Developers Scrambling To Fill California's Desperate Need For Housing
There’s no slowdown in sight for California’s housing prices, and multifamily investors are seeing gains as a result.
Demand from renters, particularly millennials not willing, or able, to invest in a single-family home, is bolstering a need for the development of more apartments, from affordable housing projects to higher-end units.
“We need more housing across all apartment types,” Avanath Capital Management founder and CEO Daryl Carter said during a panel at the Bisnow Multifamily Annual Conference event in Los Angeles on Nov. 1.
This is especially true in the wake of the coronavirus pandemic, and particularly true in the suburbs, and developers have shifted their focus away from more densely populated urban centers to these areas.
Related California has been an active investor since the onset of the pandemic, with more than a dozen workforce and luxury apartment projects in the works. In the former category, the firm said it has nine fully entitled market-rate projects slated to kick off construction throughout the state soon. Witte hinted at plans for a notable project in Orange County, which could ultimately hold north of 2,000 units on a 42-acre parcel next to South Coast Plaza in Costa Mesa.
“We’ve signed a 99-year land lease … and we’re in the process of entitling it for a large, mixed-use project that we hope to build out ourselves,” Witte said during the event, which took place at the JW Marriott LA Live.
Another suburban project is in the works in San Ramon, in the East Bay Area, where Related California signed a letter of intent to develop 400 units at Bishop Ranch.
“Bishop Ranch is one of the nicest suburban retail and office complexes I’ve ever seen, and we’re going to add 400 units there,” Witte said.
Nationally, Related has partnered with Atria Senior Living for several high-end multifamily towers, branded Coterie. The first of the projects will be in New York and San Francisco; rents at the Bay Area project could run as high as $27K per month. The firm also has plans to expand the concept throughout California, with negotiations in place in Silicon Valley and Los Angeles.
On the affordable development side, there’s “more demand and more city sponsorships than there have ever been, but there aren’t enough resources to fund all this,” Witte said.
This has created competition among affordable players for these resources, such as bids for bonds and housing tax credits, said Michael Costa, CEO of Highridge Costa Housing Cos., which uses private and public funding sources to develop and acquire affordable projects throughout the U.S.
The competition exists within the affordable investment pool as well, according to Langdon Park Capital CEO and founder Malcom Johnson.
The firm saw this in a recent bid for a housing project outside of Washington, D.C.
“We are willing to spend $35M of our own equity for the $90M purchase,” Malcom said. “The seller has their choice of institution, private groups, family offices … there’s no shortage of buyers.”
Costa pointed to Gov. Gavin Newsom’s $100B California Comeback Plan, which passed in September and includes $22B for affordable and homeless housing solutions, as an unprecedented sign of government support to increase resources for the sector.
“We’ve been trying to get governors to just mention affordable housing over the past 20 years,” Costa said. “This government is stepping up to the challenge.”
Witte echoed this, saying cities could be penalized for not making strides to fix the state’s affordability crisis, such as the instance in 2019 when Newsom sued the city of Huntington Beach for not allowing enough low-income housing.
“They are serious about keeping the foot on the gas.”
CORRECTION, NOV. 4, 10:30 A.M. PT: A previous version of this story used an incorrect title for Daniel Gehman. The story has been updated.