Kosmont Companies
Mailing Address: 1601 N. Sepulveda Blvd., #382 (424) 297-1070 Physical Address: 2301 Rosecrans Ave, Ste. 4140 Manhattan Beach, CA 90266 www.kosmont.com El Segundo, CA 90245 June 24, 2022
Sean Scully
Planning Manager
Community Development Department
Planning Division
City of Redondo Beach
415 Diamond Street
Redondo Beach, CA 90277
Re: Development Feasibility of Affordable Housing at South Bay MarketPlace Dear Mr. Scully:
The City of Redondo Beach (“City”) retained Kosmont Companies (“Kosmont”) to evaluate the potential feasibility of developing affordable housing on a parking field that currently serves retail tenants located at 1505 – 1519 Hawthorne Boulevard, and commonly referred to as the South Bay MarketPlace (“Site”).
The City desires to designate the Site as a potential location for the addition of 486 residential dwelling units (“Project”) restricted to very low-income households in its 2021 – 2029 Housing Element. As part of the review process of the draft Housing Element being completed by the California Department of Housing and Community Development (“HCD”), HCD requested that the City evaluate the feasibility of developing the Project on the Site. As discussed herein, Kosmont finds that the development of the Project on the Site is feasible from a physical perspective, as well as from a financial perspective, so long as funding sources typically utilized for developing very low-income housing are utilized for the Project.
Site Fit
As part of its analysis Kosmont considered hypothetical building programs and envelopes to evaluate the ability to physically develop the Project on the Site. The Site totals approximately 14.68 acres (~639,500 square feet), and buildings currently thereon total approximately 206,400 square feet. The Site is within the City’s Regional Commercial (CR) zone with a proposed residential overlay (“Residential Overlay”) permitting the development of up to 55 dwelling units per acre. Generally, the CR zone permits development with a floor area ratio (“FAR”) of up to 1.5 for mixed-use developments, and four stories / 60-feet in height. Given the permittable FAR of 1.5, a total building envelope of approximately 959,200 square feet, including up to 807 dwelling units is conceptually developable on the Site.
In evaluating the potential intensification of development on the Site, Kosmont identified an approximately
4.1-acre area north of the existing buildings that it found to be most suitable for additional development intensity (please see the yellow shaded area / the “Primary Parking Field” in the attached Site Aerial exhibit). Additional parking fields on the eastern portion of the Site could conceptually be developed as City of Redondo Beach
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well, though those areas were considered small and irregular, and therefore not evaluated for additional development.
In performing a high-level test fit of hypothetical building programs, it was assumed that all existing parking currently serving the Site would have to be maintained, and that any residential development (including associated parking) would have to occur on a podium1 . In evaluating a 486-dwelling unit
program, Kosmont found the building story limitation (four stories) was a constraint given the likely elimination of one story to accommodate the parking requirements for the existing retail buildings.
However, given the proposed amendment to the City’s Zoning Ordinance to establish a Residential Overlay covering the Site, these constraints did not ultimately appear to be an impeding factor for the contemplated Project, and Kosmont considers the Project feasible from a site fit perspective.
Feasibility of Market Rate Development
As part of its analysis Kosmont evaluated the potential financial feasibility of a market rate development on the Primary Parking Field. Based on its preliminary review Kosmont found that the four-story height limit, and parking requirements for a market rate development may limit the potential buildout to approximately 225 to 250 dwelling units. Ultimately the proposed amendment to the City’s Zoning Ordinance to establish a Residential Overlay covering the Site is expected to reduce and/or eliminate some of these constraints. Regardless, Kosmont found a market rate development on the Primary Parking Field to be financially feasible, and potentially capable of supporting a residual land value on the order of $2.0 to $4.0 million per acre or more, ultimately depending on the potential development program and configuration.
Funding Affordable Housing Developments
Affordable housing developments with deep affordability restrictions (e.g., very low and low-income) are traditionally funded through an aggregation of Low-Income Housing Tax Credits (“LIHTC”) and various grants and loans. Based on a cursory review of area median income and rent limits, Kosmont found that maximum rents for affordable units restricted to very low-income households could, at best, generally support 30-50% of typical development costs (excluding land costs / regardless of permitted density) for residential housing in the area. As such, no development restricted to very low-income housing units is expected to be within range of financially feasibility on the Site absent the use of LIHTC’s and other free or low-cost funding mechanisms to support development costs.
