SR-407-003-03
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Santa Monica,
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California
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C/ED: HD:JG: jt
city Council: 4/12/88
TO: Mayor and city Council
FROM: City staff
SUBJECT: Recommendation to Authorize Staff to Proceed with Re-
placement of City-owned Rental Housing Units at 1616
and 1642 Ocean Avenue
INTRODUCTION
This report transmits information regarding the development of a
replacement plan for the City-owned properties at 1616 and l642
Ocean AVenue. The report recommends that the City Council au-
thorize staff to develop a Replacement Housing Plan to replace
twenty-eight (28) rental housing units on the two sites, and to
secure a removal permit from the Rent Control Board.
BACKGROUND
The City of Santa Monica owns twenty-eight (28) mUlti-family
rental housing units at 1616 Ocean Avenue (seventeen units) and
1642 Ocean Avenue (eleven units). These properties are located
across Ocean Avenue from the Rand Corporation on either side of
the Pacific Coast Highway approach (see Attachment 1). The city
acquired the properties in 1973 and 1975 with Gas Tax funds for a
highway improvement proj ect that was subsequently re-evaluated
and cancelled. The Housing Division is responsible for oversee-
ing the management and maintenance of these units in addition to
the Division's other responsibilities.
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1616 Ocean Avenue is managed for the city by Anthony Dituri Com-
pany, Realtors, a private management company. This firm performs
routine maintenance and repairs, collects rents, and screens pro-
spective tenants. The fee for these services is six percent (6%)
of the building's gross rental receipts. 1642 Ocean Avenue is
managed by Mr. Mil ton Stark, the son of the property I s former
owner. The city entered into a contract with Mr. Stark for man-
agement services when the building was acquired. Mr. Stark col-
lects rents and performs routine maintenance functions, and
receives a rent-free unit, a furniture allowance, and five per-
cent (5%) of the building's gross rental receipts for his
services.
The unit mix at the two properties consists of fifteen (15) zero-
bedroom efficiency units, eleven (11) one-bedroom units, and two
(2) two-bedroom units. Maximum Allowable Rents (MARs) for the
units range from an average of $223 per month for efficiency
units to $274 per month for two-bedroom units. Nine tenant
households consist of senior citizens, and one tenant household
is assisted by the section 8 Program. The Daybreak Homeless Wom-
en's Center is located in both commercial units and one residen-
tial unit at 1616 Ocean Avenue.
The city council directed staff in fiscal year 1985-86 to analyze
the redevelopment potential of the two properties. Department of
Community and Economic Development (ClEO) staff have been working
with the pier Division of the Department of General Services to
analyze the feasibility of building a pier parking structure
which would include the property at 1642 Ocean Avenue. Reuse of
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the property at 1616 Ocean Avenue for commercial development and
possibly park space is also being explored. In order to clear
the properties for other uses, the city would have to obtain a
removal permit from the Rent Control Board and replace the rental
units in a comparable location elsewhere in the City.
The following sections of this Report describe: (1) the acquisi-
tion of the Ocean Avenue properties; (2) the rehabilitation needs
of the properties; (3) the need to replace the housing on the
properties elsewhere; (4) the proposed replacement housing site,
(5) the steps which would be necessary to replace the housing 1
and (6) a tentative timeline for the replacement housing project.
DISCUSSION
Property Acquisition
The properties at 1616 and 1642 Ocean Avenue were acquired by the
city with Gas Tax funds in 1973 and 1975, respectively. The two
properties were acquired for a total purchase price of $430,000.
All of the properties' net rental revenue since acquisition has
been deposited in the City'S Gas Tax Fund account. Total revenue
paid into the Gas Tax Fund to date is approximately $530,886.
This represents total repayment of the purchase price of the
properties plus an annual simple interest rate of approximately
2%.
