Feature Articles

Developing Infill Housing in the Los Angeles Region

December 7, 2000

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September 13, 2000
Los Angeles, California
Century Plaza Towers Conference Room

Table of Contents
I. Executive Summary
II. List of Participants
III. Real Estate and Demographic Overview
IV. Lessons Learned
V. Discussion of Barriers to Infill Housing Development
VI. Appendix and Agenda

I. Executive Summary

On September 13, 2000, the Urban Land Institute Los Angeles District Council (ULI LA) and the Department of Housing and Urban Development (HUD) jointly sponsored a three-quarters-day policy forum to examine the obstacles to and opportunities for market-rate infill housing in the metropolitan Los Angeles area. Thirty-five of the area's leading market-rate private and not-for-profit real estate developers, urban design/architects, financiers, market analysts, attorneys, public officials, and urban revitalization experts on infill development convened at the Century Plaza Towers Conference Room in Los Angeles.

Los Angeles and six other metropolitan areas around the country have been selected to host policy forums on market-rate infill housing due to the potential that exists to build more residential infill within these cities, and the will of the public and private sector to remove the barriers that currently impede infill housing. The information gleaned through the Los Angeles policy forum and others like it will be incorporated into ULI publications on infill housing and will assist HUD, the U.S. Conference of Mayors, and the National Associatio of Home Builders in identifying effective infill strategies.

This forum was conducted under the direction of Marta Goldsmith, ULI Vice President for Land Use Policy. Wayne Ratkovich, ULI trustee and president of The Ratkovich Company, served as the forum chair. Mitchell B. Menzer, ULI-LA Smart Growth chair and partner at O'Melveny & Myers LLP, and Susan H. Kamei, executive director of the ULI-LA, developed and coordinated the program with the assistance of Laura Cole, consultant to ULI on infill programs.

Like most American metropolitan areas, Los Angeles during the past thirty years experienced strong suburban development that drew many middle-class households away from the central city. Increased traffic congestion and air pollution, along with a growing demand for housing near employment centers, has helped refocus interest on living in the city. Recent development response in Los Angeles has included new residential development near transit centers; rehabilitation in older neighborhoods; and adaptive use of well-located retail, office and industrial buildings.

However, this development has not been sufficient to address the pent-up demand for housing (particularly middle-income housing), which is rising in direct proportion to job and population growth in the region. A constrained housing supply within the Los Angeles region implies further increases in already high rental markets, overcrowding of households and increased traffic. The participants of the forum discussed ways in which infill housing policy can play a more effective role in reducing sprawl and creating greater opportunities for housing development within urban areas, all within a "smart growth" context.

Specifically, the forum considered the following:

Public Sector:

• Work with the private sector to reverse the adversarial and sometimes counterproductive relationship that currently exists between the public and private sectors in order to accomplish more housing production.
• Create opportunities for greater density through the revision of current zoning codes and redevelopment laws.
• Change tax and revenue laws and policies to provide cities with greater incentives to develop housing instead of retail development.
• Revise the entitlement process to reduce development costs, reduce the time required to deliver housing product to the market, and increase innovation.
• Provide leadership in the identification and assembly of infill sites, particularly on commercial lots.
• Work with the private sector in revising state laws and policies on issues such as construction defects and state subdivision restrictions on the preselling of condominium units which currently have a dampening effect on the production of condominiums and multifamily unit developments.

Private Sector:

• Help the public sector achieve a greater understanding of the breadth of planning principles which support, e.g., mixed-use developments.
• Establish a cohesive political voice that promotes sound land use policy at the local and state levels and provide leadership that changes attitudes.
• Educate the public on the topic of smart growth and the important role infill housing plays in improving the quality of life and in promoting livable communities.
• Work with communities to identify a vision for their neighborhoods.
• Provide innovative financing tools to support the building of market-rate infill housing at affordable rates.

ULI and HUD wish to thank the participants for taking time out of their busy schedules to discuss infill issues, identify barriers, and propose solutions.

