HQ2 RFP an (extreme) example
Development patterns are changing
Informed, balance planning (adapting to market changes)
Fiscal/economic analysis provides data for land use decisions
DEVELOPER PERSPECTIVE
Projects must be financially feasible or “pencil”
Revenues > Costs
Investors require minimum rate of return on investment
The higher the risk (past failed projects/city delays), higher rate of return
High land & labor costs affect financial feasibility
High % of new units built are “luxury”
DEVELOPER PERSPECTIVE
Regulation
1-2 of planning (or more) and significant financial investment
NIMBYs/public opposition
Why aren’t developers building more single family homes?
Land constraints (SFD requires larger development site) – need a large infill site
Lack of large vacant land sites in OC
Affordability (< $1 M is sweet spot)
Financial feasibility not strong given land & construction costs
DEVELOPER PERSPECTIVE
Affordable Housing requires subsidy
Most public funding sources for rental projects
Less sources of funding post RDA dissolution
LIHTC help but are not enough
HUD/LIHTC uncertainty
USES
Acquisition $0
Construction Costs (Hard costs) $20 M
$11.4 M
Total Uses $31.4 M
SOURCES
LIHTC and AHP Funds $13.5 M
Loans $11 M
Income and developer fee $3.2 M
Total Sources $27.7 M
Deficit/Subsidy Needed $3.7 M
Proforma Summary (Actual) - 80 Low Income
Apartments (50% or below AMI)
Soft Costs (Architectural, Engineering,
Financing, Legal, Permit & Impact Fees,
Reserves)
CHALLENGES
Loss of Redevelopment ($1 billion/yr affordable housing funds)
NIMBYs
Lack of Public Transportation/Community Traffic Concerns
Affordable Housing = Development Subsidies due to high cost of land and labor (already cash-strapped cities)
New State funding/City zone changes will take time
OPPORTUNITIES 2017 State housing bills
Streamlined development process/less regulation = less risk and lower costs
More housing = higher supply = enhanced affordability
“Incentivized” zoning (density bonus for public improvement/benefit project constructed by developer)
Residential around/in retail centers = placemaking, experiential retail (enhanced by walkable residential)
Public Outreach
OPPORTUNITIES (CONTINUED)
CFDs to fund public improvements (large projects)
YIMBYS
Low Income Housing Tax Credits to Subsidize Affordable Housing
Midrise appears to be less controversial in OC communities now
SERAF Loan Repayments to Housing Authorities/Entities ($ for housing)
IN SUMMARY
Ecommerce changes (experiential retail) likely to bring more housing development opportunities
Housing in/around shopping centers
Redevelopment of office/industrial for housing
State housing bills will increase the total units built
Prices should begin to stabilize when unit deficit is reduced
Cities will change zoning to allow for higher densities
There will be more housing in OC!