The Oceanaire apartment complex in downtown Long Beach, a short walk from waterfront, opened two years ago as a typical luxury project: sleek architecture, amenities like a 24-hour gym and jacuzzi, and rents starting around $2,450 a month for a studio.
Now in an unusual twist, the property is being converted from market-rate to moderate-income housing. Going forward, rents for some tenants will range from as low as $1,841 for a studio to $2,600 for a three-bedroom that could go for up to $5,200 at market-rate.
The change came through a new government effort meant to bolster what’s sometimes called the “missing middle” in California’s priciest housing markets. Meaning: homes priced for households earning too much to qualify for subsidized housing but not enough to comfortably pay market-rate rent. In LA County, moderate-income ranges from an individual earning about $67,000 a year to a household of four earning nearly $127,000 a year.
“What we found, beginning a number of years ago, is that you don't have resources to facilitate those types of projects,” said Jon Penkower, managing director of the California Statewide Communities Development Authority (CSCDA), which created the program and purchased the Oceanaire for $144 million this year. “This was an innovative way to try to address that need.”
The CSCDA is a joint powers authority that provides bond financing for public projects to more than 500 cities and counties around the state. Its members are typically municipalities that don’t have their own in-house municipal bond specialists. Under the CSCDA’s new Workforce Housing Program, the CSCDA purchases market-rate apartment buildings using bonds that are sold to investors, who get repaid through rental income and interest. Because the buildings are government-owned, they’re exempted from property taxes. As tenants leave and leases expire, the apartments gradually turn over from market-rate to moderate-income.
The Oceanaire is one of seven apartment complexes in LA and Orange counties, totaling more than 2,000 units, purchased through the program since December.
The largest deal so far has been the 507-unit Altana complex in Glendale, which CSCDA bought last month for $300 million. With both the Oceanaire and the Altana, CSCDA partnered with the real estate firm Waterford Property Company to manage the buildings.
The CSCDA has yet to do one of these deals inside LA city limits, but City Councilmember Bob Blumenfield recently directed housing staff to explore becoming a member of the CSCDA.
“It’s an intriguing idea,” Blumenfield said. “It could be transformative in many ways.”
The City Council expects a report back on the program next month.
There are catches. The particulars of each deal vary, and because rent discounts within each property also vary depending on unit sizes and the exact income band each apartment is priced for (buildings are generally divided into three income brackets within the moderate-income spectrum), it’s hard to say how much affordability these projects will bring to their respective markets. According to Waterford Property Company co-founder Sean Rawson, apartments at the Altana will typically see an average rent reduction of about 13%, while the average discount at the Oceanaire is roughly 17%.
Whether the community benefits of that outweigh the lost tax revenue remains to be seen. Over the expected 30-year life of the deal at the Oceanaire, for example, the estimated property taxes that will be foregone could be as much as $43 million, including possibly up to $8 million for the City of Long Beach, according to a city analysis presented to the Long Beach City Council in February. It’s also not clear yet if the city will make up for that when the property is sold. (Under the program, cities can take ownership of the properties or sell them and capture the proceeds when they exit the deals.)
Those are some of the reasons the City of Long Beach deemed the Oceanaire a pilot program to be studied before it’s duplicated.
LA’s City Council expects its report back on the program next month.