The Long Beach City Council is chipping away at its State-imposed housing requirements after approving a potentially risky financial plan involving $490 million in tax-exempt bonds to pay for the construction of a 580-unit housing structure in the “Midblock” on Tuesday.
Plenary Properties Long Beach, LLC (Plenary) will be the developer on the project, which includes two eight-story mixed-use buildings with 40,000 square feet of ground-floor retail space at the site of the old Civic Center (Midblock).
The California Community Housing Agency will provide the $490 million in tax-exempt bonds to fund the construction of the project. A joint powers agreement between the City and state agencies will own the land, while Plenary will be responsible for managing the building and repaying the bonds through rental incomes.
The partnership was necessitated by Plenary’s unsuccessful efforts to secure a developer to fund the project.
A similar financial deal transpired for the Oceanaire project, but this time around the City won’t lose out on property taxes, as Plenary has agreed to pay an annual $650,000 “host fee” to the City to compensate for foregone property taxes.
Though council members and staff lauded the development as “100% affordable,” only 120 of the 580 units will count towards the City’s Regional Housing Needs Assessment goals—which requires the City to create 4,158 moderate-income housing units by 2026.
Typically, projects use State Income Limits to determine Area Median Income—a key figure in determining affordability by setting income limits for very low-, low- and moderate-income housing.
In the Midblock project, Plenary used a calculation created by the U.S. Department of Housing and Urban Development’s (HUD) Tax Credit Allocation Committee.
By state calculations, a two-person moderate-income household can earn up to $70,400. Under HUD calculations, that same household can earn up to $113,520 to qualify as moderate-income.
Of the 580 total units, 460 will use HUD limits and 120 will use state limits.
The end result: “affordable” units using HUD limits will cost significantly more.
Those 120 units that qualify for moderate-income households under RHNA will be subject to a 55-year deed restriction, meaning their affordability will remain intact for decades to come.
The current market-rate rent in the area is $3,600 for a two-bedroom unit, and the average rent at Plenary will be $3,037 for a unit of that size (16% discount).
The two buildings will include 118 studio apartments ($1,442 average), 370 one-bedroom units ($2,334 average), 83 two-bedroom units ($3,063 average) and nine townhomes ($3,389 average). On average, the units will be priced at a 16.6% discount from market-rate rents.
Because revenue on the project is dependent on rent growth, vacancy rate and the income capitalization rate (a division of the property’s net operating income by its current market value), the success of the project will be dependent on economic conditions far in the future.
Deputy Director of Development Services Oscar Orsci assured council members that the owners of the property would “carry on the liability for the payment of the bonds” and assume the risk of the deal.
If after 15 years the project fails for any reason, the City has the right to force a sale of the property.
“There are risks from lack of enforcement of the public benefit or regulatory agreements,” said Patrick Ure, Housing and Neighborhood Services bureau manager. “All of those will be mitigated by the City’s annual monitoring of the project.”
During public comment, resident Corliss Lee asked the City to bring on the city auditor to look at the financing structure on the project.
“We pay her to do that. We’ve had a number of financial boondoggles here lately, with the Queen Mary and Community Hospital and now this situation,” Lee said, urging the council not to be in a hurry to approve the deal.
Members of local carpenter, welding, electrical and ironworker unions voiced strong support for the project, given that the owners agreed to a project labor agreement.
The mixed-use buildings will include 885 subterranean parking stalls and ground-floor retail and restaurant space. City staff expressed hope that a grocer would occupy one of the spaces, given the dearth of grocery stores in the downtown area.
Ure noted that the project could generate approximately $2.2 million in retail property tax and $14 million in retail sales tax.
“I’m really impressed by this project, and as a downtown resident, I just think this has so much potential to transform that Midblock Civic Center even further,” Councilmember Cindy Allen said.
The development, located at 321 Ocean Blvd., is estimated to be completed in October 2024, at which point Plenary will begin paying its $650,000 “host fee.”
