Two Failed Projects Underscore the Challenges of Building Affordable Housing - Voice of San Diego

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Two Failed Projects Underscore the Challenges of Building Affordable Housing

The collapse of two affordable housing projects that had been set to receive funding from Civic San Diego, the city’s downtown development agency, speaks to the difficulties in getting such project to the finish line.
Civic San Diego
Civic San Diego holds a Downtown Community Planning Council meeting. / Photo by Adriana Heldiz

Mayor Kevin Faulconer announced a year ago that Civic San Diego, the city’s downtown development agency, had $25 million to invest in affordable housing projects. Two of the five projects that got a tentative go-ahead for that funding have since fallen apart.

Developers of a potential Barrio Logan project for veterans last week decided to walk away from the plan.

And Wakeland Housing recently told Civic its plan to rehabilitate 159 units in three southeastern San Diego neighborhoods had reached a standstill. Now the developer’s vying for a loan for a project two-thirds smaller.

Three other projects – one for seniors and homeless veterans and two supportive housing developments – are moving forward. The money is a key piece of Faulconer’s broader plan to build more housing. His plan largely focused on regulatory changes, but the $25 million was an immediate cash infusion to help build shovel-ready affordable housing projects.

That two of the first five projects crumbled reflects the tenuous nature of affordable housing financing. Developers face a process akin to a Jenga game, trying over months or years to secure and align multiple financing sources while holding onto property. A project can collapse due to one missing piece.

The failed projects also underscore challenges the city faces as it tries to fast-track affordable housing projects, which that can be snarled by everything from neighborhood opposition to meeting differing demands from investors and funders.

“Everything in these affordable deals simply needs to be working together like clockwork to make it happen, and it just simply doesn’t always go like that,” said Wakeland CEO Ken Sauder.

Sauder said he approached Civic earlier this year when a tax credit investor in one of Wakeland’s planned sites decided not to sell. Now Wakeland’s working on a smaller 56-unit senior housing project in Grantville.

The Barrio Logan project met a more dramatic end.

Last month, Civic staffers informed Santa Clara-based Roem Development Corporation it would ask the City Council to approve a $4 million loan for their 39-unit veteran housing project along Commercial Street.

Roem looped in City Councilman David Alvarez, who represents the area and saw it as a project that could help revitalize the dilapidated corridor.

But there was a catch, as Roem told Civic at the time: The developer needed another $3.5 million to seal the deal, and Civic couldn’t promise it.

The developer pledged to try to make it work.

Emails obtained through a public records request show Civic, Roem and Civic research consultant Keyser Marston continued to discuss plans over the next few weeks, until communication suddenly halted.

That unsettled Roem. By March 16, Roem’s vice president of marketing and business development let Civic know the company couldn’t wait anymore. It needed to decide whether to put down another deposit to hold onto the project site.

Company officials hadn’t heard from Civic in three weeks.

“Due to timing constraints with the upcoming funding applications and our current contract with the seller, we need a firm commitment by Wednesday of next week (3/21) or ROEM will be officially moving on and dropping the project,” Roem’s Stephen Emami wrote in a March 16 email to Civic and its consultant. “It would be a shame for the city, Civic SD, the community, San Diego and for everyone else counting on a project of this nature to let perish, and it comes with great regret to be in this position, however, ROEM has no other choice but to stop the bleeding if there is not going to be a partnership memorialized so that ROEM can continue through with the next crucial steps in obtaining the remain funds necessary to make this project happen.  ROEM has provided everything that Civic San Diego has requested, (as you can verify in the email chain below) as well as spent several hundred thousands of dollars on design coordination, land deposits, community outreach, etc …”

Civic officials say they never walked away from their initial offer.

“Civic stands committed to recommend to City Council approval of a loan for $4 million,” Civic Vice President Kristine A. Zortman wrote in an email to VOSD last week.

Around that time, Alvarez and his chief of staff tried to sound the alarm, raising the issue with city Chief Operating Officer Kris Michell and Faulconer Chief of Staff Aimee Faucett in a meeting the day before Roem’s March 21 deadline.

Alvarez feared bureaucracy and chaos at Civic had scuttled the project. After all, the timing of the stalled communications lined up with Civic president Reese Jarrett’s abrupt announcement that he planned to retire.

Civic and Deputy Chief Operating Officer David Graham, the city official who oversees Civic, say the timeline was unrelated and the Civic project manager working with Roem was busy working on a loan for an Encanto housing project at the same time.

Zortman said she wishes Civic had contacted Roem during that time.

She said Civic’s consultant finished a review of Roem’s financing proposal in late February and had no inkling of Roem’s March 21 deadline until receiving the email.

“We probably should have picked up the phone and said, ‘Hey, Roem, this is all good news. We’re continuing to move forward with our negotiations and the attorney’s office drafting the agreement,’” Zortman said. “We didn’t and it wasn’t until we got the email on the 16th that we were made aware of anything as it related to the March 21 deadline.”

Alvarez was unimpressed with Civic’s response.

“We should be doing everything we possibly can not just for this project but for any other projects out there that are seeking this type of financing, getting it out the door, getting these projects built and getting people housed,” Alvarez told Voice of San Diego the day after the March 21 deadline. “It does infuriate me that the response just shows the lack of seriousness on trying to address this problem.”

Alvarez’s appeals weren’t enough.

The developer had another problem.

Alex Sanchez, a former Santa Clara Housing Authority chief who’s now Roem’s executive vice president, said Roem learned it wouldn’t hear back from another key funding source until the final quarter of this year.

Roem had hoped the state’s Veterans Housing and Homelessness Prevention Program could fill in its final funding gap.

Sanchez said his company decided it couldn’t wait. Bad timing plus increasing interest rates and labor and material costs convinced Roem the Barrio Logan project shouldn’t go forward.

“At the end of the day, it’s just too small, too many hoops that we have to go through, too much uncertainty,” Sanchez told VOSD.

Graham and Civic officials say their plans are largely on track. A $6.25 million Civic loan for a 66-unit project for seniors and chronically homeless veterans in Encanto was already approved by the City Council last month, and a loan for 51-unit San Ysidro development should go to the City Council soon.

They also hope to find a project to replace the canceled Barrio Logan project.

Sauder said many developers have projects that could qualify for a Civic loan.

“Most of us have developments simply sitting there waiting to be funded,” Sauder said.

The challenge has always been getting them to the finish line.

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