Categoria: New Homes

Silicon Valley Bank’s Other Key Partners: Affordable Housing Developers

By Dana Hull and Sarah Holder | Bloomberg

Construction on The Kelsey Civic Center, a 112-unit affordable housing project across from San Francisco City Hall, was supposed to begin this week.

But the lender for the project’s $52 million construction loan was Silicon Valley Bank.

On Friday — the date the project’s financing was slated to close — regulators shut down the bank, known for its ties to the tech community but also a financing source for local developers. The Kelsey and its co-developer are now talking to other potential lenders and hoping that any delays can be minimized.

“SVB was an important player in the tech scene and the startup scene, but they were also a really important player in the affordable housing scene,” Micaela Connery, co-founder of The Kelsey, said by phone.

No state is under more pressure to build affordable housing than California, which is losing residents partly because of chronic housing shortages caused by sky-high rents and home prices. More than 1.2 million households lack access to an affordable rental home, according to the California Housing Partnership, and sprawling tent encampments of unsheltered residents are common in major cities.

READ MORE: Most cities still falling behind affordable housing mandate, state numbers show

The fallout of SVB comes as Gov. Gavin Newsom and California’s attorney general are ramping up enforcement of a new state law intended to increase the state’s critically low housing stock. The median single-family home price is about $750,000, more than twice the US median.

The aggressive push is pitting the state against local authorities that Newsom accuses of obstructing his plan to add 3.5 million new homes in California, including affordable units. Last week, Newsom and Attorney General Rob Bonta announced the state is suing Huntington Beach for failing to comply with the new multifamily zoning laws intended to create more housing.

READ MORE: Newsom sues Surf City for affordable-housing snub

On Sunday, Newsom praised the Biden administration for their actions to protect SVB depositors, which he said in a statement had “profoundly positive impacts” on several pillars of California’s economy, including “affordable housing projects that can continue construction.”

Developers of lower-cost housing say they’re confident other lenders will step into the void left by SVB. But underwriting takes time, and any delay often adds to a project’s overall price tag. Rising interest rates and inflation are already lifting construction costs.

Laura Foote, the executive director of YIMBY Housing, a nonprofit that advocates for housing growth in the region, said the sector was heartened by the federal government’s actions over the weekend.

Affordable-housing developers “are very stressed about the delays, but they’re not yet saying ‘oh my gosh, and now this building won’t get built,’” said Foote.

RELATED: Irvine eyes 4,536 new rentals: Why building homes isn’t always war

Silicon Valley Bank has invested and loaned more than $2 billion to fund affordable housing projects in the Bay Area between 2002 and 2021, where it says it’s helped build or rehabilitate about 10,000 affordable units. In its 2022 ESG report, the bank outlined a plan to invest more than $1 billion more in residential mortgages in low- and moderate-income areas in Massachusetts and California by 2026.

The Kelsey “will find a path forward,” said Connery. “The big loss is scheduled. Any delay is an opportunity cost.”

Why A New-Construction Home May Cost Less Than You Expect

By Holden Lewis |

For home buyers who struggle to find suitable existing homes for sale, it may be time to look at new construction.

Homeowners continue to hang onto their low-rate mortgages rather than selling, keeping existing homes off the market. Meanwhile, homebuilders have hundreds of thousands of unsold dwellings in their inventories. And many homebuilders are offering incentives to prod buyers into signing purchase contracts: According to the National Association of Home Builders, 57% of builders offered some kind of incentive in February.

Even first-time buyers, who tend to have lower housing budgets than move-up buyers, could benefit from shopping where new houses or condominiums are going up. Believe it or not, a few builders pursue first-timers. D.R. Horton is one; it reported that 65% of homes it sold in 2022 cost less than $400,000.

Understanding how new-construction deals work differently from existing home sales can help you find the savings hiding behind the sticker price.

The NAHB says 31% of builders reduced prices in February, by an average of 6%. That’s a sign of distress; builders don’t like to trim prices. (File photo: Craig Hartley/Bloomberg News) Builders prefer incentives to lowering prices The NAHB says 31% of builders reduced prices in February, by an average of 6%. That’s a sign of distress; builders don’t like to trim prices.