Rehabilitation Needs
Both City-owned apartment buildings are in need of significant
rehabilitation to maintain and improve their habitability. Their
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repair needs and the approximate costs thereof were estimated by
staff after thorough inspections of the interior and exterior of
each property:
1616 Ocean Avenue: Maj or repairs were performed at 1616 Ocean
Avenue several years ago, including complete exterior repainting
and installation of a security system and new roof. The building
itself is in good condition, but most of its individual apart-
ments need extensive work, including new plumbing fixtures, new
floor coverings, and repainting. Total repair costs are esti-
mated at $50,000, or approximately $3,000 per unit.
1642 Ocean Avenue: This property has the most critical repair
needs, including a new roof, new skylights and windows, new stuc-
co over most of the building, structural improvements, new water-
lines, new heating and electrical systems, security improvements,
and extensive interior work including plastering, painting, car-
peting and plumbing. Total repair costs are estimated at
$250,000 to $275,000, or approximately $23-25,000 per unit.
The total cost of rehabilitating both properties would be approx-
imately $300-325,000, or $10-12,000 per unit.
Need for Replacement
Replacement of the units at l616 and 1642 Ocean Avenue is appro-
priate at this time for a number of reasons:
1) Substantial rehabilitation of the properties will be
necessary in the near future to maintain and improve
their habitability. The City funds necessary for
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rehabil i tation could be more economically devoted to
developing new units in a more appropriate location
which would have a much longer useful life. Analysis
indicates that the funds required for rehabilitation
constitute approximately half the amount needed to
develop new replacement units.
2) By developing new units under the management of an out-
side party, the city would no longer have to act in the
inappropriate role of residential property owner and
manager. In addition, the large amount of staff time
currently spent overseeing the management and main-
tenance needs of the properties could be shifted to
other housing program tasks already established by the
city Council.
3) The properties, because of their Residential Visitor-
serving Commercial (RVC) zoning and prime oceanfront
location, are suitable for commercial development, open
space, or reuse as part of the proposed Pier
redevelopment.
4) Proceeding with replacement now would minimize disrup-
tive impacts on the tenants of the properties, many of
whom are senior citizens.
Replacing the housing to clear the sites for redevelopment pur-
poses is also economically sensible: initial analysis indicates
that replacement costs would be equivalent to approximately $100
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per square foot, in comparison to land costs in the same area of
between $150 and $200 per square foot.
Housing Replacement Requirements
section 1803 (t) of the Rent Control Charter Amendment and Pro-
gram 10 of the City's Housing Element prohibit the demolition and
conversion of multi-family residential properties without a one
to one replacement of those housing units. Local and state laws
require that replacement units be comparable to the units that
are being removed with respect to location, unit sizes, ameni-
ties, and rents. For instance, the California Coastal commission
requires that replacement units be located in the Coastal Zone.
Proposed Site for Replacement Housing
staff is proposing to replace the rental units at 1616 and l642
Ocean Avenue on the city-owned property at l-l5 Bay street (also
known as 1920-28 Ocean Front Walk). The Bay street property is
adjacent to the pritikin Center and across Bay street from Cres-
cent Bay Park (see Attachment 2). This property is comparable to
the Ocean Avenue properties with respect to neighborhood and
proximity to small-scale retail establishments and the ocean.
The site is 20,587 square feet in size, zoned R-4, and in the
Coastal Zone.
The City acquired the Bay street property through condemnation in
1897. Although legal proceedings have challenged the City's
ownership of the property in the past, a Judgment resulting from
the 1979 quiet title action Browning v. City of Santa Monica/City
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of Santa Monica v. Bicknell states that the city is the sole and
complete owner of the property.
Designating the Bay street property as the replacement housing
si te is necessary at this time so that staff can proceed to
refine the financing analyses and apply to the Rent Control Board
for a removal permit for the Ocean Avenue units. Designation at
this point would also allow staff to proceed with the surveying
and soil-tests necessary to determine the development potential
of the site.
Costs of Replacement Housing Project
Initial analysis indicates that twenty-nine multi-family units
could be built on the Bay street site, thereby meeting the re-
placement requirements. Financing for the development of these
units depends upon a number of factors: the rents allowed by the
Rent Control Board for the replacement units, the terms of the
private financing, and the amount of equity contributed by the
developer/owner of the replacement units.
