Angels Landing is a two-tower mixed-use project in Downtown Los Angeles and includes a variety of uses clustered around a large amount of public open space. Plans include 432 residential units, two hotels, commercial space, and 50,000 sq. ft. of retail. (Handel Architects)

Angels Landing is a two-tower mixed-use project in downtown Los Angeles. Angels Landing will include a 63-story skyscraper and a 42-story high-rise with two hotels, condos and apartments, and a multilevel plaza with commercial retail and restaurant uses. (Handel Architects)

Affordable housing in California has become increasingly difficult to develop in recent years in a state where there is a significant lack of it. California has the second highest median rents in the country, according to the Bureau of Labor Statistics, but that is not the only factor exacerbating the issue.

Don Peebles, founder, chairman and CEO of the Peebles Corporation. (Peebles Corporation)

Don Peebles, founder, chairman and CEO of the Peebles Corporation, says, “One of the challenges with affordable housing in Los Angeles is the comprehensive and burdensome and costly entitlement process, and that in turn drives up the cost of land. It also delays projects for a certain amount of time.”

Peebles knows this firsthand. He is developing Angels Landing, a $1.6 billion hotel, housing and retail complex, along with Claridge Properties and Victor McFarlane, chairman of San Francisco-based MacFarlane Partners. It took them nearly five years to get through the entitlement process.

The project, between Fourth and Hill streets in downtown L.A., will include a 63-story skyscraper, two hotels, and a 42-story high-rise with condos and apartments. It will also offer 20 percent of affordable housing with 5 percent onsite and 15 percent offsite within the city council district or the surrounding area, according to Peebles. He says they are intentional about including five times more affordable housing than is required.

“The key for affordable housing is that there’s such a shortage of it that the dollars need to go further, so affordable housing shouldn’t be developed on sites where the land is super expensive,” Peebles says. “Affordable housing ought to be linked from the project to another area or another site where it’s more cost effective to build it, so that the dollars can go further.”

Angels Crossing will have a multilevel plaza with commercial retail and restaurant uses at street level in Los Angeles. (Handel Architects)

Addressing the Racial Wealth Gap

This is especially true due to the backlog and huge demand for such housing, Peebles explains. The increasing need for affordable housing can be traced to wealth inequality since Peebles says people of color are “disproportionately burdened with poverty and disproportionately in need of affordable housing because the wealth and income disparities are so great.”

Providing economic inclusion for women and minority-owned businesses can help reduce wealth and income disparities, according to Peebles. As such, at least 30 percent of all the contracts on Angels Landing will be earmarked for women and minority-owned businesses.

“We’re trying to do our part to make it so that people of color especially don’t have to continue to rely on public support to get the basics of living,” Peebles says. “We think that the way to do that is to provide meaningful careers, job and economic opportunities, and that’s what we’re doing at Angels Landing.”

However, the project has been at a standstill recently after the developers refused to work with Los Angeles City Councilman Kevin de León who was heard making racist comments in a highly publicized leaked recording. He has also since been stripped of much of his power on the City Council. Peebles says they have had discussions with City Council President Paul Krekorian and significant discussions with the chair of the council economic development committee, Councilman Curren Price, for moving the project forward. In addition, Peebles stressed “we’re very committed” to the project but need the entire City Council “to reciprocate.”

Peebles says the situation is threatening the planned completion date of 2028 in time for the Los Angeles Olympics.

“We just simply want to build a project that sets a new tone for Los Angeles, and we’re very frustrated that it’s taken so long,” Peebles says.

Renderings for development in the Crenshaw neighborhood in Los Angeles.

Financing without Tax Credits

Across town in South L.A., Baldwin Village in South Los Angeles, which was acquired by Orange County, California-based Avanath Capital Management last year, is an example of how some market-rate apartments are being converted to affordable housing in the current climate of rising interest rates. Daryl Carter, CEO of Avanath , says his company acquired the property along with another community for $220 million , without the use of tax credit equity.

Daryl Carter, CEO of Avanath, speaking at a ULI meeting.

“To serve the increasing demand for housing that is affordable for all income levels, we’ll continue to see more creative preservation, conversion, and development strategies for rent-restricted units and communities,” Carter says.

Baldwin Village consists of 669 units in the Crenshaw neighborhood of Los Angeles. Avanath, along with Housing Authority of the City of Los Angeles, or HACLA, via its nonprofit La Cienega LOMOD, Inc., purchased the property.

