This story is part of our June 2023 print issue. To subscribe, click here.
California’s homeless population continues to rise faster than
solutions. As of 2022, 30 percent of the U.S. homeless population
resided in California, including half of all unsheltered people
(the sheltered homeless reside in emergency shelters or
supportive housing, while the unsheltered homeless reside in
places not meant for human habitation, such as cars, parks and
abandoned buildings). The pandemic did not help, exacerbating an
already major and complex situation.
The Sacramento region has been particularly hard hit, recording a
dramatic 67 percent increase in homelessness since 2019. Based on
the 2022 Sacramento County point-in-time report, that equates to
9,278 individuals in the region currently experiencing
homelessness. The main driver, according to the report: the high
cost of housing.
To help solve the crisis, Gov. Gavin Newsom issued an executive
order in 2019 for the Department of General Services and the
Department of Housing and Community Development to identify
excess state-owned property that could be converted into
affordable housing. Sustainable, adaptive reuse is the priority,
with demolition as a backup. Few local examples exist, leaving
architects and developers to wonder if they are financially
feasible and what, if any, kinds of funding are available.
Visionary Home Builders of California, a Stockton nonprofit
developer that advocates for the development of affordable
housing, was one of the first in the region to be awarded an
excess site from the state. The site — a vacant parcel on Miner
Avenue in downtown Stockton — is slated for a four-story
residential complex with 94 one, two and three-bedroom units
geared towards seniors and families. VHB is working with local
architect Lee-Jagoe Architecture to design the project, known as
La Passeggiata.
The original intention was to utilize a modular system, but the
idea was quickly abandoned when it proved too costly. A low-cost,
long-term ground lease was offered by the state. “We were able to
essentially take the cost of the land out of the pro forma, which
made the project more feasible to do,” says Carol Ornelas, CEO of
Visionary Home Builders.
A pro forma is used to forecast the actual and estimated costs of
a project. The developer is using state Infrastructure Infill
Grant and Multifamily Housing Program funding, as well as city
dollars and tax credits. The total cost is estimated at $60
million (plus $2 million in state mitigation costs) and will
break ground in January 2024.
In 2020, the same developer successfully converted an office
building to residential through the City of Stockton’s
neighborhood stabilization program. VHB purchased a foreclosed
commercial building in downtown Stockton during the Great
Recession. The building permits and school fees had already been
paid on the former office complex. “Those are huge pluses,” says
Ornelas. The developer encountered a number of challenges with
the project, including bringing utilities into each unit, and
putting in elevators that meet current building codes.
“There were some days that I honestly wished we had knocked the
building down, and other days I liked it, which is typical with
construction,” she laughs. “But once we figured out how to handle
a certain challenge, we overcame it. The building looks lovely in
the neighborhood, we leased it to the people we wanted to lease
it to and it functions very well.”
The 74-unit Liberty Square affordable housing complex was
completed in December 2021. Residents include low-income families
and veterans meeting a 30-60 percent area median income. Catholic
Charities occupies the commercial space to offer support services
to residents; a Head Start child care center is also on-site. The
project was completed for $34 million. “It was good to take an
obsolete building and convert it for a better use,” says Ornelas.
“If it wasn’t going to happen with office space, housing is
another good alternative.”
Visionary Home Builders has also submitted its qualifications for
conversion of the Employment Development Department building, one
of the recently released state-owned excess sites in downtown
Sacramento.
Adaptively Reusing State Office Buildings
In January 2023, DGS released a request for qualifications, known
as an RFQ, from developers and architects for three state-owned
excess sites in downtown Sacramento for conversion to affordable
housing. The state office buildings are clustered around
Sacramento’s Capitol Mall and include the EDD headquarters
building, the Solar building and the State Personnel Board
building.
According to DGS Director Ana Lasso, interest in the RFQ was
robust, and the project briefing was well attended. “We do know
that a lot of developers are keeping tabs on our projects,” she
says. “It isn’t like a blank canvas, where you can, for all
intents and purposes, create your own vision. You’ve got to work
around what you have in the existing structure.”