II. List of Participants

Mr. David A. Abel
President and CEO
ABL, Inc.

Mr. Andrew A. Adelman
General Manager
Department of Building and Safety
City of Los Angeles

Mr. Ronald A. Altoon, FAIA
Partner
Altoon + Porter Architects

Ms. Marva Smith Battle-Bey
President
Vermont Slauson Economic Development Corporation

Mr. Greg Dahlem
Senior Vice President
Wells Fargo Bank Capital Markets Group

Ms. Terri Dickerhoff
The Lee Group, Inc.

Dr. Denise G. Fairchild
President
Community Development Technologies Center

Mr. Thomas C. Farrell
Senior Vice President Market Manager
Bank of America Home Builder Division

Mr. Robert J. Gardner
Managing Director
Robert Charles Lesser & Company

Mr. Con Howe
Director of Planning
City of Los Angeles

Mr. Wade Killefer
Principal
Killefer Flammang Purtill Architects

Mr. Richard A. Lawrence
Executive Vice President and
Chief Operating Officer
Resort Theaters of America

Ms. Hollis J. Leon
Senior Vice President
ARCS Commercial Mortgage Co., L. P.

Cary D. Lowe, Esq.
Jenkens & Gilchrist, LLP

Mitchell B. Menzer, Esq.
Partner
O'Melveny & Myers LLP

Ms. Katherine Aguilar Perez
Executive Director
Southern California Transportation and Land Use Coalition

Mr. Mark Pisano
Executive Director
Southern California Association of Governments

Mr. Clifford L. Ratkovich
Vice President
Post Properties, Inc.

Mr. Wayne Ratkovich
President
The Ratkovich Company

Mr. Douglas R. Ring
The Ring Group

Ms. Marsha V. Rood
Community Development Director
City of Culver City

Mr. Steven W. Ross
Director, Planning and Entitlements
Playa Vista

Mr. Gary Squier
Squier Properties

Mr. Jay Stark
The Lee Group, Inc.

Mr. Michael Woo
Director of Los Angeles Programs
Local Initiatives Support Corporation

Luncheon Keynote Speaker

The Honorable Antonio R. Villaraigosa
Speaker Emeritus of the Assembly

Observers:

Mr. Gary Binger
Director, ULI California Smart Growth Initiative

Mr. James Bickhart
Office of the Speaker Emeritus
Antonio R. Villaraigosa

Mr. Michael V. Dixon
District Council Coordinator
ULI Los Angeles District Council

Lawrence B. Gotlieb, Esquire
Vice President Government and Public Affairs and Associate Corporate Counsel
Kaufman & Broad Home Corporation

Mr. Glenn Gritzner
Executive Director
Southern California Transportation and Land Use Coalition

Michael Hamilton, Esquire
O'Melveny & Myers LLP

Ms. Susan H. Kamei
Executive Director
ULI Los Angeles District Council

Ms. Undine Petrulis
City Planning Associate
Los Angeles City Planning Department

Ms. Angie Rawie
Senior Development Associate
Post Properties, Inc.

Ms. Laura Cole Reblitz
ULI - the Urban Land Institute

III. Real Estate and Demographic Overview

Trends in Los Angeles County
Robert J. Gardner, Managing Director, Robert Charles Lesser & Co.

Throughout the 1980s, Los Angeles County's employment and housing permit trends matched the national average. For every new job produced in Los Angeles County and the nation, roughly 0.6 housing permits were issued. In 1992, as the current period of economic expansion began, a widening gap between job creation and housing production began to manifest itself in Los Angeles. This deviation from the national trend continues today and is the foundation for increasing housing demand in the region.

