It’s Back to the Future: Living Over the Store

In the last few years, the South Coast Air Quality Management District and the Southern California Assn. of Governments have sought ways to reduce the Southland’s severe jobs/housing imbalance. Their literature reads as if they have discovered a new and radical concept.

By bringing concentrations of housing within close proximity to concentrations of employment, the AQMD declares, “the necessity for anyone to commute across the region would be sharply lessened and leisure time would be regained as commute times became manageable.”

There is nothing new in the idea of a jobs/housing balance. Rather, it is a recent manifestation of an ancient concept we used to call “the city,” but which is now more specifically referred to as “mixed use.”

The city evolved thousands of years ago out of a need to trade agricultural goods. By providing a central location in which to live and work, cities in the ancient world reduced the “jobs/housing imbalance” posed by crude transportation systems and a very low-density population.

Well into the Industrial Revolution, cities continued to be built with high concentrations of housing and commerce, all within walking distance. It was only in the 20th Century that builders and planners began to segregate the home life from the work life on a massive scale, primarily through zoning regulations.

For nearly a century, rail and auto technologies supported this segregation. Yet now, as in previous centuries, transportation systems are inadequate to support a widely dispersed population.

It appears that the city must be reinvented. Enter agencies like the AQMD and their many proposals to reduce the jobs/housing imbalance, including a call for more mixed-use projects.

Mixed use has been an important issue to urban planners for the past two decades, ever since they began to recognize an impending housing crisis in the inner city.

In the late 1970s and early 1980s, housing became a significant factor in the planning of major downtown office projects throughout the nation. As the mixed-use trend matures in the 1990s, retail developers also will face mounting public incentives and requirements to relate their projects to the construction of new housing.

San Francisco took a leading role in office/housing linkage during the 1980s. That city’s linkage program, initiated in 1981, applies to all office projects of more than 50,000 square feet, and is based on a credit system that provides incentives for the construction of low-income units.

By most accounts, the program has been highly successful. From 1981-1988, 38 developers of 41 office projects contributed $28 million to housing construction and rehabilitation, creating 5,400 new units, most within San Francisco’s 19th-Century mixed-use core.

In the 1990s, housing linkage policies will inevitably make the jump from office/commercial to retail development--and the tradition of “living over the butcher shop” will be revived.

The pressing need for low- and moderate-income housing, and the equally pressing need for local government revenue-generation have combined to make retail a prime target for housing exactions.

The perceived, and in many cases real, oversupply of office space, combined with the increasing growth limitations on commercial development, has heightened the importance of retail as a source of new public revenues.

The prime motivation for housing linkage programs is the severe shortage of low-income housing units in most metropolitan areas.

In Los Angeles, a blue-ribbon committee recently established that demand for rental units exceeds supply by 11,000 units a year; 4,000 affordable units are demolished annually, and 20% of the city’s residents are forced to pay more than half their income for rent.

In response to similar problems across the state, redevelopment agencies are now required to devote a minimum of 2O% of tax increment money toward affordable housing. As they begin to spend these funds, developers can expect more housing-related public/private partnerships.

For the retail sector, perhaps the most immediate effect of the housing linkage trend will be increased incentives for mixed-use development.

Up to now, most mixed-use projects were motivated by the need to construct office space. But in the future, mixed use will be linked to the need for new retail space. Public/private partnerships between retail developers and public officials will generate any variations on the mixed-use theme.

One of the first of the new generation of mixed-use projects was Coleridge Park Homes, a 49-unit low-income senior housing complex built atop a Standard Brands paint store in San Francisco.

As a condition of approval for its retail operation, Standard Brands Paint Co. built a store with a roof strong enough to support two stories of residential units, and donated the “air rights” to a the Bernal Heights Community Foundation, a nonprofit housing corporation.

Through a cooperative effort with the BRIDGE Housing Corp. and private sponsors, 49 units were constructed over the paint store and now rent for as low as $380 a month.

In a similar project now under construction in downtown Burbank, developer Thomas Tunnicliffe has incorporated 134 units of senior housing over 35,000 square feet of shops on a pedestrian-oriented section of San Fernando Boulevard.

In negotiations with the city of Burbank, Tunnicliffe demonstrated that the combination of seniors, services within close proximity and a demand for low-income housing dictated a relaxed parking requirement of one space for every three units.

The resulting economy of the project allows for rents as low as $475 a month without any subsidy. More than 1,000 seniors have already submitted applications.

