Old Spaces, New Housing

Political obstacles and widespread public sentiment against residential growth in California have given birth to a strong countermovement: developers who renovate old buildings and put up small apartments.

The new breed of entrepreneurs working in the trenches include people like Allen Gross and Arax Harutunian, a married couple in Los Angeles who renovate abandoned buildings and transform them into mixed-income housing.

Patrick Kennedy, a Harvard-educated builder, constructed the first rental housing project by a private developer in Berkeley’s downtown since World War II.

And city administrators Eric Nicoll in Brea and Susan Moeller in Cathedral City changed the way their cities did business so they could revitalize their downtowns.

Innovators like these don’t have instant solutions to California’s housing shortage, but they’re part of a movement that coexists with widespread “not-in-my-backyard” sentiment and political obstacles that for years have blocked large-scale suburban tracts.

Gross and Harutunian belong to a burgeoning nonprofit development sector in the six-county Southern California area--Los Angeles, Orange, Ventura, Santa Barbara, San Bernardino and Riverside.

The number of nonprofit developers in this region grew by 133% in the last decade, from 61 to 142--at a time when the number of for-profit developers dropped markedly. These developers have filled the housing vacuum in many communities by buying old buildings and renovating them and by building new apartments.

They range from large nonprofits that build thousands of units to smaller community-based groups, some run by churches, that also provide child care and other services in neighborhoods where they build affordable housing.

The process isn’t easy. It often takes years to acquire a property and cobble together financing from a mix of federal and state tax credits and tax-exempt bonds.

Nonprofit developers spend hours waiting in line at municipalities to obtain permits and fill out paperwork.

Now, state and local governments are taking their first steps toward solving the housing shortage. Last year, Gov. Gray Davis allocated $500 million from the state’s budget surplus for housing.

The city of Los Angeles created a small housing trust fund. The Los Angeles Area Chamber of Commerce made housing one of its top priorities for the first time.

And several businesses and trade groups, such as the Orange County Business Council, formed the Orange County Affordable Housing Alliance to help fund housing to attract and retain employees in a county where median home prices are rising at a frantic pace.

“Only now is there a growing realization that if we don’t treat housing as physical infrastructure needed in our communities, we won’t be able to sustain our economic growth,” said Ann Sewill, director of California programs for the Enterprise Foundation, a nonprofit entity that raises money to rehabilitate and build affordable housing.

These are baby steps to be sure. Experts agree the state’s housing dilemma can’t be solved by subsidies alone but must be addressed by politicians, residents and businesses working together to change laws and zoning that favors sprawling suburbs over dense urban development.

“In addition to creating funds to build new housing, we have to be creating incentives to rehabilitate housing,” said Los Angeles City Councilman Mike Feuer, who formed a housing task force to address the issue last spring. “We also need to be looking at putting more mixed-use development along major thoroughfares, so people can live close to where they work and close to public transportation.”

Only one home or new apartment is built in the state, on average, for every 3.3 jobs created. Los Angeles added 65,000 people last year, but only 1,900 housing units--one for every 11 people. All types of housing are needed, but the housing crisis is centered in affordable housing, both for low-income residents and professionals such as teachers and firefighters.

Sometimes, the only politically expedient way to build housing, especially in Southern California where legislators seldom promote dense development, is to rehabilitate old buildings and industrial sites.

Law school chums Gross and Harutunian are pioneering rehabilitation efforts in Los Angeles’ bustling Wilshire corridor.

The couple founded Los Angeles-based Neighborhood Effort, a nonprofit development company, in the wake of the 1994 Northridge earthquake. Today, they buy rundown, crime-infested buildings and solicit federal subsidies and private investments to remake them into housing.

“If you can create affordable housing, it brings up the neighborhood,” Gross said. “It has a domino effect.”

The couple’s crown jewel is the award-winning Los Altos Apartments near the intersection of Wilshire Boulevard and South Bronson Avenue. The 76-year-old building sat vacant and covered with graffiti for 10 years after a builder walked off a retrofitting project in the late ‘80s.

The city was planning to demolish the Spanish-style structure until Gross and Harutunian bought it in 1997.

It took a year to raise the financing from government and private sources and a year to complete construction, but now the former home to William Randolph Hearst and Bette Davis houses families making 60% of the area’s median income next door to Hollywood glitterati. There are about 217 people on the waiting list for the building’s 67 units--25% of which are reserved for low-income families.

