Irvine Breaks Ground for Affordable Housing : Real estate: Partner in the project says there's a 'real demand to meet' but that industry, government must change their philosophy.

TIMES STAFF WRITER

Bulldozers have started grading a 15.1-acre site for Orange County's first low-income rental housing since 1989--a project that could lead a new surge of affordable housing in one of the nation's priciest markets.

Despite a massive slump in the state's real estate markets, the demand for affordable housing exists--and is perhaps stronger than ever, proponents say.

"We recently completed a 114-unit project in San Francisco and had 3,900 people put down deposits," said L. Donald Terner, president of Bridge Housing Corp., the nation's largest nonprofit residential builder. "We held a drawing and 114 families were happy, but 2,900 went home people with their dreams . . . up in smoke."

Ratios like that, Terner said, "are pathetic and show that there is a real demand to meet." Those who say the real estate market is dead are looking only at the traditional market for large, single-family homes, he said. He made his remarks Wednesday at a meeting of the Orange County Forum, a public policy group sponsored by area business interests.

For Terner, whose company is a partner in the development of Irvine's 382-unit San Rafael Apartments, the private, for-profit development industry has failed in California's urbanized areas to serve a significant part of the market--"the workers; the policeman and the bus driver. . . ."

It is as if the entire auto industry stopped building Chevrolets and Hondas and concentrated on BMWs and Mercedes-Benzes, he said.

As a result, the workers "are moving farther to the periphery and facing horrendous commutes" between job and home. And after two hours on the road "they are not productive or happy at work . . . and their quality of life (at home) is deteriorating."

Centrally located housing that is within the reach of households with incomes of less than $60,000 a year can go a long way toward curing that imbalance, Terner said.

But before such projects can successfully proliferate in Orange County--where public and private sectors have operated as foes rather than friends--there will have to be a major change in philosophy.

San Rafael--a joint project of the city of Irvine, the Irvine Co. and San Francisco-based Bridge Housing--is the product of what Irvine Co. vice chairman Ray Watson called a new effort to form a public-private partnership that concentrates on providing housing that average working people can afford.

To accomplish such a partnership, however, developers must resist the drive to realize all profit up front while governments must be willing to assist in financing and compromise on issues of density, said Terner, who served as director of the state Department of Housing and Community Development under Gov. Edmund G. Brown Jr.

When completed, at an estimated cost of $32 million, San Rafael will provide 115 apartments for households earning 50% or less of the county's median income as established each year by the federal department of Housing and Urban Development. At the current median of $52,200, renters' incomes could not exceed $26,100.

Monthly rents in the reduced-rent apartments would range from $460 for a one-bedroom unit to $900 for three-bedroom units, or 33% to 50% of current market rates, Terner said.

The 115 affordable units would remain at below-market rents for at least 34 years, until the project would be refinanced, while the remaining 267 units will be rented at market rates.

While the city is issuing $28 million in revenue bonds to help finance the project, the bonds are to be paid off from rental income and are being guaranteed by the Irvine Co., which is contributing $1.5 million and is leasing the land to Bridge on a 34-year deferred payment basis.

The only government funding comes in the form of loans: a $700,000 HUD loan to the city and a $1.35-million development loan from the Orange County Housing Authority.

The Irvine Co. is building San Rafael as part of a 1990 agreement that gave it the right to build more homes than initially approved in the Westpark community in exchange for making a provision for the low-cost housing.

The company, which has been criticized for failing to provide adequate affordable housing on its vast landholdings, rents 2,680 of its 10,000 existing apartment units under various subsidy programs.

Despite the presence of several nonprofit housing groups in Orange County, Bridge was invited to join the Irvine project because of its size and reputation, Watson said.

A nonprofit developer and property manager has become an essential ingredient in any large affordable housing development because most of the government programs once available to developers of subsidized units were eliminated in the 1980s.

Allan Baldwin, executive director of the Orange County Community Housing Corp.--the oldest and largest nonprofit developer in Orange County--said his agency was not invited to participate in the San Rafael project.

Irvine Co. officials, he said, apparently believed the much larger Bridge--which has built 5,000 rental and for-sale units in the Bay Area, would have more credibility with government officials.

"There is an image of capacity that is of great benefit when doing tax credit deals and going before city councils," he said. "Bridge has both the image and the reality of muscle for these big projects."

Baldwin, whose agency has not built a single unit in two years because it cannot find enough funding to help defray Orange County's high land costs, said the Irvine partnership gives him hope.

The county's redevelopment agencies have built up millions of dollars of tax revenue that by law must be spent on housing programs, but most have not yet made any of the funds available, according to studies by the Southern California Assn. of Governments.

"But here is a city without any of those funds that is getting it done," said Baldwin. "That shows that when there is a commitment, affordable housing is possible."

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