The Goal of the Developer: To maximize ROI by building more units, larger footprints and less parking.
The Goal of the City: To grow the affordable housing stock without losing existing rent-controlled units.
Written by Peter Strauss of Iconic Investments
Can both these goals be achieved? One developer may have just found the solution or he may have set a very dangerous precedent.
Last week, Bob Champion of Champion Real Estate voluntarily offered to make all the units on his new 20-story, 210-unit project -- at 6220 Yucca Street in Hollywood -- subject to rent control. The new units would be leased at market rents; however, moving forward rent increases would be limited to 3% or the amount allowed by the RSO (Rent Stabilization Ordinance).
Since Champion needs to demolish an existing 43-unit rent controlled property to make way for his new project, he will give his old tenants the option of moving into the new building at their previous rents. In addition, until the new project is completed, Champion will temporarily relocate his old tenants to other buildings in the Hollywood area and cover any shortfall on rents.
Measure JJJ in Action
Why would a developer willingly go to what seems like the extreme?
Champion’s project is located in one of the city’s Transit Oriented Communities, designated as such by Measure JJJ due to their proximity to major bus lines or Metrolink Rail Stations. Under Measure JJJ, developers in TOCs are granted a density bonus -- based on how close they are to major transportation (Tiers 1-4) -- in exchange for the development of additional affordable units. The bonus provides an increase in the allowable number of units by 50-80% and/or the FAR (floor to area ratio). Other incentives ease parking, setbacks and height requirements.
Iconic spoke with several local developers and received mixed feedback about the TOC guidelines. Some developers oppose the guidelines because (1) they cannot be combined with any zone change or variance, (2) they could trigger the use of prevailing wages and (3) most of the Tier 4 lots with the highest density bonuses are either already developed or have too many existing units on the parcel -- currently the highest and best use.
Those in favor say the TOC guidelines -- with their heavy focus on mass transit, more affordable units and less emphasis on parking -- will move the City into the 21st century. And, as new buildings are developed in infill locations, LA’s housing quality and landscape will improve. That will not happen, however, unless owners are incentivized.
Will Champion’s proposal be the first of many?
It will be interesting to see the impact of Champion's decision on other developers and the City of Los Angeles. Some developers will criticize his proposal because they don’t want to be forced into the RSO with their new projects. The idea was that the RSO would be phased out over the next generations with new construction. Given that a majority of infill development in the future will have to be built on sites of existing buildings with rent controlled units, Champion's proposal could set a new precedent and make all new developments subject to rent control and the RSO. Inevitably, most of the future housing stock in Los Angeles would be subject to governmental control.
Other developers, meanwhile, will applaud Champion’s proposal because it shows that it is possible to strike a balance between affordability for existing tenants and new development. By offering his old tenants a comparable unit while honoring their previous rents, Champion will not displace existing tenants who would normally need to seek more costly housing. At the same time, by having rent control on the new units, proposals like this could make it easier for developers to get projects done with less pushback from community members and the city.
Affordable housing is such a critical issue for L.A. Will Champion's proposal become the rule?
Iconic Investments
16530 Ventura Blvd
Suite #409
Encino, CA 91436
T: 747-444-3300
W: www.iconicinv.com
Iconic Investments is a Los Angeles-based boutique commercial real estate brokerage firm focusing on multi-family properties of 15 to 100 units throughout Los Angeles in all different sub-markets. Iconic represents multi-family property owners in dispositions, acquisitions, and 1031 exchanges.