L.A.'s Santee Court Gets Extreme Makeover By Mark Weinstein

Mark, residents have recently begun moving into Santee Court. Give our readers an overview of this unsubsidized, mixed-use development-what's being planned, the unit rents, and who is on your development team.

The project is called Santee Court. It's a three-phase development that will have 550 units, all entitled with condo. Sixty-four of the 550 will be for sale, the others will be rental. Also, there is 100,000 square feet of retail condos, mostly for rent. There's a full city block courtyard between the buildings, a park in the back, and fountains. The roofs of the buildings feature other amenities, such as a golf putting green and driving range, a basketball court and a pool, a jacuzzi and barbecue area.

The development is a collection of nine contiguous historic buildings that had garment manufacturers on the upper floors and lower end retail on the bottom, in the heart of the fashion district. The property is between 7th and 8th, on the whole block between Los Angeles and Maple. We did 200 spaces of underground parking and we're building a 422-space parking structure above a bus depot half a block from the property. Additionally, down the block, we turned one of the other buildings into a high-end fashion showroom.

We believed it was necessary-exhibited by the fact that we volunteered with no subsidy-to do 20% affordable. And, we couldn't afford to hire a contractor and go over budget. So we did it ourselves. We assembled a very experienced team of contractors and superintendents. The director of construction was a high school that built 10,000 units of high-rise and other historic projects. The property received the Mills Act treatment, which allows you, for historical buildings, to have a lower tax base. And we used historic tax credits on the buildings-two buildings are registered as national historic buildings, the other seven are of local significance.

What did you see as the potential for this site in the garment district of downtown Los Angeles that other developers overlooked?

Basically, I'm an L.A. native. I went to law school downtown at Loyola Law School and watched the area stagnate. Ten years ago, I went to Denver and saw a rough lower downtown. I then saw Anschutz go in and build a stadium, sports bars, parking, and housing. I watched lower Denver develop their transportation and housing and for sale condos. After touring Denver, Portland, Seattle, San Diego and Dallas, it was Denver that had the most similarity to Los Angeles. Once I saw that a guy like Tom Gilmore could make projects work at 4th and Main with all of the homeless in the neighborhood, I knew that with our background and talent that a building in the Fashion District would thrive.

There's clearly a housing crisis in Los Angeles. We went after the workforce segment of the market, giving priority to police, firefighters, teachers, and city employees. And, 20% of the units are designated affordable. We basically look at supply and demand. The retail demand in the Fashion District has always been high. The Fashion District is a $9 billion industry in Los Angeles-$8 billion wholesale, $1 billion retail-concentrated in an 82-block area. Santee Court is in the heart of that activity. The area where Tom Gilmore built is more slummy and he was able to attract retail. Our area is safe and it's clean. And we just saw that the critical mass was coming and the opportunity to do a mixed-use development was there. The timing was right.

Mark, it appears that your development proceeded without much financial help from the public sector, although I'm sure you relied on the adaptive reuse ordinance. What was your relationship with the city?

As far as money, we didn't any help from the public sector. We basically did it ourselves. We did our own entitlements, we acted as our own contractor, with a master architect. Until Antonio Villaraigosa got involved, our council district wasn't doing much for us-they were busy with other priorities on the East Side. We were not voters, we weren't their constituents, or even from their district, but Antonio adopted a passionate feeling towards the project. Mayor Hahn also developed a strong housing agenda. So after we had already gotten things organized, they joined the parade.

Address the value of both the Mills Act and the city's adaptive reuse ordinance and what value they bring to projects like Santee Court.

The Mills Act, which falls under the Williamson Act, allows cities and counties in the state of California to lower your property taxes because you're restoring an historic building. It enables you to get a better loan and higher value on the property. Without that, I couldn't have done the affordable units or the project.

The adaptive reuse ordinance is a very instrumental piece of the puzzle. It helped most by not requiring us to have on-site parking. Unfortunately, the lenders want parking, so ultimately you have to provide some parking. So, the best benefit from the adaptive reuse ordinance was unable to be realized because it wasn't acceptable for financing the project. However, there are other advantages to the adaptive reuse ordinance. One of the indirect benefits is that different city departments work more in concert when the project requirements are relaxed and are a bit more flexible. That helped a lot, but I'm not sure that, in and of itself, the ordinance helps manage the cost.

The ordinance also helps you build residential projects in buildings that previously weren't allowed to be done as residential. That aspect of the ordinance helped loosen the zoning and allowed us actually to do the project. But, it's kind of a misnomer that it saves you a lot of money, because you still have to have a safe building-you have to meet the fire codes and you have to have parking. And so, the biggest benefit of the adaptive reuse ordinance is that you get a better zoning rating to do more housing.

For downtown to realize its potential and be a 24/7 area, what must be added to the mix of uses presently available? What unmet demand still begs for new investment?

First, all of the major developers meet on a bi-monthly basis and share ideas. We've got Rite Aid, food courts, markets, restaurants coming into the Fashion District area. And, each area of downtown will start creating these links. Broadway restored some of the theatres. Over a three-year period, as more people move into the Historic Core of downtown, and more night activity sprouts, the notion of the neighborhood being a 24/7 area will be self-fulfilling-the momentum is building gradually. The people who are living there want more to do. They have Disney Center and neat places to go in between the shows at the music hall. But, they'll need more restaurants – medium priced restaurant, not just expensive restaurants-and hangouts.

We found a very strong retail demand at our property, and we foresee that there's going to be even more retail demand. Broadway is already a very busy street, and the theatres are historic. The Orpheum already is hosting well-attended entertainment events and it will continue to blossom gradually. With Staples, Disney Hall, nighttime Broadway, you can see the critical mass building in the downtown area, slowly but surely.

Step back from Santee Court and comment on the inclusionary zoning ordinance presently being considered by the LA City Council?

I'm meeting with Eric Garcetti soon for a "roll-down-your-sleeves" session. In theory, it all sounds good. But, the bottom line is that in this environment, where interest rates now are rising and people are paying crazy prices for land, inclusionary zoning doesn't work. It has to be carefully crafted to make sure that the benefits being provided actually can be used.

For example, let's say you have to build 20% affordable, and they'll give you a height bonus and a density bonus. But, the neighborhood opposes your proposed height. How can the developer realize a benefit and build the project? You are not going to be able to finance the affordable units unless you get full subsidies. And with tight budgets at the state, city and federal levels of government, there isn't going to be as much public money for affordable housing development. So, I don't think inclusionary zoning is going to be successful unless the city can develop fool-proof methods to compensate a developer so that financing is feasible. If it gets to a point where it's too expensive for land, and the city imposes requirements that cannot balance with the benefits, developers will not build in L.A. Obviously, building less housing is not an option for the future of this city and region.

My suggestion is that the city should use some of the land it owns and up-zone it, making it available for affordable housing and mixed-use deevelopment. The city has billions of dollars of land sitting vacant. They should up-zone that land and use that for mixed use projects.

Where's your next development project likely to be?

We have a proposal to develop the Sears property in Boyle Heights. It's a 23-acre site and we're currently evaluating its potential. We've done 30 community meetings and a five-day design charette. It would be a project that includes for-sale workforce affordable housing, large retail, a lot of parking and parks, and it could turn into a regional center. So, we're investigating that project.

So, in your opinion the Los Angeles market is still hot?

Yes, but you have to be careful. We're buying property and doing projects only based on present conditions, and figuring that the market might slow down a little bit. As a result, we're downgrading our performance to make sure that as interest rise and as what we can afford drops, we are not too exposed to market risk. There's a huge demand, but the price of building and land is getting too high.