To evaluate potential reference points, Kosmont reviewed LIHTC applications submitted to the California Tax Credit Allocation Committee in 2020 and 2021 for projects in area cities with potentially similar development economics as may be experienced on the Site. A summary of the projects reviewed are attached (please see “Sample Affordable Housing Project Metrics”), and provide information on the estimated cost of building affordable housing in the last few years in the City of Santa Monica, the City of 1 While some or all of the retail parking need could conceptually be met within a parking structure, the existing retail tenants may be less amenable to such solution, and there is limited potential gain in consideration of development envelope constraints by utilizing structured parking for the retail component. Additionally, a reduction in overall parking demand may be possible due to the proposed mixed-use nature of the Project, though was not considered.
City of Redondo Beach
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Torrance, and the Marina Del Rey area of the City of Los Angeles. Each of these projects relied upon private loans funded with restricted rental income that were substantially augmented with LIHTC’s, and (i) grants, (ii) residual receipts loans, and/or (iii) forgivable loans to achieve financial feasibility.
Feasibility of Affordable Development
As previously introduced, Kosmont found the Project to be feasible from a site fit perspective. The Project would benefit from the proposed amendment to the City’s Zoning Ordinance to establish a Residential Overlay that would permit additional development height and reduced parking requirements, which would enable development of the Project on the Site.
2 As discussed above, financial feasibility for affordable housing projects with deeper affordability restrictions (e.g., very-low households) is contingent on thirdparty funding sources. However, such funding sources are the norm for affordable housing projects and these sources routinely support market-based land costs, even in high-cost areas. The land cost of the five sample projects reviewed were equal to approximately $400,000 (a surplus City of Los Angeles Property), $6.0 million, $17.6 million, $17.9 million, and $18.0 million per acre. Kosmont’s review of the sample, as well as other area affordable housing projects, illustrates that these projects routinely support land values per acre that Kosmont considers sufficient to induce development of the Project on the Primary Parking Field of the Site. Given participation by Site owners due to sufficient compensation, financial feasibility of the balance of development costs of the Project would be achievable given traditional affordable housing funding mechanisms. As such, Kosmont finds development of the Project on the Site feasible.
Kosmont is available to discuss its findings as desired at your convenience.
Yours truly,
Wil Soholt
Senior Vice President
2 Potentially zero or very little parking would be required as the Site is thought to be within half a mile of an accessible major transit hub, though a developer may elect to provide more parking to satisfy actual / anticipated demand.
City of Redondo Beach
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Site Aerial
Site
(Red Border)
Development Footprint Evaluated /
“Primary Parking Field”
(Yellow Shading)
N
City of Redondo Beach
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Sample Affordable Housing Project Metrics
20-057 Santa Monica / Large Family Total Per Unit
Per
Bedroom
Per Net
Residential
SF
Per Gross
SF (w/o
Parking)
73 126 52,920 62,082
Land / Acquisition $ 12,170,877 $ 166,724 $ 96,594 $ 230 $ 196 Local Permit / Impact Fees 547,500 7,500 4,345 10 9
Total Construction Costs $ 31,276,447 $ 428,444 $ 248,226 $ 591 $ 504 Architectural, Survey & Engineering 1,453,068 19,905 11,532 27 23 Construction Interest & Fees 2,073,745 28,407 16,458 39 33 Permanent Financing 58,138 796 461 1 1
Legal and Consulting 147,000 2,014 1,167 3 2
Reserves 290,816 3,984 2,308 5 5
Contingency 1,716,817 23,518 13,626 32 28