“You can’t just blindly reduce prices,” Sheryl Palmer, CEO of Taylor Morrison Home Corporation, said in a recent earnings call with analysts. “I think the more you just reduce prices, the more the consumer expects us to do.”

Plus, cutting prices in a housing development can infuriate customers who bought earlier, at higher prices. Using incentives can decrease the total cost of the buyer’s contract while making it appear they paid the same as their neighbors.

Palmer added that customers mostly need “help on monthly payment and help with cash to close.” Builders across the industry have landed on that same conclusion, so they’re focusing on financial incentives to get homes sold.

According to the NAHB, in November:

29% of builders paid closing costs or fees. 27% offered options or upgrades at no or reduced cost. 26% paid to reduce the buyer’s interest rate temporarily. 24% paid to reduce the buyer’s interest rate permanently. Negotiate lower closing costs, such as rate locks When you get a mortgage, you incur thousands of dollars in fees known as closing costs. But because large homebuilding companies either offer mortgages themselves or are affiliated with their preferred lenders, they can employ creative financing. The builder can pay some of the closing costs while holding the line on the home’s price. It’s a way to hand you a quiet discount while standing firm on price.

With construction delays rampant, one type of closing cost has become prominent: the fee paid for an extended rate lock. Normally, a lender guarantees your rate for 30 to 60 days free or for a relatively small fee. Lenders often charge to lock a rate for more than 30 or 60 days.

But what if a builder doesn’t complete the house on time? In that case, it might extend an expiring rate lock without charging a fee.

Construction delays aren’t the only reason for a builder’s lender to offer a free or inexpensive extended rate lock. Extensions can help buyers who need to sell their current homes first. Chuck Vander Stelt, a real estate agent in Valparaiso, Indiana, says a builder might offer an extended rate lock to give the buyer time to sell for top dollar.

According to the National Association of Home Builders, 57% of builders offered some kind of incentive in February. (AP Photo/Gene J. Puskar) Look for discounts on upgraded amenities When you shop for a new house that’s under construction, the builder tries to upsell you with customized amenities and fancier materials: a kitchen island, gorgeous tile in the shower, windows that are ultra energy-efficient. Ideally, both sides benefit from upgrades, with the builder making a profit on markups, and the buyer paying less than it would cost to get the work done later as a renovation.

An eager-to-sell builder might throw in such upgrades free or for cheap while holding the line on the home’s base price, says Andy Sachs, managing broker for Around Town Real Estate in Newtown, Connecticut.

In exchange for discounts on upgrades, the builder is likely to ask for a bigger deposit, Vander Stelt says, “to really put it out there that this [purchase] is a certainty.” After all, if you cancel the purchase after the builder installs your upgrades, the builder might have to cut the price to attract buyers who don’t share your taste.

Taylor Morrison executives talked of “deposit strategy” in the company’s recent earnings call. “Our teams have done a great job using the deposit as part of the overall negotiations,” said Erik Heuser, the company’s chief corporate operations officer. “So if we’re giving some additional incentives, we’ve asked for more deposits.”

Secure a lower interest rate with a buydown Paying to reduce the mortgage interest rate, temporarily or permanently, is one of the keenest affordability tools that builders can wield. A lower interest rate translates into lower monthly house payments — something that has remained at the top of buyers’ minds since last fall, when the 30-year mortgage climbed above 6%, then stayed there, for the first time since 2008.

“Rate buydowns remain among the top incentives for our customers,” said Ryan Marshall, president and CEO of PulteGroup, on a recent earnings call.

With a temporary rate buydown, the builder pays some of the buyer’s interest for the first one to three years. The buyer has a discounted monthly payment during that period.

A permanent rate buydown, also known as paying discount points, reduces the interest rate for the mortgage’s full term. The rate discount, and therefore the monthly savings, tend to be smaller than on a temporary buydown. But the savings can accrue big-time over the years.

“We do, as an ordinary course, use mortgage rate buydowns, and many of those are for the life of the loan,” said Bill Wheat, executive vice president and chief financial officer for D.R. Horton, on a recent earnings call.

Definitely bring along your buyer’s agent Closing costs, upgrades, rate buydowns — they’re complex, and the sales agent for a new housing development knows how to get the best deal for the builder. You’ll be overmatched if you negotiate a deal by yourself. Secure the help of an experienced buyer’s agent.