1. The Los Angeles County's housing shortage is critical.

• Relative earlier periods in LA County's history and national trends, LA County is not producing sufficient housing. From 1985-1989, LA County produced .61 housing permits for every new job, while the national average produced .64 permits per job created. From 1995-1999, LA County's total housing permits per job decreased to .18. During this same period, the national average dropped to .53 permits per job.
• The results of this growing gap between job creation and housing production in LA are: 1) an escalation of rents -- as much as 10-15% annual increases in certain areas, and 2) an increase in owner occupancy -- approximately 97.3%. National trends indicate a less severe increase in rents and stabilized owner occupancy of approximately 92%.
• There is pent-up demand for housing in LA County. To achieve a 95% occupancy rate, 40,000 new dwellings would need to be built. This would amount to 1,333 acres of land if developed at a density of 30 units per acre, or 500 acres of land to develop as many as 80 units per acre.
• If projections are correct, LA County will add another 83,400 new jobs by 2002, which in turn will raise the need for another 24,000 new units per year. Given that there are currently 40, 000-45,000 available units on the market, the existing inventory could only support a demand for 1.9 years.
• New rental products are entering the market at very high rates. Below are a few examples of prices per square foot:

- Santa Monica (ocean) = $3.00
- Marina del Rey = $2.00
- Brentwood = $2.00
- Downtown LA = $1.90+
- Long Beach (Downtown) = $1.60
- Pasadena = $1.95+

2. The majority of housing being produced in Los Angeles is targeted at 15%-20% of the market.

• Affordability for multifamily housing is approximately 15%-20% of the new product.
• Households with annual incomes of $50,000 and below are not able to afford the new rental housing entering the market.

3. This housing shortfall presents several implications.

• Given a constrained supply of housing, rents will continue to escalate. As a result, individuals will pay a higher price to live in Southern California relative to other job markets.
• Lower income households will have to contend with higher rents, lower quality products, and less selection.
• The economic dislocations will force companies to expand or move to other areas where the cost of worker housing is not as high, undercutting the region's economic viability.

4. Strategies for addressing this challenge include:

• Changing the conventional wisdom of the proportion of a household's budget to be spent on rent (i.e., raising the estimated percentage of the household's housing commitment from 25% to 40-50%) to broaden the market which can qualify for housing.
• Changing public perception to accept higher densities and to view smaller units, multifamily housing, mixed-use developments, and infill developments as desirable in communities.
• Upzoning to create opportunities for greater density, changing tax laws to facilitate more housing development, streamlining the entitlement process, and providing greater leadership in identifying opportunities for housing development.
• Developers being willing to develop and financial institutions being willing to lend on pro formas which show thinner profits than those typically sought.

5. In order to deliver more infill housing, the gridlock must be removed and the rules of engagement must be changed.

• The adversarial relationship which currently exists between public and private sectors is counterproductive.
• The existing entitlement process leads to higher costs and limits innovation.
• Developers face significant difficulty in assemblying infill sites.
• Unless these challenges are removed, developers will remain unwilling to tackle infill developments because of the difficulties in bringing such projects to fruition.

6. For infill housing supply to expand:

• Political leaders and the community must change their attitudes about densification and multifamily housing and place higher priorities on their cities' need to recycle underutilized sites.
• Communities must realize they have the opportunity as well as the responsibility to create a land use vision for long-term prosperity and that they must have the courage to carry that vision out, as opposed to taking the "easier" but shorter-term approaches. The land use professions, elected officials, and government staff must show leadership in their commitment to a long-term vision in which housing plays a greater part.
• Redevelopment laws, zoning codes, and the state-local taxation system must be overhauled to provide greater incentives to provide housing over retail and other uses.

Conclusions:

1. The pent-up demand that exists for infill housing could lead to slower economic growth and, ultimately, economic decline.

2. Currently too many regulatory, land, social, and financial barriers exists for private sector developers to overcome these challenges by themselves.

3. The current situation requires an unprecedented level of vision and cooperation among public and private sectors.

4. If successful, the results could enhance vitality of cities and real estate industry.

Trends in Southern California Association of Governments Region Mark Pisano, Executive Director, Southern California Association of Governments

Over the past year, the Southern California Association of Governments (SCAG) has been working on a "Regional Housing Needs Assessment" analyzing housing demand for all income types, throughout all jurisdictions in the SCAG region (Los Angeles, Ventura, San Bernardino, Riverside, Orange, and Imperial Counties). The assessment provides concerning statistics about the state of housing in the region and about the region's future if changes do not occur. Just as concerning, however, has been the level of discord throughout the region regarding housing issues.

