Despite a severe shortage of affordable housing in the state, it has been more challenging in recent years to build it in California. According to the Bureau of Labor Statistics, California has the second-highest median rents in the nation. However, this problem is not solely caused by high prices.
One of the problems with affordable housing in Los Angeles, according to Don Peebles, founder, chairman, and CEO of the Peebles Corporation, is the extensive, onerous, and expensive entitlement process, which raises the price of property. Furthermore, it causes a temporary delay in initiatives. 
Peebles is personally aware of this. Along with Claridge Properties and Victor McFarlane, chairman of San Francisco-based MacFarlane Partners, he is constructing Angels Landing, a $1.6 billion hotel, condominium, and retail development. They had to go through the entitlement process for about five years.
The project will be located in downtown Los Angeles between Fourth and Hill Streets and will have a 63-story skyscraper, two hotels, and a 42-story high-rise containing condos and apartments. In addition, it will provide 20% of affordable housing, with 15% of it located off-site in the city council district or nearby and 5% of it on-site, according to Peebles. It is their ambition, he claims, to include five times as much affordable housing as is necessary.
Affordable housing shouldn’t be built on places where the land is really expensive, according to Peebles, because there is such a shortage of it that money needs to go further. To make the money go further, affordable housing should be connected from the project to a different neighborhood or location where it can be built more affordably.
Closing the Wealth Gap by Race
Peebles notes that this is especially true given the backlog and high demand for such dwellings. According to Peebles, people of color are “disproportionately burdened with poverty and disproportionately in need of affordable housing because the wealth and income disparities are so enormous,” which can be linked to wealth inequality.
According to Peebles, promoting economic equality for women- and minority-owned firms can aid in bridging the gap in wealth and earnings. Because of this, at least 30% of all contracts on Angels Landing will go to women- and minority-owned firms.
For people of color in particular, Peebles says, “we’re trying to do our thing to make it so that they don’t have to continue to rely on public support to achieve the necessities of living.” “At Angels Landing, we believe that the best way to achieve that is to offer meaningful careers, job possibilities, and economic chances.
However, the project has lately come to a halt as a result of the developers’ refusal to collaborate with Los Angeles City Councilman Kevin de León, who was caught on tape making racist remarks and was widely publicized. Since then, he has also lost a lot of his influence in the City Council. Peebles claims that in order to advance the project, they have spoken with Councilman Curren Price, the chair of the council’s economic development committee, as well as City Council President Paul Krekorian. Peebles emphasized that although “we’re absolutely dedicated” to the initiative, “the entire City Council [must] reciprocate.”
According to Peebles, the issue puts the anticipated completion date of 2028—just in time for the Los Angeles Olympics—in jeopardy.
Peebles says, “We’re quite frustrated that it’s taken so long to develop a project that simply sets a new tone for Los Angeles.
No-tax-credit financing
Avanath Capital Management, based in Orange County, California, purchased Baldwin Village in South Los Angeles across town as an example of how some market-rate apartments are being converted to affordable housing in the current environment of rising interest rates. According to Avanath CEO Daryl Carter, the property and another community were purchased for $220 million without the utilization of tax credit equity
Carter predicts that there will be more innovative preservation, conversion, and development initiatives for rent-restricted units and communities in order to meet the growing need for housing that is affordable for people of all income levels.
In Los Angeles’ Crenshaw district, Baldwin Village has 669 apartments. The building was bought by Avanath and the Housing Authority of the City of Los Angeles, or HACLA, through its non-profit La Cienega LOMOD, Inc.
According to Carter, “What we achieved with Baldwin Village is a creative structure where we are getting a tax abatement.” Depending on the present value component, the tax abatement is likely worth $25 [million] to $30 [million] over the course of 55 years, but it is still quite valuable. However, we are investing $120 million in institutional equity, which is a very, very strong payback of using public funds to leverage private money.
