Atmosphere Project Wins Despite RDA’s Exit
by Carrie Rossenfeld
April 1st, 2015
SAN DIEGO - As GlobeSt.com reported last week, Wakeland Housing and Development Corp. has closed on $52 million of construction financing from US Bank for Atmosphere, a $79.3-million affordable- and supportive-housing development in Downtown San Diego. The project, which breaks ground this week, is on a site that has been vacant for more than a decade. We spoke with Ken Sauder, president and CEO for Wakeland, about the project and climate for affordable-housing development in Downtown San Diego.
Sauder: "In affordable housing, we have a saying that if you simply build it, the market's there for it."
GlobeSt.com: What makes Atmosphere a significant project for your firm?
Sauder: Atmosphere is the largest project we’ve ever done—it’s an $80-million project—and it’s also the most units we’ve ever built at 205. In addition, it’s in Downtown San Diego, and while we’ve done projects in Downtown San Diego before, this one is going to be our signature project.
We first got into escrow on this project in 2009, so we’ve been working on this for about six years. The property at that time had bene a failed condo conversion, and one of the condo developers had built a big underground parking hole in the ground and didn’t move the project forward. It was hazardous and not well boarded. We worked with the seller and made them fill in the hole and eventually acquired the property, using redevelopment-agency funds to acquire and title it. The worked on it to develop affordable housing, and then the RDAs all went away. We did nothing for a couple of years, and then we started moving forward on it again. We needed to redesign the project for 4% tax credits and 9% tax credits. Basically, we put a condo map on the property and said which specific units would be for the 9% side and which for the 4% side. That took a tremendous amount of work, and we worked with US Bank to get it financed. We brought in different sources of funding, too. It took time to make it happen.
Atmosphere is also important to us because it was a very long, complicated project that had a lot of moving pieces in it, and sometimes the pieces weren’t moving—like when the RDA went away. We were finally able to put the pieces together.
We are a fairly small non-profit in terms of developers. We’re big, but we don’t have gazillions of bucks in the bank, and we had millions of dollars tied up in this thing for years. It’s a long time to be carrying that kind of debt in the form of predevelopment loans. It was somewhat soft debt from friendly lenders, but it still needed to be paid back.
GlobeSt.com: What is the market like for affordable-housing development in Downtown San Diego?
Sauder: In affordable housing, we have a saying that if you simple build it, the market’s there for it. The bottom line is there’s a tremendous need for affordable housing. As soon as units are built, there is no problem renting them out. On our $80-million budget, as in all our projects from $40 million to $80 million, we have a line for marketing of $5,000, but for the most part there is really no marketing. There’s such a strong need for this housing that we have no problem leasing them even without marketing.
The entitling isn’t as much the issue for us; the issue is organizing the financing and getting those sources lined up. The entitling and design reviews were really great to go through because they went through Centre City Development Corp., which is now Civic San Diego. It doesn’t constantly get kicked back and kicked back, and there’s no bureaucracy.
Rent at Atmosphere will range from $394 to $1,191 a month, and construction is In terms of processing projects and getting them through the entitlement process, it’s a little more difficult and design review is not necessarily as easy outside of the redevelopment areas. Having said that, we have never been held up in any project—to the best of my knowledge—because of the entitlement process taking too long. On occasion, we may have had hold-up from neighborhood obligation or a neighborhood being against the project. There have been no major NIMBY issues either. When we’ve presented projects to neighborhood groups, they’ve made suggestions, and we worked that out. The only problems we have in terms of putting these deals together are on the financing side of it. There are different layers and levels of financing in affordable housing. Entitlement is challenging, but it doesn’t hold up our timeline very much.
GlobeSt.com: What else should our readers know about this project?
Sauder: What impresses me about this project is the architecture. Obviously, I’m biased, but it’s beautiful. Joseph Wong Design Associates did a fantastic job on this project. It will be a great contribution to Downtown and will help make us look like a classy place. Also, it’s unique because of the wide spectrum of people it will be serving. The people in here will be homeless and other special needs, and there will be others who are simply working families. This is a great thing about this project.