1. Housing trends in the region.

• In previous economic cycles, the region's housing industry was a major participant in any economic recovery. That is not the case today. Housing production is practically flat and is roughly what was being produced before this recent period of economic expansion. The current average of units being built is 54,000-55,000 units per year, versus 150,000 units built per year in the last economic cycle.
• Vacancy rates still remain high in the eastern side of the region, such as in San Bernardino and Riverside Counties. The conclusion is that workers with job centers in the western portion of the region (e.g., the San Gabriel Valley, downtown, and the Westside) are no longer willing to commute long distances to their jobs from "affordable housing." Commuting long distances is contrary to the message being sent to spend more time with families. For example, SCAG estimates that from the time a child is born to the time that child is 18 years old, the parent who commutes two hours a day is away from his or her child two-and-one-half years.
• Both the public and private sector have the responsibility to provide housing nearby the job centers as a basic tenet of community livability, so individuals can devote time to the development of their children and their neighborhoods.

2. Population and Household Formation.

• While the number of households in the region has stayed more or less constant throughout the 1990s, the size of households has increased steeply during this same period. A reason for this is the region's ethnic breakdown. Hispanic and Asian populations, which typically have larger households and may have more than one household within a dwelling, are the fastest growing segments of the SCAG region's population.
• The lack of supply in the housing market has not become a major policy issue to date. A partial potential explanation may be that between 1990 and 2005, there has been and will be a declining number of people in the 25-35 year age cohort. This is the age group that typically forms households and buys its first home. Projections indicate that in the next three to five years, the 25-35 year age cohort will dramatically increase, creating enormous housing demands. Therefore, this region has a window of opportunity to deliver housing product to meet this projected demand from the 25-35 year age cohort as this group approaches the household formation age.
• Over the next two decades, the SCAG region is projected to add nearly 5 million new people.

3. The SCAG region has fallen below California and the national averages in per capita income.

• Prior to 1990, the SCAG region generally followed the per capita income levels of the rest of California and was substantially ahead of the U. S. per capita income rate. However in 1990, the SCAG region began to dip substantially below California's per capita income, and even the national average.
• Median income of workers in Southern California in constant dollars over the last 12 years is down approximately 12%. Individuals who are getting into new houses have less money today than they did 25 years ago by about a quarter of their real disposable income after tax, adjusted for inflation.

4. Paradigm of growth in Southern California is changing. Unless policy issues of infill housing are resolved, this region will not be economically competitive.

• A significant jobs/housing imbalance exists in the SCAG region. Western regions are very job-rich, while eastern portions of region remain housing-rich.
• SCAG stands prepared to commit resources (financial and other incentives) to build livable communities. Multifamily housing in an urban infill environment is critical.
• Over the next five years, the SCAG region should be producing 575,000 new units. The current housing allocation is approximately 440,000 new units. The result is a 130,000 unit shortfall, for what appears to be the portion of the market that can afford rents in the $800-$1,200/per month rent. It is this sector of the market that is being squeezed more and more into overcrowded conditions.
• The City of Los Angeles indicates that there is potential for infill development in LA under current zoning. However, developers face difficulty in identifying feasible sites. The amount of land zoned for commercial and industrial in the western region overwhelms the amount of land zoned for residential. A greater priority needs to be placed on converting some commercial and industrial land into mixed-use or residential purposes. The City and western part of the region should reconsider changing the allocation of commercial and industrial land for mixed-use or residential functions in order for an infill program to work within this region.

IV. Lessons Learned

Case Study I: The Lee Group on "Village Green"
Jay Stark, Director of Development

Company Description:

The Lee Group is family-owned company that has been building homes in Southern California for the last 50 years and that has been involved in urban infill projects for approximately 20 years. Presently the company builds between 200-400 homes a year in Southern California, all of which is in urban infill. The Lee Group is building homes that sell from $55,000 to $2.5 million. The majority of their work is with redevelopment agencies in the development of for-sale products for first-time homebuyers. The developer looks at urban infill as one smart growth tool to reduce sprawl and promote housing in urban areas. While not a solution, it is one tool to support the demand for housing in the region.

