Standard Companies and Faring are teaming up on a new housing venture that aims to add at least 4,000 new middle-income housing units in California within two years.
The initiative, which the developers say will “create $2 billion of ‘missing-middle’ housing” would be among the most significant recent bets on the state’s housing market if realized. It is part of a public-private partnership with the California Statewide Communities Development Authority (CSCDA), a Joint Powers Authority that was created by the state to help municipalities finance projects that carry a public benefit, such as affordable housing.
“It [$2 billion] is a big number,” said Chris Cruz, managing director of essential housing at Standard Communities, Standard Companies’ affordable housing arm, pointing to strong investor appetite for “these social impact investments that are creating housing that’s very much needed for the middle class.”
Faring, led by Jason Illoulian and based in West Hollywood, is an active mixed-use developer in Los Angeles. In January, its plans to develop a 1.5 million-square-foot project with over 1,200 housing units were revealed by Urbanize.
The Standard-Faring partnership, called Standard-Faring Essential Housing, has been underway for months, but the recent announcement represents a significant scale-up.
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To date, the partnership has converted more than 650 Southern California units into dedicated middle-income housing, according to a press release. Those projects have a capitalization of over $400 million. The partnership also has projects totalling over $300 million in contract, Cruz said.
As part of one $78 million deal, announced in January, Standard and the state authority detailed plans to convert the 150-unit Renaissance building in Carson, California — the first luxury apartment complex built in that city’s downtown — into more affordable middle-income units. Last month, Standard and the authority teamed up to buy a $220 million, 350-unit market-rate rental complex in Carson, and in June that partnership paid $100 million for a 143-unit complex at 3909 San Fernando Road in Glendale.
The middle-income category includes housing intended to be affordable for those who earn between 80 and 120 percent of the area median income — generally working professionals who don’t typically qualify for subsidized housing but who remain priced out of many market-rate rentals in highly expensive areas such as L.A. County and the San Francisco Bay Area.
As California’s housing market continue notching new records it’s a sector that’s seeing more attention, including from the CSCDA, which unveiled its “workforce housing” program late last year.
“There’s nothing for what’s been termed the missing middle,” Jon Penkower, managing director of the CSCDA, told the website Next City in December. “You can’t get tax credits, there’s no federal subsidy, no state subsidy, no local money – there’s nothing.”
More than 500 California cities and counties have joined the CSCDA, which was created in 1984. The authority encourages the creation of more affordable housing by issuing tax-exempt bonds to private project investors, such as major banks. As with other affordable housing projects, a developer then makes money through investor fees; once a market-rate property is converted its rents are adjusted downwards immediately.
The CSCDA has also teamed up with other developers, including Waterford Property Company and Opportunity Housing Group, on at least a dozen or so projects over the last year.
The Standard-Faring partnership expects to be busy.
“This is a statewide problem that we’re only starting to scratch the surface of,” Cruz said of California’s middle-income housing shortage. “Our goal is 4,000 in the immediate to near-term, but over the next few years we want to do 10 times that.”