San Diego Unseen: An Urban Portrait
Cedar Gateway, an affordable housing project in Cortez Hill
Last month, the online news
organization voiceofsandiego.org published an investigation into the high costs
of building affordable housing. In the piece, called “Building Taj Mahals with taxpayer money,” staff writer Will Carless looked at a handful of factors
driving up costs—from wage laws to the increased use of environmentally
friendly construction materials—and questioned whether more affordable units could be built
if government officials were more focused on the bottom line. Responses to the story—at least the comments immediately following it—suggest that it hit a nerve with anti-government types.
“What a joke!!!” one commenter posted. “The taxpayers of San Diego ought to be screaming at the top of their lungs. This is just total crap!!”
Affordable housing can be expensive to build and there are changes to the process of approving, permitting and building the housing that could bring down the cost. But a project that might seem "wildly more expensive," as Carless put it, than market-rate housing looks far more reasonable when you take into consideration things like where it's being built, the population it'll house and the public benefits it will include.
Carless touched on some of those things, but his story largely relies on comparisons between market-rate housing and affordable housing to make its point. And that, affordable-housing experts say, is misleading.
“I think Will did a good thing and certainly got the conversation going,” said Ken Sauder, president and CEO of Wakeland Housing and Development Corp. But, he added, “you’ve got to look at all the factors that go into affordable housing and all the things that we’re trying to do. I see it as more than just simply an analysis of sticks and bricks. It’s looking at what works and what makes sense in a community—looking at the individuals who are going to live in that housing and the kinds of opportunities that you can present them with in terms of bettering their situations.”
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Carless’ story starts out at the construction site of the Estrella del Mercado apartments, the residential part of a long-planned commercial center located in the Barrio Logan redevelopment area. The apartments, Carless wrote, will cost $542 a square foot to build. By comparison, “a few miles away, in Mission Valley, a private developer said he’s building top-shelf apartments for $225 a square foot. Another developer currently building upscale apartments downtown said his total cost is $275 a square foot.”
It wasn’t until a follow-up piece that Carless explained how he arrived at the per-square-foot cost. Using a metric known as “rentable square footage,” he said that he added the net square footage of all the units and some common areas and divided that amount by the total cost of the building. But for Estrella del Mercado, Carless didn’t factor in any common space—he took the net square footage of the apartment units only (81,055) and divided it into the total project cost of $43,921,391. That comes to $541.87 per square foot. Had he factored in the community room and playground (5,140 square feet), the cost would have dropped to $509 a square foot.(Note: I included the playground square footage only because, after being questioned about his methodology by some readers, Carless claimed that his calculations factored in the square footage of "common areas like computer rooms and barbecue areas... since that seemed equitable." A playground is a common area.)
Chelsea Development project manager Tim Baker, who’s heading up the Mercado apartments project, said he told Carless that the project’s land value, $4,560,000, shouldn’t be included in the total cost. The San Diego Housing Commission owns the land, which means land cost wasn't an actual development cost, Baker said. Baker told me that Carless disagreed.
Subtracting out the land value and using $39,361,391 as the total cost brings the per-square-foot cost down to $456.50—roughly $85 less than what’s in the story.
Ken Walsh, a professor in the construction engineering and management department at San Diego State University, said that in order to make a valid comparison between housing projects, you have to know what you’re comparing: is the project in an urban area, or a less-built-out part of town like Mission Valley? Is it wood construction or a high-rise?
“You can really only make comparisons between like projects,” Walsh said.
Walsh said $275 per square foot for an upscale Downtown project sounded low: “I would have expected a number definitely north of $300.”
Carless doesn’t say which project will cost $275 a square foot, but he told me that he checked the number against what he’d heard from several sources. Unlike the affordable projects he discusses his story, for which pro formas—detailed breakdowns of a project’s costs, funding sources and rent revenue—and various government reports are publicly available, Carless said he had no documentation to support any claims about market-rate projects and was going by the developers' word.
Several other people I spoke with said $275 sounded low. Baker said that while $225 per square foot for a two- to three-story project in Mission Valley seemed fair, if low, if $275 was correct, “a lot more construction Downtown would be going on,” he said.
Baker said he contacted several apartment developers and general contractors to get their opinion of the numbers. They told him that $275 was off by at least $50.
Jeff Graham, vice president of redevelopment for the Centre City Development Corp., said he also checked with several developers, all of whom said $275 seemed low. An analysis of the local market by Hunter Pacific, a construction-cost planning firm, puts hard costs (construction costs only) for wood-frame construction plus a parking structure (similar to the Mercado apartments) at $178 to $225 per square foot. That amount doesn’t factor in so-called “soft” costs: architectural plans, financing costs (which can run 30 percent higher for affordable projects) or land costs. Prevailing wages, set by the state, are required for most publicly subsidized projects, including the Mercado apartments, and, Baker said, can increase construction costs by 20 to 25 percent.