All the options are on the table. Adaptive reuse is the priority,
but DGS is leaving room for developers to demolish and rebuild if
that yields a more cost-effective, interesting structure and
increases the total number of units. The department is projecting
that approximately 500 units could come from the three
structures. Early on, DGS commissioned national architect Perkins
& Will to conduct a feasibility study on the project type. “Our
initial project studies indicate that it’s viable to reuse or
readapt these buildings,” says Lasso. “And we have a proof of
concept for other state buildings, as well as in the industry.”
A January 2023 industry report released by the Urban Land
Institute and the National Multifamily Housing Council, titled
“Behind the Facade,” profiles the feasibility of converting
commercial real estate to multifamily housing in the U.S. Report
contributor Anita Kramer, senior vice president of the ULI Center
for Real Estate Economics and Capital Markets, explained that the
pandemic has really focused attention on the potential for older
buildings that don’t have the bright future they once had, but
each one varies. “Every building is particular in its location
and its needs. What a developer puts into a conversion is very
much dictated by the market it’s in, and the target
market.”
Kramer spoke with a number of developers and architects who
completed various conversion projects. “The fairly universal
experience I heard from the examples that we had in the report
was that your team has to be so nimble — your design team, your
engineers — because you don’t know what you are going to get
until you strip everything down to the cement. People that have
figured this out and have kind of developed this nimbleness are
going to be more successful,” she says.
While reports indicate the projects can be done, they are not
without challenges. A structure like the Sacramento EDD building
isn’t a rectangular box with the same floorplates, but is tiered.
“There are some limits, but sometimes those limits really become
opportunities for developers. I find adaptive reuse projects less
of a challenge and more of a visioning exercise of what you can
do for communities,” says Lasso.
For the projects to be economically feasible, DGS is utilizing
its authority to offer low, long-term ground leases on the three
state-owned surplus properties of $1 per year for 99 years. There
are various state Housing and Community Development funding
programs that teams can also apply for that are eligible for
adaptive reuse projects, such as MHP, IIG, Infill Infrastructure
Grant Catalytic and Excess Sites Local Government Matching
Grant.
The wins for Lasso on this endeavor are a responsible reuse of
state property, proof of concept and much-needed housing in the
region. “Having a sustainable lens on the projects, if developers
are able to adaptively reuse the building, that’s where the
entrepreneurship and ingenuity and innovation will come through
to see what their return on investment is going to be,” she
says.
Sacramento City Councilmember Katie Valenzuela is a big proponent
of affordable housing that invigorates the downtown. “We’ve been
really making the case that if you are going to make this
investment anywhere, it should be Sacramento,” she says. “We do
believe we are being a little disproportionately impacted because
of the number of workers that are downtown. A lot of folks aren’t
going to be in the office every day, so DGS has been projecting
forward and assuming that model for these buildings.” DGS has
estimated that the workers who currently occupy the three
state-owned buildings would be relocated to new properties by
2025.
The state has given developers lots of leeway to propose what
they believe will work, though at least 20 percent of the housing
units must be available to low-income households (80
percent area median income or below), of which at least 10
percent must be available to very low-income households (50
percent AMI or below).
Not everyone is convinced this is the best solution. Chief among
them is Dan Dunmoyer, president and CEO of the California
Building Industry Association and a veteran of California’s
public policy issues. “Taking an existing structure from
commercial to residential requires changing the electrical and
plumbing, and if it’s really old, retrofitting for seismic and
environmental codes. That’s where the expense is really
astronomical,” he says. “All of my counterparts have the same
conclusion I do, in that this will be a very useful tool to build
really nice, kind of funky fun, expensive housing.”
Dunmoyer agrees that more housing is needed. Since 2008,
California has built an average of 100,000 units per year; last
year was a banner year at 128,000. By contrast, in 1963, 331,000
units were erected. Dunmoyer notes a few differences: In 1963,
two people making minimum wage could buy a modest home in an
affordable area. Now there are fewer and fewer people who can
afford to buy. Impact fees have also become exorbitant. On
average in California, developers are paying $120,000 per home
just for the right to build. He does acknowledge that the City of
Sacramento has streamlined the permitting process and reduced
fees, but says it’s still higher than in most states.