Other 888,457 12,171 7,051 17 14
Developer Profit / Costs 1,414,668 19,379 11,228 27 23
Total (Excluding Land & Permits) $ 39,319,156 $ 538,619 $ 312,057 $ 743 $ 633 Total $ 52,037,533 $ 712,843 $ 412,996 $ 983 $ 838
Prevailing Wage Yes Stories 4 Acres 0.69
Average Affordability / AMI 49% SF / Unit 725 DU / Acre 106 20-117 Santa Monica / Large Family Total Per Unit
Per
Bedroom
Per Net
Residential
SF
Per Gross
SF (w/o
Parking)
48 88 33,718 37,012
Land / Acquisition $ 8,754,501 $ 119,925 $ 69,480 $ 165 $ 141 Local Permit / Impact Fees 737,000 10,096 5,849 14 12
Total Construction Costs $ 23,580,172 $ 323,016 $ 187,144 $ 446 $ 380 Architectural, Survey & Engineering 1,342,525 18,391 10,655 25 22 Construction Interest & Fees 1,922,206 26,332 15,256 36 31 Permanent Financing 45,660 625 362 1 1
Legal and Consulting 151,705 2,078 1,204 3 2
Reserves 292,538 4,007 2,322 6 5
Contingency 1,986,239 27,209 15,764 38 32
Other 1,002,501 13,733 7,956 19 16
Developer Profit / Costs 1,201,939 16,465 9,539 23 19
Total (Excluding Land & Permits) $ 31,525,485 $ 431,856 $ 250,202 $ 596 $ 508 Total $ 41,016,986 $ 561,877 $ 325,532 $ 775 $ 661
Prevailing Wage Yes Stories 4 Acres 0.49
Average Affordability / AMI 49% SF / Unit 702 DU / Acre 98.0 21-115 Santa Monica / Special Needs Total Per Unit
Per
Bedroom
Per Net
Residential
SF
Per Gross
SF (w/o
Parking)
58 45 30,826 39,891
Land / Acquisition $ 7,375,514 $ 101,034 $ 58,536 $ 139 $ 119 Local Permit / Impact Fees 636,806 8,723 5,054 12 10
Total Construction Costs $ 20,444,521 $ 280,062 $ 162,258 $ 386 $ 329 Architectural, Survey & Engineering 1,154,000 15,808 9,159 22 19 Construction Interest & Fees 1,474,138 20,194 11,700 28 24 Permanent Financing 50,300 689 399 1 1
Legal and Consulting 75,000 1,027 595 1 1
Reserves 989,974 13,561 7,857 19 16
Contingency 2,000,803 27,408 15,879 38 32
Other 278,436 3,814 2,210 5 4
Developer Profit / Costs 1,123,982 15,397 8,920 21 18
Total (Excluding Land & Permits) $ 27,591,154 $ 377,961 $ 218,977 $ 521 $ 444 Total $ 35,603,474 $ 487,719 $ 282,567 $ 673 $ 573
Prevailing Wage Yes Stories 4 Acres 0.41
Average Affordability / AMI 30% SF / Unit 531 DU / Acre 141.5 City of Redondo Beach
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21-500 Torrance / Special Needs Total Per Unit
Per
Bedroom
Per Net
Residential
SF
Per Gross
SF (w/o
Parking)
111 187 114,699 121,683
Land / Acquisition $ 8,899,385 $ 121,909 $ 70,630 $ 168 $ 143 Local Permit / Impact Fees 952,940 13,054 7,563 18 15
Total Construction Costs $ 36,817,038 $ 504,343 $ 292,199 $ 696 $ 593 Architectural, Survey & Engineering 2,408,150 32,988 19,112 46 39 Construction Interest & Fees 3,498,513 47,925 27,766 66 56 Permanent Financing 79,122 1,084 628 1 1
Legal and Consulting 248,000 3,397 1,968 5 4
Reserves 1,081,616 14,817 8,584 20 17
Contingency 3,954,928 54,177 31,388 75 64
Other 2,517,127 34,481 19,977 48 41
Developer Profit / Costs 2,500,000 34,247 19,841 47 40
Total (Excluding Land & Permits) $ 53,104,494 $ 727,459 $ 421,464 $ 1,003 $ 855 Total $ 62,956,819 $ 862,422 $ 499,657 $ 1,190 $ 1,014
Prevailing Wage Yes Stories 4 Acres 1.49
Average Affordability / AMI 36% SF / Unit 1,033 DU / Acre 74.5 21-538 Marina Del Rey / Special Needs Total Per Unit
Per
Bedroom
Per Net
Residential
SF
Per Gross
SF (w/o
Parking)
98 115 59,440 64,954
Land / Acquisition $ 828,488 $ 11,349 $ 6,575 $ 16 $ 13 Local Permit / Impact Fees 1,456,355 19,950 11,558 28 23 Total Construction Costs $ 41,613,515 $ 570,048 $ 330,266 $ 786 $ 670 Architectural, Survey & Engineering 2,258,795 30,942 17,927 43 36 Construction Interest & Fees 3,631,700 49,749 28,823 69 58 Permanent Financing 221,000 3,027 1,754 4 4
Legal and Consulting 275,494 3,774 2,186 5 4
Reserves 525,440 7,198 4,170 10 8
Contingency 3,593,449 49,225 28,519 68 58
Other 1,488,633 20,392 11,815 28 24
Developer Profit / Costs 7,473,851 102,382 59,316 141 120 Total (Excluding Land & Permits) $ 61,081,877 $ 836,738 $ 484,777 $ 1,154 $ 984 Total $ 63,366,720 $ 868,037 $ 502,910 $ 1,197 $ 1,021
Prevailing Wage Yes Stories 2 Acres 2.11
Average Affordability / AMI 45% SF / Unit 607 DU / Acre 46.4