Not in the story, but in a follow-up segment on NBC, Carless noted that the site on which the Mercado project sits will require a $7-million environmental clean-up.
And that's another thing that can drive up affordable-housing costs. Many projects are located in redevelopment areas (where a certain amount of affordable housing is required to be built) that have been shunned by private development because of land contamination and shoddy infrastructure. San Diego Housing Federation Executive Director Susan Tinsky noted this in an email: "Because they’re often located in redevelopment areas, affordable projects include the costs of things like creek cleanup (Riverwalk and Auburn Park), upsizing sewer lines (Autumn Terrace) and the cleanup of contaminated land (Seniors on Broadway, Comm 22). If we could back all of the ancillary costs out [of the total project cost], the numbers would begin to resemble apples to apples with market-rate [projects] in many cases.”
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A chart accompanying Carless’ story lists 24 local affordable-housing projects that have been approved since January 2007. The projects are ranked by cost per unit, derived by dividing the project’s total cost by the number of units.
The least expensive project on the list is Phase II of a transitional-housing project at Veterans Village of San Diego (VVSD) for vets who’ve graduated from VVSD’s treatment program. Carless took the total cost of the project, $9.1 million, and divided it by the total number of beds, 112, to get $81,290 a bed.
But he treated Phase III of the same project—96 short-term-stay beds, split up among 16 units with three bedrooms and three bathrooms each—differently, dividing the total cost by 16 units. This put the project, near the top of the list at $436,038 per unit. (The total cost of Phase III includes 125 parking spaces that will serve the whole VVSD facility.) A redevelopment agency staffer fact-checked Carless’ numbers before the story ran and pointed out that if he was measuring one part of the project by number of beds, he should use the same measure for the other, but Carless stuck with 16.
Many projects, especially those built in urban areas, are required to include commercial space. Carless explained in a follow-up piece that he didn’t include the cost of commercial space when he determined a project’s total cost. I looked at pro formas and staff reports for several of the projects that topped the list and only for one, the Mercado apartments, did he subtract the cost of the commercial space. The Cedar Gateway apartments, for instance, top the list at $510,769 per unit, but that amount includes the cost of 4,342 square feet of retail space and 26 additional underground public-parking spaces, at $50,000 per space (not unusual; parking’s surprisingly expensive). Subtract out those costs and the per-unit cost drops to $465,000. Subtract prevailing wages, which added another $56,000 per unit, and financing costs, and Cedar Gateway’s per-unit cost becomes much more reasonable.
Cedar Gateway was the first project to be subject to a CCDC mandate that 15 percent of the units in any affordable-housing project must be supportive-housing units—apartments that are coupled with social services and reserved for mentally ill adults who are homeless or at risk of homelessness. Cedar Gateway surpasses that requirement: All 23 of the one-bedroom units in the 65-unit project come with support services.
This made the project a tough sell for the neighborhood. A June 2008 email to city staff from a future neighbor of Cedar Gateway starts off, “As you may be aware, the residents of Cortez Hill have not been cheerleaders on this project.”
City Councilmember Todd Gloria, who sat on the city’s Housing Commission prior to being elected in 2008, said he’s seen costs of projects go up as developers try to respond to, and appease, community concerns.
“People are already apprehensive about affordable housing coming into their neighborhood,” Gloria said. “We do have to spend a bit to make sure it integrates well… so that people will accept it.”
The Downtown project Ten Fifty B is depicted in the story by brochure-worthy photos, one of which shows a stunning view of the Coronado Bridge from an outdoor seating area, complete with a fire pit. The photo’s caption reads:“Residents of… Ten Fifty B enjoy such accoutrements as this fire pit, which overlooks the downtown skyline.”
The story didn’t mention that the fire pit was donated by Turner Construction—there’s a plaque affixed to it saying so.
Built on a site that a market-rate developer abandoned, Ten Fifty B is the tallest affordable-housing project on the West Coast. Though Carless’ article pointed out that “more than half” of the building’s 226 apartments are studio and one-bedroom units, 102 of the units include two (33 units) or three bedrooms (69 units), the latter a rarity among Downtown market-rate projects. (A number of projects featured in the story and accompanying chart as having high per-unit costs included three-bedroom, even four-bedroom, units, set aside for families. Some affordable housing experts say that a project's cost should be measured according to the number of bedrooms it's providing.)
“The inference was that we’re building, at a very expensive, costly price, very small units, and that’s just inaccurate,” said Jim Silverwood, CEO of Ten Fifty B’s developer, Affirmed Housing.
Ten Fifty B is almost indistinguishable from its market-rate high-rise neighbor, Vantage Pointe. Silverwood said his goal was to build something that didn’t scream “affordable housing.”
“There’s a guiding principle at the city of San Diego and many of the cities that we work with that affordable-housing developments should look and feel just as nice as a market-rate development. That doesn’t necessarily mean that they would have all the amenities… but at least from the outside, residents of the city shouldn’t be able to notice a discernible difference between the two.”
