The DCP and the lingering impacts of the Great Recession

The question I ended my post with on Saturday was why would Santa Monica enact a Downtown Community Plan (DCP) that makes it easier to build commercial development than housing? Keep in mind that this is taking place during a local, regional and statewide housing crisis, and following a period of 30 years during which something like nine million square feet of commercial development were built in the city, but only a couple of thousand units of housing were built to house the many thousands of new employees.

But first, before getting into that, consider what’s happened in the rest of the city since the enactment of the LUCE in 2010 and the new zoning ordinance in 2015. That history gives a preview of what will happen downtown if the City Council enacts the DCP as currently drafted. The LUCE and the zoning also turn out to favor commercial development, and, sure enough, properties expected to be developed with housing in industrial areas and along the boulevards are instead being developed, or re-used, as one- or two-story commercial projects.

The two biggest examples are in the old industrial area. One is the “Pen Factory” being developed on the Paper Mate site. There the developer Hines had proposed to build 499 apartments to go along with 400,000 square feet of offices and other commercial development. This was too much office, and not enough housing for the big site, but Hines had followed the LUCE standards in developing its plan.

Council Member Kevin McKeown opposed the Hines project and supported the Residocracy referendum that ultimately killed it. He said that Hines would come back and negotiate a better project. McKeown’s intentions were sincere, and I had hoped that he’d be right, given that during the LUCE process he was one of the few who argued against planning staff that the LUCE’s development standards for the Bergamot area called for too much commercial development and not enough housing.

But after the City Council revoked the project’s approval, Hines didn’t renegotiate. They sold the project to new developers who are converting the factory into about 215,000 square feet of offices. Gone are 499 units of housing, along with all other benefits the City negotiated for, including new streets and a sidewalk on Olympic Boulevard. This fiasco would never have happened if the LUCE had not favored office development in the area in the first place—the developer would have had to build housing and would have planned accordingly.

Less well known, but equally a disaster, is what’s happening, or not happening, with the nearly three-acre property on the 2800 block of Colorado known as the Roberts Center. Under a development agreement that site was going to be developed with 231 housing units and only about 60,000 square feet of commercial. The project would have been coordinated with projects on either side of it so that, among other things, Pennsylvania Avenue could be extended through them, breaking up a super block, and helping traffic flow in the area. Now the property owner has abandoned the DA process and is simply rehabbing the existing buildings for new commercial uses. Again, no housing and no community benefits.

Since enactment of the zoning ordinance in 2015, the same thing is happening on the boulevards. Developers are downscaling and building commercial. Properties at Wilshire and Berkeley, and the old Jerry’s Liquor site, that were intended to be sites for apartments will instead become two-story mini-malls, featuring restaurants that will generate more traffic than the apartments would have. The developers needed no special approvals for these projects as they were subject only to administrative approval.

Downtown, where a few projects, under pre-DCP standards, are moving forward after City Council approvals, we can nonetheless see the future in the two-story commercial building recently completed at Fourth and Broadway. On this site there was going to be a mixed-use, primarily residential building, and a plan was approved. But when the developer had to change those plans, to add parking, the project came under new fees charged by the City. The developer opted to build a two-story commercial building, which was also only subject to administrative approval.

IMG_3794

The commercial building at 4th & Broadway built instead of housing.

The City, with the analysis from HR&A Advisors that I discussed in my previous post, has tried to show that housing development under the DCP will be feasible, but the City didn’t ask HR&A to compare the costs, risks, and profitability of residential development against those of commercial. Nor does the DCP take into account how few developers are willing to attempt developing housing in Santa Monica.

Housing development is not for the faint of heart. Two individuals, Craig Jones and Neil Shekhter, are responsible for most of the housing built in downtown Santa Monica over the past 20 years. It’s telling that they both ultimately got into trouble with their lenders. It’s a risky business. Unlike Jones and Shekhter, most developers and (especially) their lenders avoid risks. Given Silicon Beach there’s no risk now and plenty of gain in building one- and two-story retail and/or office buildings, which fly under Tier 1 and only need administrative approvals. It’s these projects that the DCP makes easy—precisely the projects that the rhetoric in the DCP says we don’t want.

So, back to my question, why have Santa Monica’s planners pushed a pro-commercial development plan for downtown? (By the way—I don’t doubt their sincerity. They believe they’ve come up with a “housing plan.” That’s part of what makes this so aggravating.)

It’s not simply a surrender by the planners to the don’t-change-anything crowd, although no one likes being yelled at. It’s true that the anti’s don’t want any more housing built, but housing is their target because housing is what has been primarily built since Santa Monica shut down major office development in the ’90s. (And hotels, but they don’t like them either.)

No, the reasons are deeper and go back to the City’s response to the Great Recession, and the disastrous final years of the LUCE process. Up until the recession hit in 2008 the LUCE was moving towards being a sensible plan that left the neighborhoods alone, continued the slowdown on office development, and concentrated considerable housing development in three commercial zones: downtown, the boulevards, and the old industrial areas near Bergamot Station.

But the recession created a financial crisis for the City. Suddenly I started noticing a big change in the City’s attitude towards the LUCE. The narrative was now all about how Santa Monica was a creative city, and our creative businesses were so important and wonderful, and how good it would be to have more of them. What do you know, but the planners started telling us that new development around Bergamot should be 60 percent commercial, mostly “creative office.”

Why this change? It was obvious, and not really hidden: residents cost the City money for the services they need, while commercial projects pay more taxes to the City than they consume in services. Imagine City Hall as a big cash register. Let L.A. build the housing along the Expo line, and provide the services. Santa Monica will provide the jobs and collect the taxes.

It was around then that the double FAR for housing downtown got thrown out. For five years the planners have been drafting this anti-housing DCP without explaining what was wrong with the old development standards and administrative approval processes that actually got a lot of housing built, creating the downtown they say they admire and want to build upon.

Thanks for reading.

 

2 thoughts on “The DCP and the lingering impacts of the Great Recession

  1. Interesting. But wouldn’t more new rental units provide even more support for the no-growth status quo? Increased commercial taxes aside, isn’t the continuation of the powers-that-be in their interest?  Doug  

    • If you mean by “powers-that-be” the leadership of SMRR, no, they don’t care about new tenants, at least not in terms of voters.

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