Carter claims that HACLA’s participation was crucial. In the roughly 90-day period following the acquisition, HACLA was able to have the agreement approved for the tax abatement.
So that’s exceptional for a public body, and I believe that many in the private sector believe that the public sector is unresponsive, but I believe we have demonstrated that.
They may be remarkable when they have a goal they’re working toward, according to Carter. Additionally, the public sector—in particular, HACLA—is home to some extraordinarily creative individuals.
Carter says that it has significant financial advantages for his business. They are able to maintain rents at a level that accommodates residents earning between 60 and 80 percent of the area median income (AMI)
Excellent Business Models
The primary focus of Avanath Capital Management is affordable housing. Rent-restricted, inexpensive buildings make up 85% of all the assets that Avanath Capital owns nationwide.
Given that the majority of the company’s properties are fully leased and have waiting lists, Carter thinks it makes solid commercial sense
It’s a fantastic industry, and we’ve really built our business around it, says Carter. You may be familiar with older properties like Baldwin Village, which provides as an affordable example, but there is no guarantee that this affordability will continue in the future. The fact that we came up with a structure that allows for both attractive economic returns and long-term affordability was likely welcomed by the locals in that neighborhood. For the locals, it’s advantageous. We stand to gain from it.
A $40 million refurbishment of the property is also something they intend to do. According to Carter, Baldwin Village’s typical monthly rent is between $1,500 and $1,600 in a neighborhood where some nearby apartments are asking for as much as $2,500 to $3,000 per month.
Needs, Permitting
According to data from California, renters need to earn 2.8 times the federal minimum wage in order to afford the median monthly rent. Despite having more than doubled its production of new affordable housing over the previous three years, according to a California Affordable Housing Needs Report from last year, the state is only funding 16% of what is required to achieve its objectives.
According to the Los Angeles City Controller’s office, the average cost per unit for affordable projects now under development jumped from $531,000 in 2020 to $596,846 two years ago. Since California typically leads the nation in development costs, this cost is among the highest in the entire country.
Karen Bass, the recently elected mayor of Los Angeles in Southern California, signed an executive order in December to hasten the permitting and approval procedures for all projects involving 100% affordable housing in the city. Carter asserts that he thinks her efforts will have an impact. He admits, though, that the time it takes to construct affordable homes in California is still too long.
There is just little governmental funding to assist address the affordability issues not only in California but across the United States, according to Carter. As a result, “we’ve got to come up with private sector solutions like the ones we built at Baldwin Village.”
A new complex called Crenshaw Crossing is being planned a few miles away from Baldwin Village. A minimum of 81 of the 401 residential units in the development, which is being done by Watt Companies, West Angeles Community Development Corp., The Richman Group, Belzberg Architects, Metro’s Joint Development Program, and SVA Architects, will be designated as affordable housing. It will also include retail space. Additionally, the development team is looking for finance that would make up to 100% of the project’s units affordable.
According to West Angeles Community Development Corporation, “the historic Crenshaw Community deserves affordable and high-quality housing with access to a full-service grocery store, lovely outdoor space, and community-serving amenities.” “Crenshaw Crossing is a perfect illustration of actively taking the Crenshaw Community’s needs into consideration and working hard to make them a reality. In order to meet the different requirements of the area, West Angeles Neighborhood Development Corporation is happy to collaborate with Watt Companies and The Richman Group to deliver additional affordable homes to our community.
There will be two phases to the project’s development. Next year is predicted to mark the start of the first phase, followed by the second phase.
For Carter, housing is more than just a place to live. He claims that his early years spent in a modest home on the west side of Detroit are the reason why affordable housing is so important to him.
In his own words, Carter: “I think housing is to me very personal since my stable housing growing up was a huge contribution to a kid on the west side of Detroit going to the University of Michigan and M.I.T. (Massachusetts Institute of Technology). “I mean, that was one of the game changers, along with having a wonderful family, but housing is a place you go to every day after work to study and complete your assignments. I find that significant.