St. Vincent de Paul’s 15th & Commercial development is the sixth costliest project on Carless’ list, at $422,489 per unit. But applying any sort of cost measure to a project like 15th & Commercial is tough.
Intended to replace a portion of the charity’s East Village homeless-services campus, when it’s completed, 15th & Commercial will contain 150 partitioned-off transitional-housing beds divided among four floors and 64 studio apartments, 49 of which come with support services for homeless mentally ill folks moving in off the street.
The project includes administrative offices, rooms for visiting clinicians and a 19,000-square-foot childcare-facility and school. For security purposes, the kids area will be completely segregated from the housing units, with its own separate entrance, and the transitional beds will be segregated from the studio apartments. Architectural elements like those drive up the cost.
CCDC’s Graham said he told Carless that it would be misleading to include the cost of the childcare facility, but it ended up as part of the total anyhow.
The third costliest project on the list is Boulevard Apartments, located along El Cajon Boulevard in North Park. Also a St. Vincent de Paul project, the apartments were used in the story to illustrate how little scrutiny’s given to affordable projects by decision makers. (The story initially had the budgeted cost of the project at $506,609 per unit, though it was actually $474,279.)
Mat Packard disagreed that the project wasn’t scrutinized.
“I think the article may have left the impression that cost is not looked at real closely through the approval process,” he said in an email. “I can assure you that was not the case for Boulevard Apartments nor any other [Fr. Joe’s Villages] development. The pro formas and development budgets are scrutinized, and in the case of Boulevard Apartments, we were asked to provide justification for any out-of-the-ordinary costs.”
Todd Gloria, who wasn’t quoted in Carless’ story despite being interviewed several times, said council members are given a copy of a project’s pro forma, which breaks down each component of the project by cost and also includes cost per unit and cost per square foot. (To see what a pro forma looks like, click here.)
Because it’s located along a major commercial corridor, the Boulevard Apartments were required to include commercial space. Though St. Vincent de Paul has been allowed to use the space for other purposes—office space used by property management staff and visiting service providers—it still had to be configured as commercial space. Without that requirement, Packard said, the building would have been configured much differently, “saving a substantial amount, if not all of the cost.”
According to a presentation Packard put together when the project was moving through the approval process, the commercial-space requirement and the fact that the lot—which St. Vincent de Paul already owned and which had housed one of the charity’s thrift shops—was smaller than ideal, drove up the cost by roughly $1 million, or $45,000 per unit.
The 24-apartment building includes nine apartments set aside for families that include at least one adult living with mental illness, HIV / AIDS or recovering from chronic substance abuse. There’s a small rooftop play area for kids that includes three picnic tables and a barbecue.
“The thing about Boulevard Apartments is it really is what planners are looking for: multi-family, infill development and on a major transportation corridor, targeted to the lowest income levels,” Packard said. “The fact of the matter is, if that kind of development is going to happen, there are some inherent costs associated.”
The chart accompanying the story claims that the Boulevard Apartments were entirely funded by taxpayers. That's not quite accurate:
* St. Vincent de Paul owns the land and the developer agreed to a deferred fee ($1.48 million).
* The San Diego Housing Commission loaned the project $600,000 that will need to be paid back
* The state loaned the project $2.1 million that will need to be paid back
* The project received a federal HUD grant and a state grant ($726,000 total)
* $3.7 million in federal tax credits covered the rest
Ditto with other projects. (That these projects cost taxpayers "dearly" is a thread throughout the story.)
Carless has Cedar Gateway at 87-percent publicly funded. But, except for a $94,000 grant for site remediation, the project's entire funding came from public and private low-interest loans.
Cheri Hoffman, executive vice president with Chelsea Development, said loans that affordable-housing developers receive from government agencies are structured like traditional loans. “We get tax opinions indicating they are true debts and not a grant,” she said. “It’s a loan; we make payments every year.”
Interest rates are low—usually in the range of 3 to 5 percent—and the loan must be repaid annually from the project’s available cash flow. At the end of the time period that a project’s required to remain affordable—usually 55 years—that money needs to be repaid in full.
“Everything is due in year 55,” Hoffman said.
Developers of affordable housing projects cobble together, on average, five funding sources—grants, public and private loans and, in many cases, federal tax credits. Created by Congress in 1986, the affordable-housing low-income tax credit program was intended to incentivize the construction of affordable housing. Tax credits are sold to private investors who, in turn, get a break on their federal taxes, spread out over 10 years. Projects are awarded tax credits by a state-level committee via a competitive application process. (As Carless notes, the state-level committee that awards tax credits has been looking into the issue of cost-containment. A task force organized by the California Council for Affordable Housing released recommendations.)
“Yes, it is money that the project does not pay back," said Wakeland Housing's Sauder, "but there are businesses out there, corporations, etcetera, that are making financial decisions” to invest in affordable housing.
Correction: The residential square footage for the Mercado apartments is 81,055. The story originally had 81,047, which was an older number.