“The value that a real estate agent brings is that we can speak in realtor-speak to a builder,” Vander Stelt says. “We can talk about what the buyer brings to the table and illustrate the buyer situation in a way that looks more appetizing to a builder.”

And it’s not going to make the builder mad if an agent represents you.

“Most builders really don’t have a problem working with the agents because they’re the ones that are gonna be their mouthpieces to the general public about this great development that’s being built,” Sachs says.

If the developer asks you to register the first time you visit (whether online or in person), make sure to list your agent so they’ll collect their commission.

Builders emphasize different types of price breaks, depending on the customers they’re trying to attract to each community, how sales are going that week and month and which direction mortgage rates are moving. A diligent real estate agent will know which incentives a builder is offering and how to negotiate for them.

“Having an advocate is a good thing,” Sachs says.

More From NerdWallet

The article Why a New-Construction Home May Cost Less Than You Expect originally appeared on NerdWallet.

See The List: Developers File 26 Southern California Builder’s Remedy Projects

As of late January, developers filed 26 applications to build 8,642 new homes under California’s three-decade-old builder’s remedy provision, setting aside 1,795 of those as low-income units.

The law, adopted in 1990, forbids cities and counties without a state-certified plan called a “housing element” from denying affordable housing projects because they conflict with local zoning restrictions or their general plan.

To qualify, the projects must set aside at least 20% of the units for low-income residents or all of the units must be affordable to moderate-income residents.

State law requires cities and counties to plan for housing at all income levels, redrafting their housing element — a part of their general plan — every five to eight years.

The housing element details how a municipality will meet its fair share of regional housing needs.As of Friday, Feb. 24, 251 of the state’s 539 municipalities were vulnerable to the builder’s remedy because they don’t have a state-approved housing plan.

Eight San Diego County jurisdictions have yet to adopt housing plans due in April 2021; and 108 jurisdictions in six other Southern California counties (Los Angeles, Orange, Riverside, San Bernardino, Ventura and Imperial), have yet to adopt plans due in October 2021.

Another 103 Bay Area jurisdictions have yet to adopt housing elements due at the end of January. The remaining 32 “out of compliance” jurisdictions are in Santa Barbara County or rural parts of the state.

To see an interactive Google map showing builder’s remedy projects in Southern California, CLICK HERE.

Here’s the list of Southern California’s builder remedy projects so far (in order of date filed):

—13916 Polk St., Sylmar: Total Units: 45. Affordable Units: 9. Stories: 3.

—Ten21 Harbor, 1021 N Harbor Dr., Redondo Beach: Total Units: 30. Affordable Units: 6. Stories: 6.

—1420-22 20th St., Santa Monica: Total Units: 50. Affordable Units: 10. Stories: 6.

—One Redondo, 1100 N. Harbor Dr., Redondo Beach: Total Units: 2,290. Affordable Units: 458. Stories: 1-18.

—1215 19th St., Santa Monica: Total Units: 34. Affordable Units: 34. Stories: 6.

—1437 6th St., Santa Monica: Total Units: 170. Affordable Units: 34. Stories: 16.

—1443 Lincoln Blvd., Santa Monica: Total Units: 170. Affordable Units: 34. Stories: 16.

—1518 & 1524 7th St., Santa Monica: Total Units: 213. Affordable Units: 43. Stories: 9.

—601 Colorado Ave., Santa Monica: Total Units: 200. Affordable Units: 40. Stories: 15.

—Seaside Ridge, 929 Border Ave., Del Mar: Total Units: 259. Affordable Units: 85. Stories: 1-5.

—1425 5th St., Santa Monica: Total Units: 360. Affordable Units: 72. Stories: 10.

—707 Colorado Ave., Santa Monica: Total Units: 215. Affordable Units: 43. Stories: 9.

—2901 Santa Monica Blvd., Santa Monica: Total Units: 222. Affordable Units: 45. Stories: 12.

—3000 Nebraska Ave., Santa Monica: Total Units: 2,000. Affordable Units: 400. Stories: 15 (plus five underground parking floors)

—1238 7th St., Santa Monica: Total Units: 75. Affordable Units: 15. Stories: 10.

—1925 Broadway, Santa Monica: Total Units: 340. Affordable Units: 68. Stories: 11.

