HOUSING OPPORTUNITIES IN THE AGE OF ECOMMERCE–TRENDS, PERSPECTIVES, CHALLENGES & OPPORTUNITIESORANGE COUNTY HOUSING SUMMIT, SEPTEMBER 2017

TOPICS COVERED

Housing Market Information/Trends

Retail Market Trends – Housing Effect

Redevelopment Trends

City/Developer Perspectives

Challenges

Opportunities

HOUSING MARKET INFORMATION & TRENDS - OVERVIEW

Housing crisis in CA and OC well documented

High demand & low supply = increased prices

Tremendous job growth/low unemployment

Median home prices > than pre-recession

OC deficit = 60,000 units (OCBC Workforce Housing Scorecard, 2015)

Demand for “urban” living (walkable, near transit, services & entertainment)

RETAIL MARKET TRENDS – HOUSING EFFECT

Brick and mortar retail changing (redeveloped centers)

Ecommerce hurting B, C and D shopping center/malls the most (other parts of US more affected than OC to date)

Experiential retail strong (Irvine Spectrum)

Changing retail = housing developed adjacent to strong retail centers

OC REDEVELOPMENT TRENDS

Cities adopting specific plans for underutilized office/R&D/industrial property

Sampling of Projects Developed/Planned to Date

Mall redevelopment projects (residential component)

Five Lagunas, Bella Terra

Adjacent/near mall

Villages & Park apartments (Irvine)

Brea Place

Lofts at City Place

Apartments & condos adjacent to Main Place (Santa Ana)

Pacific City (Huntington Beach)

ORANGE COUNTY DEVELOPMENT TRENDS (CONTINUED)

Former car dealerships – Garden Grove Galleria, Westside Costa Mesa

Former office/R&D/manufacturing

Irvine - Central Park West & multiple project in Irvine Business District

Santa Ana – DTSA & OC Register building

Anaheim – Platinum Triange

Laguna Niguel – Gateway District

Costa Mesa – Westside

CITY PERSPECTIVE – KEY CONCERNS

NIMBYS

High density a tough sell in OC at present time

Traffic often largest concern (& change character of existing neighborhoods)

City revenues extremely limited

Prop 13 + Redevelopment dissolution = more reliance on Sales Tax and TOT to fund Services

Unfunded Pension Liabilities

Commercial tax base = sustain levels of service

Can be hesitant to convert commercial property to housing

How much will additional services cost?

CITY PERSPECTIVE – SAMPLE HOUSING DEVELOPMENT PROJECT

Project - 250 apartments & 80 townhomes

No commercial (not mixed use)

Costs to provide service > revenues to City

Cities with strong commercial base can absorb

Difficult for cities with significant budget deficit

Property Tax $ 200,000

Resident-Derived Sales Tax 40,000

Total Revenues $ 240,000

Less City Expenditures (Police,

Community Services, Environmental

Services & Public Works) $ (300,000)

NET NEW REVENUE TOTAL $ (60,000)

Revenue Category1-Year Recurring

Revenues, 2016$

CITY PERSPECTIVE – BUT ON THE FLIP SIDE…….

Workforce/Affordable Housing/Sufficient Housing Critical to Economic Development

Attract/retain businesses-employees must be able to live in area

Amazon HQ2 RFP an (extreme) example

Development patterns are changing

Informed, balance planning (adapting to market changes)

Fiscal/economic analysis provides data for land use decisions

DEVELOPER PERSPECTIVE

Projects must be financially feasible or “pencil”

Revenues > Costs

Investors require minimum rate of return on investment

The higher the risk (past failed projects/city delays), higher rate of return

High land & labor costs affect financial feasibility

High % of new units built are “luxury”

DEVELOPER PERSPECTIVE

Regulation

1-2 of planning (or more) and significant financial investment

NIMBYs/public opposition

Why aren’t developers building more single family homes?

Land constraints (SFD requires larger development site) – need a large infill site

Lack of large vacant land sites in OC

Affordability (< $1 M is sweet spot)

Financial feasibility not strong given land & construction costs

DEVELOPER PERSPECTIVE

Affordable Housing requires subsidy

Most public funding sources for rental projects

Less sources of funding post RDA dissolution

LIHTC help but are not enough

HUD/LIHTC uncertainty

USES

Acquisition $0

Construction Costs (Hard costs) $20 M

$11.4 M

Total Uses $31.4 M

SOURCES

LIHTC and AHP Funds $13.5 M

Loans $11 M

Income and developer fee $3.2 M

Total Sources $27.7 M

Deficit/Subsidy Needed $3.7 M

Proforma Summary (Actual) - 80 Low Income

Apartments (50% or below AMI)

Soft Costs (Architectural, Engineering,

Financing, Legal, Permit & Impact Fees,

Reserves)

CHALLENGES

Loss of Redevelopment ($1 billion/yr affordable housing funds)

NIMBYs

Lack of Public Transportation/Community Traffic Concerns

Affordable Housing = Development Subsidies due to high cost of land and labor (already cash-strapped cities)

New State funding/City zone changes will take time

OPPORTUNITIES 2017 State housing bills

Streamlined development process/less regulation = less risk and lower costs

More housing = higher supply = enhanced affordability

“Incentivized” zoning (density bonus for public improvement/benefit project constructed by developer)

Residential around/in retail centers = placemaking, experiential retail (enhanced by walkable residential)

Public Outreach

OPPORTUNITIES (CONTINUED)

CFDs to fund public improvements (large projects)

YIMBYS

Low Income Housing Tax Credits to Subsidize Affordable Housing

Midrise appears to be less controversial in OC communities now

SERAF Loan Repayments to Housing Authorities/Entities ($ for housing)

IN SUMMARY

Ecommerce changes (experiential retail) likely to bring more housing development opportunities

Housing in/around shopping centers

Redevelopment of office/industrial for housing

State housing bills will increase the total units built

Prices should begin to stabilize when unit deficit is reduced

Cities will change zoning to allow for higher densities

There will be more housing in OC!

QUESTIONS

Hitta Mosesman, Principal

RSG, Inc.

hmosesman@webrsg.com