The mixed-use concept is also gaining acceptance as an opportunity for the construction of market-rate housing for the general population.

This has been especially true in Orange County, where at least five cities are involved in projects that incorporate a mix of retail and market-rate housing.

On March 20, Fullerton celebrated the grand opening of the Wilshire Promenade, a $12-million complex with 128 apartments and townhouses built over 13,350 square feet of retail space. The city of Fullerton Redevelopment Agency intends to further augment its downtown with at least two more mixed-use projects similar to Wilshire Promenade.

One of California’s most ambitious mixed-use projects to date is the Uptown District, recently completed in the vicinity of San Diego’s Hillcrest neighborhood.

The statistics speak for themselves: 318 market-rate apartment units, 143,000 square feet of retail and 7 acres of of underground parking, all on a 12-acre site that used to be a Sears department store and a parking lot.

Although the city of Los Angeles is not yet in the forefront of the mixed-use trend, developers and city officials are beginning to recognize the benefits of mixed use.

Rising land values--in part fed by the need to be within a few minutes of where consumers live--have already led to a proliferation of two- and three-story retail centers.

In these areas, typified by Los Angeles’ Westside, the demand for affordable and market-rate housing far exceeds supply, and developers have long relied on infill housing because vacant land is practically non-existent.

It seems only a matter of time before multiple-story retail centers are constructed with much-needed housing on the upper floors.

The Westside’s Venice Renaissance project, built by Harlan Lee & Associates, is a significant step in the mixed-use direction, incorporating in a single structure a mix of 30,000 square feet of ground-floor retail, 23 low-income senior housing units and 66 market-rate condos.

On Beverly Boulevard in the Fairfax District of Los Angeles, Casden Development Corp. is in the final stages of construction on another mixed-use project.

The 3 1/2-acre project includes 279 apartments and 11,000 square-feet of ground-floor retail. Twenty per cent of the units will be reserved for low-income seniors.

Although mixed use has made significant inroads into California real estate development, developers still face several significant obstacles if retail/housing combinations are to flourish. Perhaps the most immediate challenge is financing.

Lenders base their decisions on the proven track record of a given building type, and existing examples of mixed-use projects are still rare. Savings and loans, once a source of funding for risky projects, are now bound by federal regulators to be nearly as conservative as banks.

Developers are left with two options: fund the project themselves or seek private financing. Self-financing is a possibility only for the largest of developers. Private financiers demand a high rate of return that only negates the cost savings inherent to mixed use.

Existing zoning and building codes present an additional challenge. Most codes are designed to prevent any integration of residential and commercial uses.

For instance, Burbank developer Tunnicliffe faced significant opposition to the relaxed parking requirement for his senior housing project, and it took him several months to persuade the Burbank Building and Safety Department that his planned concrete barrier between retail and residential uses would meet Uniform Building Code (UBC) requirements.

The UBC did not adequately address the issue of horizontal fire walls between residential and retail uses. Compounding the problem is the fact that developers are explicitly prohibited from building housing in many retail zones.

The city of Los Angeles may begin to solve the financing and planning problems with two innovative ordinances now under consideration. A housing linkage program, which has already been approved as an interim ordinance, will assess developers a fee of about $5 for every square foot of commercial space constructed in the city.

As in San Francisco, developers will have the option of constructing on-site housing rather than constructing off-site housing or paying the fee into a public fund. Unlike San Francisco or any other city in the country, the Los Angeles fee will apply to “all commercial retail developments” in addition to office, industrial and hotel projects.

If the linkage fee is approved and a significant number of developers seek to incorporate housing into their retail projects, institutional lenders may eventually become comfortable with the idea.

The overall success rate of those projects recently completed or now under construction is bound to become a critical factor in lender attitudes about mixed use.

In another important move, Mayor Tom Bradley has announced a plan to adjust existing zoning and building codes to promote mixed-use projects.

“Having stores such as supermarkets, pharmacies, clothing shops, laundries and dry cleaners, and banks in the building where you live would make day-to-day living easier,” the mayor declared.

His proposal calls for amending the city’s general plan and building codes to allow existing retail sites to be redeveloped with a mix of retail, housing and parking in single structures. Under the proposed plan, density bonuses will be granted to retail developers who include affordable and market-rate housing in their projects.

If the mayor’s plan succeeds and is emulated, it bodes well tor a new century in which Americans truly eliminate the jobs/housing imbalance and rediscover a quality of life that is enhanced by the joy of living, working and playing in the same neighborhood.

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