—1238 10th St., Santa Monica: Total Units: 190. Affordable Units: 38. Stories: 12.

—1433 Euclid St., Santa Monica: Total Units: 200. Affordable Units: 40. Stories: 18.

—1007 Lincoln Blvd., Santa Monica: Total Units: 90. Affordable Units: 18. Stories: 12.

—1038 10th St., Santa Monica: Total Units: 90. Affordable Units: 18. Stories: 12.

—125 & 129 S. Linden Dr., Beverly Hills: Total Units: 200. Affordable Units: 40. Stories: 16.

—600 Foothill Blvd., La Cañada Flintridge: Total Units: 80. Affordable Units: 16. Stories: 5.

—12347 E Carson St., Hawaiian Gardens: Total Units: 13. Affordable Units: 3.

—Westridge Golf Club, 1400 S. La Habra Hills Dr., La Habra: Total Units: 530. Affordable Units: 110. Stories: 1-3.

—Chapman Yorba VIII, 2601 Yorba St., Orange: Total Units: 204. Affordable Units: 41. Stories: 6.

—Village at Orange Mall, 2022 N. Tustin St., Orange: Total Units: 372. Affordable Units: 75. Stories: 2-3

Developers Propose 576 Homes In Orange, Some At The Mall, Others By Hospital

The city of Orange became Southern California’s fifth municipality facing housing proposals that could bypass local zoning restrictions because it lacks a state-approved housing plan.

Two preliminary applications landed at City Hall in January seeking to build 576 new townhomes and apartments under the so-called “builder’s remedy.”

The 1990 state provision requires local governments without approved housing plans, or “housing elements,” to approve projects that conflict with local zoning and the general plan, so long as 20% of the homes are for low-income households or all of the homes are for moderate-income households.

“They should call this a builder’s free-for-all instead of a builder’s remedy,” newly elected Orange Mayor Dan Slater said in a text. “This is but one of many knucklehead decisions that our Sacramento representatives have foisted on cities to interfere in long-standing local planning processes.” 

One application seeks to build 297 townhomes plus 75 low-income “accessory dwelling units” along the back side of the partly vacant, 50-year-old Village at Orange shopping mall on North Tustin Street. The 14-acre project would take over much of the rear parking lot, a vacant JCPenney building and part of the mall.

The other seeks to build 204 apartments — including 41 low-income units — in six-story buildings on 8 acres along Santiago Creek behind the Chapman Global Medical Center.

An attorney for Stonefield Development, backer of the Santiago Creek apartments, said his client still wants to pursue its original plan to build 158 senior apartments in five, three-story buildings. The new application was filed as “a fallback” plan to lock in their right to develop the property if the senior housing gets denied.

Some residents raised objections to the proposals, saying the new homes are too tall, too massive and too close to existing single-family neighborhoods.

But they’re at a loss about what the city can do to stop them since Orange still doesn’t have a plan for where to put the 3,936 homes the state mandated it build by 2030.

“What I really object to is the state taking away the ability of the city council to regulate zoning and the general plan,” said Orange resident Shirley Grindle, a local government watchdog who opposes the developments. “I went down to City Hall. Everybody is opposed to this. I wish the city would get together and sue the state agencies behind (this provision).”

The vacant JCPenney building would be the center of a plan to build 297 townhomes and 75 low-income “accessory dwelling units” on the back parking lot of The Village at Orange shopping mall. Because Orange failed to adopt a state-approved housing plan, the city can do little to stop the development even though it violates local zoning rules. (Photo by Mark Rightmire, Orange County Register/SCNG) Missed deadline Orange isn’t alone in missing state planning deadlines.

The city of 140,000 is one of 109 municipalities in the six-county Southern California region without a state-approved housing element, which was due in October 2021.

The builder’s remedy submissions come after developers ran into opposition to previous proposals at the two sites.

The Santiago Creek proposal wasn’t meant to pressure the city into approving the developer’s previous senior housing plan, even though it features 46 more units in much taller buildings, said Allan Abshez, Stonefield’s attorney.

Grindle, however, objects to both plans, saying the buildings would “just loom over the backyards of those homes” on the opposite side of Santiago Creek.

