Los Angeles’ affordable housing shortage has deepened for years.
Now two of the region’s biggest real estate players, Jamison and Kennedy Wilson, are teaming up on one of the largest pushes to address the issue: more than 4,000 units built through ground-up construction and office-to-residential conversions.
Koreatown-based Jamison, through its new affordable housing division dubbed Arden Residential, and Beverly Hills-based Kennedy Wilson, through its affordable housing development joint venture Vintage Housing, will build the units using both adaptive reuse and ground-up construction.
The partnership lands as L.A. grapples with a widening housing gap: the city needs roughly 450,000 new units by 2029 to hit state-mandated targets, and current production is running well short of that pace, according to LAist. Jamison and Kennedy Wilson’s deal is among the largest signs yet that private developers are turning to adaptive reuse and tax-credit financing to help close the gap.
“We’ve always wanted to get into affordable housing,” said Garrett Lee, chief executive of Jamison. “And there’s obviously a huge need and a huge demand.”
Jamison, which was founded by Lee’s father, started with a focus on office buildings but pivoted to developing more multifamily projects in areas like Koreatown. Right now, the company has projects with some affordable units but is now working on its first projects with 100% affordable units.
Lee called affordable housing a “sector in multifamily that we wanted to get into but have never had the bandwidth or resources to get into it until recently.”
Kennedy Wilson, he said, has worked with Jamison on other projects in the past and has more experience in the sector, which Lee said was a huge boon.
“It looked like a great fit,” he said, adding that Jamison would bring its development expertise. “It was a perfect match between the two of us.”
Nicholas Bridges, global head of capital markets at Kennedy Wilson, called affordable housing the “great crisis facing Los Angeles,” adding that he hoped the partnership would help add a large number of units.
Jaime Lee, the former chief executive of Jamison, joined Kennedy Wilson this summer as its Senior Managing Director of Capital Markets and Real Estate Investments. Duties for her new role include strengthening relationships with investors and partners and driving investment opportunities for the firm. She has more than two decades of experience in the industry.
A difficult sector
Garrett Lee said affordable housing had a “big barrier to entry,” with complexities such as understanding tax credits and bonds and difficulties financing projects, making some shy away from the sector.
In 2015, Kennedy Wilson acquired an equity stake in Vintage Housing, an affordable housing firm. Since then, it has grown the firm from 5,000 units to 13,000 units across the Western U.S. Kennedy Wilson invested roughly $78 million for its 61% stake in the company.
“Kennedy Wilson over the last few years has become a dominant player in the multifamily space,” Bridges said.
Today, the company owns 45,000 units, of which roughly 15,000 are affordable.
Last year, Kennedy Wilson also acquired Toll Brothers’ Apartment Living Platform, increasing its size and capabilities.
Lee said Kennedy Wilson’s knowledge of affordable housing incentives was a huge plus.
He said the venture plans to use the 4% federal Low-Income Housing Tax Credit (LIHTC) program, which subsidizes building low-income units.
Lee said California and the city of Los Angeles have also been working to expedite permitting for the projects and offer some credits, which the company may use but is focused on the federal program.
“Our model is to keep the capital stack as simple as possible, so most of these deals are mostly just financed by low-income housing tax credits and tax-exempt bonds,” he said. “Once you introduce more layers of financing, it definitely adds more complications to the deal structure, which adds more time to getting them completed and potentially other requirements as well.”
This keeps building costs down compared with projects that use other incentive programs, he said.
Once built, he said the joint venture will hold on to the properties for a longer time period, as benefits are generally paid over a 10-year period. This, plus the compliance period, means that the projects “generally need to be held 18 years,” Lee said.
A focus on adaptive reuse
Another key factor in building these projects is Los Angeles’ Citywide Adaptive Reuse Ordinance, which went into effect in February. The ordinance amended the city’s zoning code, adding incentives and streamlining projects that turn underutilized buildings into new housing.
“With shifting demands for office and retail space, ARO is a unique opportunity to create more housing, reactivate vacant space and revitalize commercial corridors,” Director of City Planning Vince Bertoni said in a statement at the time. “Sometimes the greenest building is the one already built. The ARO will help reimagine existing spaces to create new housing opportunities for Angelenos and do so in a sustainable manner.”
Bridges said it “wouldn’t be possible to do what we are doing without the city updating its adaptive reuse ordinance,” calling it “one thing I think the city has gotten right” when it comes to affordable housing development.
The 4,000 units the firms are working on will be a mix of adaptive reuse and new construction but said adaptive reuse projects are something the firm “really believes in and it has been our core focus for a long time,” Lee said.
He added that especially after the pandemic and shifts in the way people work, there is a real “need to convert more and more office buildings as time goes on.”
“We think there’s a huge advantage to finding buildings that need to be converted for whatever reason and are priced accordingly,” Lee said.
Bridges added that there are a number of office towers that are “minimally used today” in prime locations, close to transit and other offices and amenities that are strong candidates for conversion.
He added that conversions are often faster than ground-up development, which is another huge plus.
“Time and capital over time is a big risk to developers,” he said. “The superstructure of these buildings already exists.”
Big projects planned
The first project Jamison and Kennedy Wilson are working on is the conversion of the former L.A. World Trade Center at 350 S. Figueroa St., a 400,000-square-foot office complex. Once completed, the asset will be known as Sky Castle and contain 512 affordable housing units.
Phase I of the development started this summer and will create 241 affordable housing units. Phase II will add 271 units.
In addition to the World Trade Center, Lee said another 500 units or more would break ground in the next roughly six months with a focus on “providing housing in urban areas” near jobs and public transit.
Right now, most are in the city of L.A., but he said the firm would also branch out into the rest of the county as well.
Bridges added that the joint venture has a pipeline of roughly 15 sites.
Looking ahead
Going forward, affordable housing will be a major focus for both Kennedy Wilson and Jamison, Lee and Bridges said.
“This is becoming a big part of what our development and construction arm will be doing,” Lee said, adding that there is now the “biggest need” for affordable units and “better financing available.”
The firm is still interested, though, in other adaptive reuse projects “depending on the opportunities that come,” Lee said. The firm will continue to convert its office portfolio and may make some new acquisitions as well.
“It’s really about the project underwriting, and whether it pencils, and truthfully, market rate is difficult to pencil as ground-up construction right now in this market,” he added.
Increased construction costs, high interest rates and other challenges have hit the market-rate housing market hard, he said.
In the meantime, Lee said the “LIHTC pursuit seems really great, and we are really excited about it with Kennedy Wilson as well. It’s going to keep us busy.”
Bridges added that while the 4,000 units the firms announced may seem like a lot, it’s only a small percentage of the units the city needs.
“There’s an incredible backlog of demand,” he said.