Village Green, City of Los Angeles
Transit-Linked, Single-Family Development

Villlage Green began as a 336-unit attached townhomes and condominium project in the late 80s and early 90s. However, due to the recession, the project was not built and certain entitlements lapsed. In 1995, the developer submitted a new plan for the site consisting of 186 single-family detached homes ranging in size from 1,350 sq. ft. to 1,700 sq. ft. The lots are 3,000 sq. ft. (10 units per acre). The project lies on a very important site, immediately adjacent to the Sylmar-San Fernando Metrolink station, Caltrans Center, and a childcare center. The project is one of the larger transit-based housing projects in the City of Los Angeles and in the region and exemplifies planning principles which link housing with transportation.

The Lee Group formed a partnership with the White House's Office of Science of Technology Policy, through its "Partners for Advanced Technology Housing" (PATH) program, to develop what has now been nationally recognized as "the most energy efficient community in America." Village Green is the largest solar electric subdivision in the United States. The Lee Group offers a guarantee that a homeowner's energy bill (heating and cooling) will not exceed $38 per month, compared to roughly $200 per month in non-energy efficient homes in the area.

Village Green is currently half built with properties ranging from $160,000-$190,000. Over 70% of the properties have been sold to low and moderate income families. Of all purchases, approximately 70% received financial assistance through the Los Angeles Housing Department (Silent Seconds Program), SCHAPA reduced rate permanent financing, and energy efficiency mortgage program which offers a reduction in points.

Fannie Mae through its American Community Fund was the developer's equity partner. Century Housing Corp. (formerly the stage agency under Caltrans) provided a portion of the construction financing.

Recommendations for improving the current infill development system:

1. Fannie Mae should strive to be more user-friendly with its programs. For example, Fannie Mae should reevaluate its $150,000 maximum sales price limit for consumers to participate in the Fannie Mae Location Efficient Mortgage Program. Los Angeles has been designated a demonstration area for this program and an analysis of location efficient sites (transit friendly neighborhoods) has been conducted, but the $150,000 sales price limit is unrealistically low for this market.

In addition, Countrywide, a private lender, has partnered with Fannie Mae to offer this location efficient mortgage program. However, no borrowers have yet come forward. Members of the real estate development community and public sector should promote Fannie Mae's underwriting enhancement program and other financial vehicles designed to support developer financing as well as consumer financing in infill projects.

2. The City of Los Angeles currently requires developers to pay park and sewer fees at the time the tract map is recorded for those units. On a multiple phase project, the developer must resort to filing separate tract maps for each phase, incurring the civil engineering expense to do that, to avoid carrying the cost of the park and sewer fees until those units are built and sold. The City has not favorably viewed proposals to change the timing of payment to when the developers pull their certificates of occupany, which is the procedure in other Los Angeles County cities. The City of Los Angeles should reconsider making this change, which would support larger-scale infill projects.

3. The City of Los Angeles needs to identify sites (vacant, industrial or commercial) for housing and to rework its housing element to permit uses such as commercial frontages in residential areas, or residential units in commercial areas.

4. The City of Los Angeles should reevaluate its PUD ordinance, which currently does not allow the processing of small lot subdivisions, but rather requires detached single family condominiums.

5. The City of Los Angeles should consider waiving building and safety fees on affordable housing projects.

6. Projects which utilize technology and energy efficiency should receive more support in the discussion on housing priorities.

