In the right market, it is possible to make new construction workforce housing projects pencil.
By Kelsi Maree Borland|July 23, 2018 at 04:00 AM
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It is no secret that there is a shortage of workforce housing in Southern California, but with high land prices and construction costs, bring new workforce housing supply to market is a challenge. LaTerra Development , however, is breaking the barrier. The developer recently completed a new construction workforce housing community in Chula Vista—and sold it ahead of schedule for $33 million—but is looking for more opportunities throughout Southern California where they can make new workforce housing projects pencil.“We are actively looking to diversify, and we think the workforce-housing sector is a good place to be. We wanted to serve the workforce-housing sector,” Chris Tourtellotte , managing director of acquisitions and capital markets at LaTerra Development, tells GlobeSt.com. “This could be your teachers, firemen, policemen. Good jobs, but not $150,000 per year tech company jobs. That is really our strategy.”The firm’s strategy is to find land at lower costs and build a low-density product without costly features, like subterranean parking. “It is partly a function of lower land costs and it is also a function of the ability to build lower density project,” explains Tourtellotte. “When you can build lower density and you don’t need to have below-grade parking, your construction costs are lower and you can offer lower rents.”Bringing new construction projects to market is challenging regardless of the product type, but workforce-housing product, which requires lower rents, is even more difficult. Tourtellotte says it is possible outside of core markets, where you have to charge high rents to offset land and construction costs. “We have one of the biggest pipelines of apartment development,” he says. “A lot of what we do in submarkets like Santa Monica, West Hollywood or Burbank is buy land, get it entitled and we end up building mid-rise podium product with below-grade parking. Those projects are close to jobs and transportation, and they are walkable. However, land is more expensive in those markets, and so they require higher rents to make the project pencil.”There are opportunities to build new workforce housing product in the right markets. “We are looking in submarkets in Los Angeles, San Diego and Orange County where we can build workforce-housing product,” explains Tourtellotte. “We are looking for areas where we can build two- and three-story walk-up product that is surface parked.”In San Diego, Chula Vista is that market. It has always been popular, but the market is also going through a revitalization. “Chula Vista has a nice Downtown area and it has good schools. It has always been a really nice submarket, but now there has been some new development near the border with the Chula Vista Bay Front master plan development, which will help transform the Chula Vista waterfront into a thriving residential and retail area,” says Tourtellotte. “The city is also revitalizing Main Street. So, it continues to improve, but it has always been a nice submarket and it has always been a nice submarket with really low vacancy rates.”LaTerra is looking for more development opportunities in Chula Vista market for workforce product. “We are actively looking for new development opportunities in San Diego and Chula Vista, and we are getting close to acquiring,” says Tourtellotte. “We think this is a great place to be.”
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