The city of Santa Monica is pumping a record amount of money into helping nonprofit developers to maintain the supply of affordable housing. The one-time infusion, $25 million this year and $17 million last year, is a response to changes in state law that have forced the city to relax its stringent rent control regulations. (The city normally spends $3 million to $5 million a year on affordable housing acquisition and development.)
With that big infusion from the city, the nonprofits have bought or are in negotiations to buy approximately 385 pre-existing apartment units.
City housing officials and recipients of the money admit the infusion is not going to do much to solve the housing crisis in Los Angeles, or even in Santa Monica.
Many private developers are clamoring to buy apartment complexes with an eye for a substantial upside as a result of the change in law. With such a strong market and the expectation that rents on many units could increase by three times or more, the city has decided to move fast to do what it can to compete with the private market, said Bob Moncrief, housing and redevelopment manager for Santa Monica.
“Privately, there’s a lot of buyers and it’s a very active market,” Moncrief said. “The groups that come to us for funds have to move very quickly to compete with the private market.”
For a small city like Santa Monica, “It’s an incredible one-time investment,” Moncrief said. “It’s been characterized as a one-time special cobbling together of funds to help purchase as many properties as we can now, before the prices exceed our means.”
Since January 1999 the city’s tenant-friendly rent control laws have been forcibly weakened from outside by the state Costa-Hawkins Act, which calls for vacancy decontrol. That means apartment owners are allowed to set rents at market rates when tenants move out, but limits on rent increases remain in place for tenants who stay put.
That means that in Santa Monica, as long-time tenants move out of apartments, owners have raised rents to market rates. Property owners have long argued that allowing them to charge market-rate rents gives them the chance to make a return on their investments and gives them incentive to maintain their properties.
As a result, the area has seen a slew of renovations on existing units, along with corresponding sharp rent increases.
Of 5,161 controlled units that have turned over one or more times between Jan. 1 1999 and Aug. 31, median rents have increased anywhere from 40 percent to 90 percent, depending on the size of the units, according to the city’s rent control statistics. The average monthly rent for a one-bedroom unit has increased to $1,068 from $645, for a two-bedroom unit to $1,500 from $814, and for a three-bedroom unit to $1,900 from $1,070. The average rent for a studio has gone to $824 from $568.
A large share of the city’s investment has gone to Community Corp. of Santa Monica, a nonprofit housing developer that has switched its emphasis from development to acquiring existing apartments to make better use of the money.
That organization and others like it are the only realistic source of low-end housing in Santa Monica, said Joan Ling, executive director.
“Santa Monica is a prime market,” she said. “There’s really no incentive for private developers to come in and build even middle-range housing.”
But efforts by groups such as Community Corp., which owns 1,200 units in Santa Monica, can’t solve the housing shortage in Santa Monica or anywhere else, Ling said.
Ling said it’s a regional problem that needs to be addressed by making the entitlement process more transparent and predictable for developers, and to reduce unnecessary barriers to construction. “There are clearly places and locations where land economics would accommodate construction,” Ling said. “But nothing is getting built because of all these impediments to development.”
The L.A. area is in the sixth year of a relative boom in apartment construction, but historically speaking, new apartment construction is still at its lowest levels since World War II and comes nowhere close to meeting strong demand fueled by the region’s exploding job growth. Apartment vacancies countywide have dropped below 3 percent and developers can expect to pay more than $70,000 per unit for unentitled dirt, according to Davis Casper, a senior vice president at Grubb & Ellis Co. That translates into new units coming onto the market starting at $1,600 a month, which many L.A.-area renters could not afford.
In communities such as Santa Monica that are desirable among the affluent, the odds are even tougher.
“There’s just not enough money to spend our way out of the problem,” Ling said.
Hollywood Office Deal
A 72,000-square-foot office building in Hollywood that has stood empty for eight years has been bought by a private investment group, which plans to renovate it into creative office space.
Asset Management Consultants Inc. is expected to close escrow early next year on 6725 Sunset Blvd., which is being sold by Capital Salvage. Capital Salvage acquired the building through foreclosure on a previous owner.
A ground-up renovation is already in the works for the building, which was built in 1963, and for a 290-space parking structure next door.
Ramsey-Shilling Co. is handling the leasing on the project.
Also in Hollywood, the House of Blues recently expanded its headquarters at 6255 Sunset Blvd. by 25,000 square feet, bringing its total space to 75,000 square feet.
No Sale
A Carlsbad company has decided not to buy three L.A.-area shopping centers from San Diego-based Burnham Pacific Properties Inc.
GMS Realty LLC terminated its agreement to buy 19 grocery-anchored retail properties, including the three L.A. centers, for $305 million, according to a statement released by Burnham Pacific officials. Officials at GMS were not available for comment.
The L.A. properties are the 90,000-square-foot Buena Vista Marketplace on Huntington Drive in Duarte, the 71,000-square-foot Centerwood Plaza on Lakewood Boulevard in Bellflower, and the 66,700-square-foot Ralphs Center on Hawthorne Boulevard in Redondo Beach.
L.A.-area properties owned by acquisition-minded GMS Realty include The Quad at Whittier, Atlantic Square, Somerset Plaza and Canyon Plaza, a 161,000-square-foot grocery-anchored shopping center at Laurel Canyon and Roscoe boulevards in Sun Valley. GMS recently bought that property from Aetna Life Insurance Co. for $18.5 million.
Staff reporter Milo Peinemann can be reached at mpeinemann@labusiness journal.com.