A vacant lot located at the intersection of Yorba Street and Chapman Avenue, just east of Santiago Creek, behind the Providence St. Joseph Heritage Medical Group building and the Chapman Global Medical Center in Orange on Tuesday, February 7, 2023. It is a proposed location for future housing in Orange. (Photo by Mark Rightmire, Orange County Register/SCNG)

A building and back parking lot of the The Village at Orange shopping mall in Orange, east of Canal Street in Orange, on Tuesday, February 7, 2023. It is a proposed location for future housing in Orange. (Photo by Mark Rightmire, Orange County Register/SCNG)

A building and back parking lot of the The Village at Orange shopping mall in Orange, east of Canal Street in Orange, on Tuesday, February 7, 2023. It is a proposed location for future housing in Orange. (Photo by Mark Rightmire, Orange County Register/SCNG)

The view from La Habra’s Westridge Golf Club, which could become a future site for 530 new homes under Lennar’s new housing plan, filed with the city on Jan. 17. The plan includes 110 low-income apartments, in addition to 238 houses and 138 townhomes. (Photo by Jeff Collins, the Orange County Register/SCNG)

The vacant JC Penney building would be the center of a plan to build 297 townhomes and 75 low-income “accessory dwelling units” on the back parking lot of The Village at Orange shopping mall. Because Orange failed to adopt a state-approved housing plan, the city can do little to stop the development even though it violates local zoning rules. (Photo by Mark Rightmire, Orange County Register/SCNG)

Golfers line up their putts at La Habra’s Westridge Golf Club. Lennar Homes is seeking to build 530 new homes on the site despite city objections. Because La Habra has yet to adopt a housing plan, state law may require city approval even though the proposal conflicts with the city’s general plan. (Photo by Jeff Collins, the Orange County Register/SCNG)

An 8-acre site along Santiago Creek designated as open space could be transformed into six-story apartment buildings with 204 units under a fallback plan a developer filed last month. The “builder’s remedy” will be used to build the apartments if the city doesn’t approve the developer’s smaller senior housing proposal, an attorney said. (Photo by Mark Rightmire, Orange County Register/SCNG)

Another resident complained that the Village at Orange proposal, which abuts “your typical Leave It to Beaver neighborhood,” would violate zoning and height limits. The mall is zoned commercial with two-story height limits, said Doug Hamilton, a local real estate broker.

“We didn’t like (the plan) because most of the homes they were planning are three stories,” Hamilton said. “They want to tear down (30% of the) walkable mall. … Retail taxes is what pay for city services. It’s not good for the city, it’s not good for the community and actually not good for the longevity of the mall.”

Malls throughout the nation have been converting space into housing as online shopping takes a greater share of retail spending. A former owner gave the aging Village at Orange mall a facelift to boost foot traffic, then promptly sold the 855,728-square-foot center in 2016. In addition to the former JCPenney, the Sears building and the former Todai restaurant near the main entrance have long been dormant.

20 other applications Although the builder’s remedy is now 32 years old, the first such applications surfaced last summer.

In addition to Orange, developers filed 20 other builder’s remedy applications in Santa Monica, Redondo Beach, Beverly Hills and La Habra, according to government records and press reports. All told, the proposals in all five cities call for 8,240 new homes, nearly 1,700 of them affordable to low-income households.

The passage of Senate Bill 330 in 2019 “transformed (the builder’s remedy) into a nuclear option for developers to deploy in municipalities with persistent barriers to housing production,” Rand Corp. economist Jason Ward said in a commentary published last fall in the Santa Monica Daily Press.

The city of Orange is scheduled to vote on a revised housing element on Friday, Feb. 10, and state housing officials indicated last month they probably will approve the new version. But state approval won’t invalidate the two builder’s remedy applications since they were filed while the city still was out of compliance.

The state rejected the city’s earlier plan, submitted last February, citing technical reasons, including discrepancies and a desire for more analysis of homelessness, segregation and the location of affordable housing sites.

Hamilton conceded the city may share some of the blame by not adopting an approved housing element sooner.

“If they were caught flat-footed, they should have known more about (the builder’s remedy),” he said.

“I’m not aware of what was done prior to my election,” added Slater, who took office in December after defeating incumbent Mayor Mark Murphy.  “But … we have been pushing to get our updated housing element approved since before we were even sworn in.”