Dunmoyer doesn’t see this project type working for affordable
housing. “It doesn’t pencil that way,” he explains. He provides
an example: “If we build 100 units and 20 percent must be
affordable, then you have to add 10 percent of affordability, or
$100,000 per door. So, if you are planning for 20 percent to be
affordable and it’s 100 units, you have to add $200,000 per door
in increased cost for the people that buy the other 80 units. So
it can be done, but it’s super high end. And you have to be in a
city where people can afford that. That’s how it pencils.”
Dunmoyer cites municipalities like San Jose, San Francisco, Los
Angeles and parts of downtown San Diego as more feasible locales.
Many of the mainstream builders that Dunmoyer works with are also
staying on the sidelines for now. “They don’t feel they have the
expertise and don’t have the customer base,” he says. “My
bottom-line point is look at your community, look at what your
people can afford and then build for it.”
Funding is Key
Bridge Housing, a nonprofit developer of affordable housing,
teamed up with Sacramento-based architect LPAS and Rocklin
general contractor TriCorp Group in fall 2020 to win the right to
develop an excess site on Arden Way in Sacramento. The site is
just over an acre with a former armory building and structurally
unsound library. While adaptive reuse was considered, the
developers determined that demolition of the existing buildings
was more prudent. The intent is to construct a five-story, mixed
use development with 124 units at 25-60 percent AMI.
Twenty-five percent, or 31 of the units, will be reserved for
permanent supportive housing for formerly homeless or those at
risk of becoming homeless. Bridge Housing is working with
Lutheran Social Services of Northern California to provide the
right mix of onsite support services and a commercial child care
center in the building. The developer is currently seeking its
final funding.
“Right now, our world is governed by how well you can compete for
very highly sought-after state and federal resources, so now we
are going after our final gap financing and hoping we can start
construction in June 2024, at the earliest, and complete it by
April 2026,” says Jon McCall, senior project manager for Bridge
Housing. The total all-in cost is estimated to be $83 million.
Peter Ragsdale, executive director for the Housing Authority of
the County of San Joaquin, is also seeking funding to develop an
excess site — 100 acres of the San Joaquin County Fairgrounds —
into a mixed-income, mixed-use community. “We’ve contemplated a
community where we have different housing types, shared community
amenities and commercial and educational infrastructure,” says
Ragsdale. HACSJ is modeling about 40 percent of the anticipated
1,300 units to be deeply affordable. HACSJ has applied for
infrastructure funds through HCD and is also competing for IIGC
funds.
“Infrastructure is a requirement to build any housing, so
needless to say there isn’t sufficient infrastructure to build
much of anything at the fairgrounds at the moment, so it is a
threshold issue to get support from the state on the
infrastructure.” HACSJ has been successful in partnering with San
Joaquin County Behavioral Health to convert two former office
buildings to affordable supportive housing for behavioral health
clients. It is also converting a former Motel 6 in Stockton to 69
one-bedroom units for those experiencing homelessness.
The Sacramento office of Page & Turnbull is exploring converting
a state office building into housing. The award-winning
restoration and preservation architect is partnering with a
confidential developer. With its experience in adaptive reuse,
Page & Turnbull feels it is uniquely qualified to consider the
project type. Melisa Gaudreau, associate principal with Page &
Turnbull, acknowledges the challenges with the project type,
pointing to the existing configuration of the floorplates and
windows, incorporating new systems for kitchens and bathrooms and
determining if the building can accommodate residential-type
amenities like rooftop spaces, balconies and courtyards.
“The most important thing before embarking on these types of
projects is to do an honest, feasible study to see what the
viable options are,” she says. “It could be adaptive reuse, which
we prefer, because that’s our bailiwick, but we don’t want to
come in with rose-colored glasses. We need to conduct an honest
assessment.”
Councilmember Valenzuela understands the challenges and scale of
the undertaking, particularly with architects and developers
adding a big asterisk over all the ideas until they see what they
are working with. But she believes with some creativity, it can
be a practicable option.
“Downtown only thrives when everybody can thrive down here. And
we are not going to be successful if the people that keep our
downtown running are moving further and further out, or are
paying higher and higher prices for housing. That’s just not
sustainable. And I just don’t know how we get there without the
state as a partner, and not just because they own the property,
but because they have the ability to make policy and provide the
resources that we might need to make this vision a
reality.”
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