Nonprofits like Neighborhood Effort often vie for shrinking federal subsidies with small for-profit builders like Kennedy, who became the first private developer to complete a rental housing project in Berkeley’s downtown since World War II.

The 3-year-old mixed-use project, known as the Berkeleyan, features 56 apartments built over 4,200 square feet of commercial space. Over the last decade, Kennedy has constructed other mixed-use and mixed-income projects across the city.

He also devised several unique solutions to the gridlock that plagues the Bay Area. His Shattuck Avenue Lofts, where 24 condos sit on three floors above a bistro, features a system that stacks cars on a three-level lift--allowing 17 vehicles to park in space meant for seven.

Kennedy also involves community members early on in the planning process for his projects--a measure housing advocates say is crucial if builders want to succeed in constructing denser developments in urban areas.

Kennedy is working with Pentecostal Pastor Gordon W. Choyce and his congregation to build the Jubilee Courtyard Apartments, a 39-unit mixed-income project that will sit atop a produce market and a cafe.

The builder and the pastor say they’ve labored to convince neighbors that low-income housing is no different from market-rate apartments.

“There can always be underlying factors that will never be revealed as the reasons people don’t want [affordable housing]--it’s not just height or density,” Choyce said. “Many times it’s issues of power, issues of depreciation and definitely issues of color.”

In a testament to how difficult it is to build affordable housing, it took 21/2 years and six redesigns for Kennedy to win approval for the project.

It’s a fallacy that mixed-use and mixed-income projects drag down nearby property values, according to residents who live in such neighborhoods.

Chiropractor William Greene paid $186,000 in 1996 for his three-bed, 21/2-bath in Brea’s Ash Street Cottages.

Today, it’s worth around $300,000, said Greene, who compares living in the city’s newly redeveloped downtown to the chummy atmosphere in a college dorm.

In 1989 Brea decided to rehabilitate its blighted downtown, where old buildings with false Western fronts--built in the mid-1920s to accommodate off-duty oil workers--stood boarded up and vacant, said Nicoll, the city’s redevelopment services manager.

Brea worked with builders, architects and residents to design a downtown that mixed housing, entertainment and retail uses.

Today, the six-block area has 98 single-family homes, 22 movie screens, a grocery store, a few parking garages, several large retailers, 40 townhomes and 64 lofts built above retail shops.

Brea’s not the only Southland city that recruited residents to help it revitalize an aging downtown. Cathedral City, in the desert east of Los Angeles near Palm Springs, is building a mix of entertainment, retail and housing uses in its city center.

“The only reason we’ve been able to sustain this effort for eight years is because of a shared community vision,” said Moeller, Cathedral City’s redevelopment director. “Residents wanted the downtown to be the living room of the community, where everyone could come and feel comfortable.”

Along with housing, the city is building an Imax theater, shops and restaurants. The project will open in phases over the next two years.

Since building denser projects in city centers often isn’t an option in Southern California, some Southland lenders decided to promote urban living by offering mortgages contingent on whether or not a buyer purchases a home near a transit stop.

Fannie Mae offers a “location-efficient mortgage” in Los Angeles and Orange counties as a way to entice residents to live near transit centers.

“We show them this map and say, ‘If you buy in this neighborhood you could afford a $150,000 house, but if you move half a mile away and consider using public transportation, you could afford a $190,000 home,”’ said Barbara Zeidman, director of Fannie Mae’s Los Angeles partnership office.

The loan uses a formula to calculate how much money a home buyer would save by taking public transportation. The estimated savings is added on to the home buyer’s annual income, thereby increasing the size of mortgage he or she can qualify for.

The program works well in more urban settings like Long Beach, she added, but not as well in suburban environments like the San Fernando Valley.

Fannie Mae is also working with businesses in Southern California to provide down-payment assistance and loans that are canceled by up to 20% a year for every year an employee stays in the region, Zeidman said.

Despite this and other advances in the private sector and small leaps politically in the last year, advocates say lawmakers on local and regional levels have a long way to go to make a real dent in California’s dire housing situation.

“The state has told [Los Angeles], ‘We understand you’re built out, but that means you need an effective strategy for recycling land so you can take care of anticipated growth,”’ said Beth Steckler, deputy director of the Southern California Assn. of Non-Profit Housing.

“We can’t sprawl anymore. We need to select certain areas of the city that are going to have a more urban feel.”