7. Housing has not been on the primary agendas of elected officials. Crime, economy, education and transportation typically have ranked higher. However, as housing demand increases and the demand impinges on areas of higher priority, the issue will gain more recognition. With the upcoming elections, this community has an opportunity to raise the level of awareness on the housing crisis. The City of Los Angeles already has formed a task force on affordable housing and its steering committee is seeking to raise $100 million of local revenue through the housing linkage fee. Forum participants need to be aware of and involved in these discussions. Case Study II: Post Properties on Paseo Colorado Cliff Ratkovich, Vice President of Development

Company Description:

Post Properties is a REIT headquartered in Atlanta that has been in operation for 28 years. Post is one of the largest developers of housing in the country, primarily apartment rental properties. The company currently has approximately 40,000 apartments within its portfolio and currently has 7,000 units under development. Approximately 8 years ago, the company turned its housing strategy toward urban infill. Today, Post exclusively works in urban infill sites, seeking opportunities for infill and adaptive reuse on a large scale.

Paseo Colorado, Pasadena, California Urban Village

In early 1999 TrizecHahn invited Post Properties to join them in the redevelopment of Plaza Pasadena, an enclosed mall that had outgrown its use and had become an eyesore to the community. Typical of suburban malls built in the late 70s, Plaza Pasadena was an inward-looking structure that divided old Pasadena on the west from the Playhouse District on the east, and the Civic Center directly across the street. The redevelopment plan called for the transformation of the mall into an urban village consisting of 560,000 sq. ft. of two-story street retail (including theaters, a health club, and upscale market), with 387 luxury residential units above the retail. The residential units will be efficiencies and one- and two-bedroom units, approximately 800 square feet, with rent rates approximately $2.00 a square foot. The project is scheduled to open in August, 2001.

Post Properties and TrizecHahn felt the timing was right to reposition the property and integrate it back into the fabric of the community. The reward had to be worth the risk. To successfully develop this project, the developer had to work through many obstacles. The greatest challenges were:

1. Acquisition of the property was a 10-year tedious process.

TrizecHahn had been a partner in the original development structure, and in order to secure full ownership rights to perfect their development rights, it had to:

• Purchase the interest of the divergent minority partner;
• Purchase the underlying lenders interest from Teachers Insurance;
• Acquire the leasehold interest of J.C. Penney's, an anchor tenant;
• Secure significant approvals from the other anchor, Macy's, which is the only tenant to remain;
• Purchase the leasehold rights of 65 remaining tenants and deal with the costs associated with the displacement of these establishments; and
• Negotiate an extremely complex purchase and sale agreement between Post Properties, TrizecHahn, and the City of Pasadena. Collectively, approximately $1 million was spent just documenting the deal. This transaction included:

- the purchase of air rights parcels;
- the segregation of residential parking from retail parking;
- the establishment of reciprocal easements among the property owners;
- developing a compatible set of rules and regulations between residential and retail uses;
- design issues relating to mixed-use developments (such as the venting of grease ducts through the residential space to accommodate ground-floor restaurants and the lcoation of residential elevator shafts through the retail space); and
- other legal and operational issues.

2. Securing entitlements and gaining support for this project was tremendously difficult due to the many layers of bureaucracy responsible for reviewing projects of this magnitude.

• The City of Pasadena held over 20 public hearings.
• More than 75 community presentations and workshops were conducted over a three-year period.
• The environmental impact report was reviewed by the Community Development Committee, the Cultural Heritage Commission, the Transportation Advisory Commission, the Planning Commission, and received its final certification from the City Council.
• The project required approval by the City's Design Commission, Planning Commission, Development Commission, and City Council of amendments of the amendments to the Civic Center Specific Plan and General Plan to modify building heights and to provide for the mixture of uses. The City's Design Commission wielded six separate approvals alone for the schematic design and design development construction documents for both the retail and housing components.
• TrizecHahn and the City negotiated a very complex "owners participation" agreement which provided the City's the investment of $27 million by the City, which was a key component of the financing related to the parking.
• Other important complex and negotiated documents included a reciprocal easement agreement and a parking operation and management agreement, which also required various city agency approvals.
• The entitlements secured included a conditional use permit to allow for shared parking.

The Paseo Colorado project is the only proposal in 18 years before the Pasadena City Council which received unanimous approval.