“What we did with Baldwin Village is an innovative structure where we’re getting a tax abatement,” Carter says. “The tax abatement is probably worth $25 [million] to $30 million over the 55-year period, depending on your present value factor, but it’s worth a lot. But we’re putting in $120 million of institutional equity, so that’s a very, very good payback of public dollars leveraging private capital.”

Carter says HACLA’s involvement was invaluable. HACLA was able to get the deal approved for the tax abatement within the timeframe of the acquisition, which was about 90 days..

“So that’s extraordinary for a public agency, and I think that many people in the private sector think that the public sector is not responsive, but I think we have shown that

when there’s a mission they want to accomplish, they can be extraordinary,” Carter says. “Also, there are some extremely talented people within the public sector, HACLA, in particular.”

Carter adds it was a major economic benefit for his company. As a result, they are able to keep the rents at a level that serves people at 60 and 80 percent of AMI.

Good Business Models

Affordable housing is Avanath Capital Management’s main business.Out of all the properties Avanath Capital owns nationwide, 85 percent consist of rent-restricted, affordable properties.

Carter says it adds up to good business sense given the majority of the properties the company owns are 100 percent occupied and have waiting lists.

“It’s a great business to be in, and we’ve really built our company around that business,” Carter adds. “Certainly, you know properties like Baldwin Village—it’s an older property that serves to be affordable, but there’s nothing that ensures that it will be affordable long-term. I think the residents in that community appreciated the fact that we came up with a structure where we can get attractive economic returns yet we maintain long-term affordability. It’s a win-win for the residents. It’s a win-win for us.”

They also plan to make around $40 million worth of renovations on the property. The average rent at Baldwin Village is $1,500 to $1,600 a month in an area where some apartments not far away are charging as much as $2,500 to $3,000 a month, Carter says.

Needs, Permitting

California data shows that renters must make 2.8 times the state minimum wage to be able to afford to pay the median asking rent. A California Affordable Housing Needs Report from last year found that even through the state has more than doubled production of new affordable units over the last three years, California is just paying 16 percent of what is needed to meet its goals.

The average cost per unit for under construction affordable projects increased from $531,000 in 2020 to $596,846 two years ago, according to the Los Angeles City Controller’s office. That cost is among the highest nationwide since California usually leads in development costs across the country.

In Southern California, newly elected Los Angeles Mayor Karen Bass signed an executive directive in December to expedite the permitting and approval process for 100 percent affordable housing projects in the city. Carter says he believes her efforts will make a difference. However, he concedes it still takes too long to build affordable housing in California.

“We’ve got to come up with private sector solutions like the ones we crafted at Baldwin Village because there’s simply not enough public money out there to help ease the affordability challenges not only in California but throughout the U.S.,” Carter says.

About a couple of miles away from Baldwin Village, a new project, Crenshaw Crossing, is being planned. The development, from Watt Companies, West Angeles Community Development Corp., The Richman Group, Belzberg Architects, Metro’s Joint Development Program, and SVA Architects, will consist of retail and 401 residential units with a minimum of 81 of them being set aside for affordable housing. The developer team is also seeking financing that would allow up to 100 percent of the project’s units to be affordable.

“The historic Crenshaw Community is deserving of affordable and quality housing that includes access to a full-service grocer, beautiful outdoor space, and community serving amenities,” West Angeles Community Development Corporation says. “Crenshaw Crossing is a clear example of actively listening to the needs of the Crenshaw Community and working diligently to make them tangible. West Angeles Community Development Corporation is proud to partner with Watt Companies and The Richman Group to bring more affordable housing to our community at a range of affordability, which will address the diverse needs of the area.”

The project is slated to be developed in two phases. The first phase is expected to break ground next year with the second phase breaking ground a year later.

Housing means more than simply a roof over your head to Carter. He says the reason affordable housing is so important to him hearkens back to his childhood, growing up in a small house on the west side of Detroit.

“I think housing is to me very personal because my stable housing growing up was a big contributor to a kid on the west side of Detroit attending the University of Michigan and M.I.T. (Massachusetts Institute of Technology),” Carter says. “I mean, it was one of the game changers along with a great family, but housing is a place every day you go after work and study and do your homework. That’s meaningful.”