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Housing density bonus expected to boost affordable for-sale options

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Currently, the majority of San Diego's affordable housing options have been limited to rental units, leaving little available for middle and lower-income households wishing to buy. To help alleviate this problem, Centre City Development Corp. (CCDC) is now offering an attractive incentive to builders to bring more affordable homes to the city and one of the largest new developments in the area is the first to sign on.

Mondrian, owned by Gray Development, is one of the first development projects in San Diego to take advantage of CCDC’s development intensity bonus.

According to Robb Walker, vice president of KMA Architecture & Engineering, by law developers have the option to pay in-lieu fees as an alternative to actually incorporating affordable units within new projects. The intent is that in-lieu fees will then be used by the city to ultimately create affordable housing. Due to high costs and difficult challenges often associated with integrating affordable housing into their market rate projects, many developers have elected to pay the in-lieu fees rather than actually build the units within their projects.

"We have all been anticipating a resolution and an opportunity to introduce new options to create affordable housing for San Diegans," said Walker. "We believe that the CCDC's new bonus program will lower the costs of creating affordable housing and create larger incentives for developers to build the units rather than paying the in-lieu fees."

Even with existing incentives offered by the city and state, few new projects are currently integrating affordable units. With the new program, CCDC offers a higher "development intensity bonus" to generate additional affordable for-sale housing. Recently, the in-lieu fees that developers were paying nearly tripled from $2.50 to $7.31 per square foot, making the incentive program even more promising in bringing affordable housing to the city, said Suzanne Drolet, associate planner for CCDC.

"Density bonuses are offered at the state and city levels, with a 15 percent bonus from the state and 25 percent bonus from the city of San Diego for projects in which 10 percent of units are dedicated affordable," said Drolet. "CCDC, which doesn't regulate density, offers a 35 percent development intensity bonus, also know as Floor Area Ratio or F.A.R., to builders who integrate affordable housing into their developments. We felt it was time to offer a more attractive option so they would give more thought to the idea."

With the new incentive, when builders dedicate a pre-determined percentage of project units to be affordable, the program allocates a corresponding percentage of additional floor area allowed to be built. According to Drolet, as an added incentive, the developer has discretion over how this additional volume is used, whether for residential, retail or office space, as long as the requisite percentage of affordable residential units are included in the project. As hoped, the program appears to be gaining momentum.

"With the new bonus program, developers are now able to build a larger project than would otherwise be permitted, when they integrate affordable housing into new projects," said Walker. "While builders have always been sensitive to the demand for affordable housing, the new intensity bonus means they finally have more incentives and means to participate."

KMA Architecture & Engineering is the architect for Mondrian, a new 42-story high-rise, mixed-use residential project by Gray Development Group. The building, slated to begin construction at Eighth Avenue and B Street in downtown San Diego, is one of the first to take advantage of the new affordable housing density program. Currently one of the largest developments in San Diego, Mondrian features 895 total residential units. While 650 of these will be offered for rent, 180 units will be offered for sale at market rates and 65 units will be affordable.

Because many San Diego residents cannot afford to live in downtown's chic new residential developments, Mondrian will provide much needed affordable housing and a unique opportunity for those owners to experience downtown living in a new building with exciting amenities.

In addition to the for-sale and rental units, the highly anticipated project also features street-level retail space and six levels of underground parking. A colorful, contemporary design captures the unique urban feel of the neighborhood.

Bruce Gray, president of Gray Development Group, applauds San Diego for offering such an innovative incentive program to make projects with affordable housing components like Mondrian possible.

"The intent behind Mondrian was to bring a unique mixed-use residential building to San Diego combining luxury rentals, affordable housing, market rate condominiums, retail and office all in a single 42-story tower," said Gray. "Very few cities offer an incentive program like this, without which integrated affordable units simply are not feasible. Consequently, Mondrian will be a far more dynamic project that will meet the housing needs of the broadest cross-section of people living and working downtown, not just the wealthy."

With high-profile projects such as Mondrian leading the way, other builders are now taking advantage of the bonus program. According to Drolet, CCDC has garnered interest for five other projects across the city, including a new downtown tower project near the ballpark and an SRO building located at 15th and Imperial, recently approved by the City Council.

"Mondrian is setting an exciting precedent which we hope will be a model for future development in San Diego and perhaps elsewhere," said Walker. "Thanks to CCDC's innovative new bonus program, over the next few years, we hope to start seeing a substantial impact on the housing affordability situation here in San Diego."

Kay is an account executive for Benedetto Communications.

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