Necessary components for a large-scale urban infill project to succeed:

1. Must have strong community support.
2. Must have strong political will to get the project done.
3. Must have motivated and competent city staff.
4. Must create a compelling vision.
5. Must have an experienced development team able to resolve difficult acquisition issues, able to make a significant pre-development investment of time and capital, and able to deliver financing on innovative development concepts.

V. Barriers and Solutions

A. Land Acquisition and Assembly Issues

In addition to the title, environmental, regulatory, political, and community issues that must be addressed in the acquisition and assembly of any development site, developers acquiring and assembling land for infill projects (especially those intended for mixed uses or higher density uses) must pay particular attention to the following issues:

• Can clear title of the property be obtained?
• Is the project relatively compatible with surrounding land uses?
• Can the project be carried out in a cost-effective way?
• Are there severe environmental conditions to remediate?
• What is the attitude of the local jurisdiction to the proposal?
• What is the community's attitude toward project's proposed uses?
• What are the entitlement issues surrounding the property?
• Are the local codes and regulations friendly in regard to the project?
• What kind of exactions are going to be required in carrying out the project?
• What kind of financial assistance exists for the project?
• In order to assemble multiple land parcels for a project, is the power of eminent domain or other local jurisdictional power available?
• What existing uses and populations are going to be displaced, and what support will the project have from the political leaders and community on the relocation and demolition issues?

Recommendations:

1. That the local jurisdictions work more effectively with developers to help streamline the significant acquisition issues present when assemblying multiple infill parcels.

2. That the development community urge local jurisdictions across the region to rezone land to support future possible mixed uses and higher density uses, to upgrade building codes, and to facilitate a greater understanding the breadth of planning principles which support mixed-use, transit-oriented, and other sustainable development projects.

3. That the development community exert the political pressure necessary to change state fiscal policies that incentivize cities to seek retail development versus housing development and to support other changes in state fiscalization policies that will give cities more motivation to provide housing.

4. That federal programs and policies be adopted or changed (such as changing depreciation allowances for infill projects) to make it financially feasible for the public and private sector to build high-quality housing product needed for the market.

B. Community Consensus Issues

In order to be successful with an infill project, developers must work with the community even before developing the project concept. Generally, community residents are concerned with the following:

1. Residents in older neighborhoods generally are suspicious of change and fear displacement. While some see gentrification as bringing improvements to a neighborhood, others see the process as middle- or higher-income people coming to their neighborhood to uproot them and to take over what has been theirs.

2. Long-term residents of blighted areas also feel resentful that their communities have been ignored and have lacked important community resources. Developers conducting community meetings need to understand that residents feel the need to air out their long-standing frustrations on the very people who hope to improve their neighborhoods.

3. Vacant space is valued. Residents generally would rather keep an open lot vacant and see it converted into green space, even if that is not economically feasible.

4. Overcrowding of space is key concern, particularly as to how new uses could impact parking and traffic in the neighborhood.

5. Residents are concerned that new development blend in architecturally with the existing context. For example, they fear that new development will bring with it modern designs which are anachronistic with their older neighborhood. This is especially experienced with chain retailers or restaurants which have "cookie-cutter" design templates.

6. Residents are equally weary of promises made by developers and by government.

A successful campaign to gain community and political support would include the following:

1. Identifying the community-based organizations through the local council office.

2. Working with the community leaders to build consensus and credibility into the

3. Not coming to the first community meeting with completed plans; allowing the community to be part of the design process.

C. Design and Building Issues

Recommendations:

1. Seek more ways to make quality infill projects financing feasible, rather than permit low-cost housing. Low-cost housing should never be a goal. If developers are to build quality housing, the emphasis should be on income subsidies, not product subsidies.

2. Place greater emphasis on improving the educational institutions in the cities in order to attract families downtown again.

3. Raise the level of awareness and elevate the discussion of the importance of building communities by delivering more housing in balance with jobs.

4. Revise state laws, regulations, and policies which currently have a seriously dampening effect on the production of condominiums, such as current construction defect and marketing restrictions.

