EASTSIDE — A unique development model meant to make home ownership affordable on Santa Monica’s eastside may turn into more rental housing because of financing issues, highlighting the ongoing struggle to make home ownership affordable in Santa Monica.
High Place East, a 1-acre parcel located just off Interstate 10 by the Bergamot Station art complex, was envisioned as a development for 45 affordable, three-bedroom condominiums.
It will go before the Housing Commission Thursday with a staff recommendation to make all of the units available for rent. That’s the first stop in the public process that will end with the City Council, likely in February.
According to a staff report from 2008, High Place East was a “demonstration project,” the first publicly-subsidized development in the city meant to make units affordable for moderate-income households.
The City Council and Redevelopment Agency signed off on the home ownership concept in October 2005, and, to date, have approved over $13 million in financing from a housing trust for the project.
That didn’t make it any more attractive for bankers, said Sarah Letts, executive director of Community Corporation of Santa Monica, the largest affordable housing developer in the city and the organization behind the project.
“We talked to 11 different entities, all names you would know,” Letts said, listing off Wells Fargo and Citibank. “We gave the pitch, sent them the information and they would say, well, we’re not interested.”
The resistance from construction financiers comes after 10 years of public process that included the Pico Neighborhood Association, looking into financing options and completing the design of the buildings.
“Basically, the world changed after 2008,” Letts said.
The trouble had less to do with the fact that the units were affordable, and more that High Place East would be composed of condominiums, said James Kemper, a housing administrator with City Hall.
Finding financiers for condominium projects is difficult because of the way construction loans are structured.
Rental housing has a longer time period to repay what are called “permanent” loans, which can have a 30-year timeline similar to a home mortgage.
The longer-term lender pays off the construction loan, which makes it less risky to make that initial investment.
Condominiums destined for sale, however, only have the construction loan, which has to be paid off much quicker.
“If a bank makes a construction loan, that’s paid off by selling the units,” Kemper said. “That’s a riskier proposition to them.”
The affordable housing component of the project made it impossible to pre-sell the units, which might have made it more attractive to lenders by giving the project some certainty.
Buyers have to prove that they make 60 percent or less of the median income, which means $35,460 for one person or $50,580 for a four-person family based on California Department of Treasury numbers for projects in service after Dec. 1, 2011.
What to do next becomes a question of public process.
Staff recommends shifting the condominiums to a rental model, but it has to be approved by the Housing Commission and the City Council.
If that happens, Letts said, Community Corporation could begin pursuing financing in March, including low-income housing tax credits offered by the federal government.
Since City Hall has already put up a pre-development loan to buy the property, pay the architect to design the building and get the permits, it would be “a waste of resources” to not continue with the project as a rental condominium, Letts said.
As a rental, the design would include 44 condominiums. The remaining condo would instead be a community room.
City Hall also had difficulty finding financing for the Village project, a mixed-use community of 160 affordable rental residences and up to 164 market-rate condominium residences planned for Ocean Avenue between Pico Boulevard and Colorado Avenue.
The project almost stalled in October when City Council members dug in their heels over a financing opportunity that involved extending a 99-year ground lease by 50 years in order to sweeten the deal for financiers.
The two projects fall in line with the general economic trend, said David Hibbert, an architect and member of the Santa Monica Chamber of Commerce’s Land Use Committee: Condos are bad, apartments are good.
“Even through the bad economy, apartment rates in good locations have stayed very strong,” Hibbert said. “In the last 12 months, they’ve been going up again.”
Publicly subsidized home ownership, made more difficult in a climate of tight credit and a city with soaring prices, may be a goal that gets put to the wayside for the time being.
“I think (Santa Monica) is content to be a city of renters,” Hibbert said.
A home in Sunset Park can go for $1.1 million while condos in that area are priced at roughly $499,000, according to the Multiple Listing Service.
ashley@www.smdp.com