The Rent Control Board usually requires that the rents of re-
placement units which are occupied by relocated tenants not ex-
ceed the Maximum Allowable Rents (MARs) of the tenants' previous
units. As discussed previously, the average MAR on these units
is only $242 per month, thus making the amount of debt which
could be supported relatively small and creating the need for gap
financing from the City.
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A twenty-nine unit replacement housing project on the Bay street
property would cost approximately $l,928,500, or $66,500 per unit
not including land costs. Depending upon the rents allowed by
the Rent Control Board, the replacement units could support a
private mortgage of between $455,000 and $670,000. This leaves a
financing gap of between $1,258,500 and $1,473,500.
The replacement housing would be made available to the existing
tenants, many of whom are low income. Thus, the developer of the
replacement housing could potentially utilize tax credits avail-
able through the Federal and state tax credit programs, and con-
tribute as much as $671,500 in equity to the project. This would
reduce the financing gap required of the city to between $587,000
and $802,000, or between $20,241 and $27,655 per unit.
The cost of removing the rental units in order to allow re-
development of the properties would be the responsibility of the
subsequent users of the properties. Financing the replacement
housing through the city's affordable housing program is not ap-
propriate as the replacement housing does not constitute an addi-
tion to the City's housing stock, and the units replaced current-
ly have affordable rents.
Public Notice
staff have notified and met with the tenants of the properties to
make them aware of the proposed replacement. In addition,
notices were sent to the neighbors adj acent to the Bay street
site informing them of the proposed project.
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Next steps
In order to replace the city-owned rental units as described in
this report, staff would need to take the following steps:
1) Develop a Replacement Housing Plan, detailing replace-
ment location, type of construction, costs of develop-
ment, tenant relocation plans, and timelines;
2) obtain a removal permit from the Rent Control Board;
3) Return to the City council for approval of the Replace-
ment Housing Plan, including developer selection and
appropriation of required funds;
4) Work with the developer to design the project and to
obtain financing for it;
5) Develop the housing; and
6) Relocate the existing tenants.
Timeline
If authorized by the City Council, staff will proceed with
developing the Replacement Housing Plan as described in this re-
port. Staff will apply to the Rent Control Board for a removal
permi t, specifying 1-15 Bay street as the replacement housing
site. Based upon the rents allowed by the Rent Control Board and
other conditions which may be placed upon the replacement hous-
ing, staff will finalize cost-estimates for the replacement hous-
ing and return to the City Council for Project approval and ap-
propriation of the required funds. It is estimated that a con-
tract for construction of the replacement housing could be
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secured by January, 1989. with an eight month construction peri-
od, the replacement housing would then be ready for occupancy by
October, 1989. After october 1989 the residential buildings on
the Ocean Avenue properties could be demol ished and the sites
cleared for redevelopment.
FINANCIAL/BUDGETARY IMPACT
NO budgetary action is required at this time. However, at the
time staff returns to the City Council for approval of the Re-
placement Housing Plan described in this report, appropriation of
between approximately $587,000 and $802,000 will be necessary to
fund the replacement housing at 1-15 Bay street.
RECOMMENDATIONS
It is recommended that the City Council:
(1) Approve in concept the replacement of the twenty-eight
rental units at 1616 and 1642 Ocean Avenue, and authorize
staff to develop a Replacement Housing Plan for the units~
(2) Designate the City-owned property at 1-15 Bay street as the
site for the replacement housing~
(3) Authorize staff to apply to the Rent Control Board for a
removal permit for the rental units at 1616 and 1642 Ocean
Avenue; and
(4) Direct the city Attorney's Office to work with C/ED staff
to resolve remaining legal issues invol ved with the Re-
placement Housing Project.
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Prepared by: Jack D. Gardner, Senior Development Analyst
Candy RUpP, Housing Program Manager
Department of Community and Economic Development
Attachments: site Map of l642 and 1616 Ocean Avenue
Site Map of 1-15 Bay street
:replace
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