D. Land Use and Entitlements Issues

Potential Barriers:

1. Basic zoning: Does the jurisdiction in which a developer is working have the sufficient land zoned for multifamily housing or commercial that allows residential development, and what is the differential between what the zoning permits and what is currently built up?

2. Jurisdictional review: Do the additional rules of a zoning permit allow housing development by right or is it subject to other discretionary reviews? It is important to understand the different thresholds of each jurisdiction.

3. Existing infrastructure capacities: Typically there are deficiencies which must be addressed before another project which adds to the capacity will be supported.

4. Fees: State-mandated fees and local fees can overwhelm the economics of a project.

5. Historic designations: Can offer financial incentives, but may also serve as a deterrent to redevelopment of larger areas.

6. California Environmental Quality Act (CEQA) requirements: Environmental impact reports typically are tools for potential litigation to hold up projects.

7. City staff: Large-scale infill projects, especially those requiring variances in zoning, usually require the developer to spend a significant amount of time educating city staff.

Recommendations:

1. Cultivate a culture of responsiveness. Entitlement processing delays cost time and money, which in turn results in fewer and lower quality products and reduced benefits to the community. While many have examples of the consequential damages which occur when entitlements are not processed in a timely fashion, the City of Los Angeles Department of Building and Safety has developed a responsive and supportive philosophy. Today, 99% of plans submitted are reviewed within four weeks of submittal, instead of eight to ten weeks three years ago. Almost 100% of all inspections now take place within 48 hours of the request. Approximately 80% of the department permits are issued over the counter within 60 minutes of the time a person walks up to the counter.

E. Capital Formation and Financing Issues

• From a private capital perspective, the struggles of getting product on line help lenders in their underwriting, as they look for sophisticated infill developers who can work through above-mentioned issues. They see a market niche for small to medium size home builders, as opposed to public companies, who work successfully with local agencies and communities to deliver infill product.
• Attached product is scrutinized more heavily due to the increased costs and time involved in these projects.
• Wells Fargo and other private lenders structure their deals as participating mortgage lenders, and in some cases, may enter into joint ventures with institutions like CALPERS to provide construction and equity financing for projects. They will also assist in finding gap financing.
• Bank of America is committed to doing infill financing, and will be lending $350 billion of community CRA-type loans over the next ten years. The level of expertise a developer has or his ability to partner with the right developer for a project is critical in the lender's assessment.

Recommendations:

1. Encourage the banking industry to introduce innovation in the financing of infill housing.

2. Make developers and communities more aware of the financial resources and lending opportunities available for infill projects.

VI. Appendix: Forum Agenda

Forum Objectives

1. Define and discuss barriers to developing market-rate infill housing in the metropolitan Los Angeles area.
2. Identify ways that developers and policy makers have overcome barriers.
3. Recommend plans to address those barriers.

8:00 am Welcome and Introductions
Mitch Menzer
Wayne Ratkovich

8:15 am Economic and Residential Real Estate Market Overview of the Los Angeles Area
Robert Gardner
Mark Pisano

Economic and demographic trends impacting commercial
real estate and the housing market in the Los Angeles.

8:45 am Case Study I: The Lee Group on Village Green
Jay Stark

9:15 am Case Study II: Post Properties on Paseo Colorado
Cliff Ratkovich

9:45 am Break

10:00 am Discussion of Barriers and Solutions
1. Land acquisition and assembly issues
Cary Lowe

2. Community consensus issues
Marva Battle-Bey Smith

3. Design and building issues
Ron Altoon

4. Land use and entitlement issues
Cary Lowe

5. Capital formation and finance issues
Wayne Ratkovich

11:30 am Wrap-up and Next Steps

Action plan aimed at addressing the barriers identified during the Policy Forum.

Next Steps:

1. Summary Report and its dissemination.
2. Letter to Mayor and/or other high-level city official with specific policy recommendations that can help promote the agenda to increase homeownership and new home development in the Los Angeles area.

12:00 pm Lunch

12:30 pm Lunch Speaker: Antonio Villaraigosa