The URL can be used to link to this page

Home My WebLink AboutITEM 15 - DOWNTOWN COMMERCIAL CORE AND RED HILL SPECIFIC PLANEconomic & Planning Systems, Inc. The Economics of Land Use 800 Wilshire Boulevard, Suite 410 Los Angeles, CA 90017 213.489.3838 www.epsys.com Economic & Planning Systems, Inc. The Economics of Land Use CITY OF TUSTIN SPECIFIC PLAN REASSESSMENTS: DOWNTOWN COMMERCIAL CORE (DCCSP) RED HILL AVENUE (RHSP) Project Overview & Policy Options December 5, 2023 Economic & Planning Systems EPS PPT Presentation |1 AGENDA TODAY Introduction and Background Overview of Market Context and Opportunity Stakeholder Input City Policy Context Development Feasibility Analysis Policy Options and Implementation Workplan Recommendation INTRODUCTION AND BACKGROUND Economic & Planning Systems EPS PPT Presentation |3 WHO WE ARE California-based firm established in 1983 Specialists in urban economics and public finance Balance of public and private sector clients Strong practice in economics of infill redevelopment Economic & Planning Systems EPS PPT Presentation |4 STUDY OBJECTIVES AND CONTEXT Objective Identify barriers and challenges to real estate investment in DCCSP / RHASP Plan Areas. Provide planning and policy options to address them. Context DCCSP / RHASP not leading to type, amount of investment sought by Council Housing Element commits to market evaluation, recommended policy changes that remove constraints on housing Study is focused on factors affecting real estate development economics only Economic & Planning Systems EPS PPT Presentation |5 OVERVIEW OF STUDY PROCESS AND DELIVERABLES Market Position & Evaluation –General understanding of demographic and market factors affecting development prospects Policy Context –Review of city and state programs, policies and requirements Stakeholder Outreach & Engagement –Spoke with Developers, Property Owners, City Councilmembers, and Planning Commissioners High-Level Policy Options and Considerations Opportunity Site Feasibility Analysis –Technical analysis of development economics at selected Opportunity Sites to test impact of incentives and policy changes and leading to final options to consider Optional Analysis Tasks –Analysis of parking strategies and policies –Research on infrastructure financing sources Final Policy Options to Consider for the Specific Plan Areas Economic & Planning Systems EPS PPT Presentation |6 HIGH-LEVEL STUDY FINDINGS 1.Market Context and Opportunity –For residential development, local market conditions do not appear to be a major barrier based on Trade Area growth and activity –For retail and office development, market conditions are less favorable, although limited mixed-use or owner-/ tenant-driven projects may be viable 2.City Policy Context –City land-use policies and zoning appear to be at least a partial barrier to redevelopment in Specific Plan Areas –Range of possible solutions exist but will require political support and alignment with city / community goals around development. Financial feasibility testing of certain policy levers can provide clarity on potential impacts to project economics. 3.Property and Ownership Barriers/Considerations –Some owners of strategically located sites have not sought (re-)development –Revenue from existing uses represent a redevelopment hurdle MARKET CONTEXT AND OPPORTUNITY Economic & Planning Systems EPS PPT Presentation |8 KEY TAKEAWAYS FROM THE DATA Tustin has favorable socio-economic indicators (e.g., income, education, age) Strong residential demand throughout Trade Area is positive indicator for Plan Areas: Numerous higher-density residential projects in Trade Area (mostly townhomes and mid-rise; some vertical mixed-use) Successful townhome project and recent developer proposals in Plan Areas New office and retail unlikely to drive redevelopment due to poor/uncertain market conditions Housing is the most likely economic driver for new development TRADE AREA Economic & Planning Systems EPS PPT Presentation |9 QUALITATIVE FINDINGS PROMISING FOR DEVELOPMENT Tustin named on Fortune list of 25 Best Places to Live for Families Both Plan Areas are centrally-located, well-connected to transportation corridors DCCSP has particular allure due to historic, walkable character Property owners report new townhomes have already brought energy, younger demographic to Old Town neighborhood Informants indicate retail tenants priced out of expensive OC markets (e.g., Newport Beach, Irvine) interested in bringing trendy uses to second- generation spaces in Tustin, Orange, etc. Schools, safety rated better than some neighbors Economic & Planning Systems EPS PPT Presentation |10 BROADER REAL ESTATE TRENDS ALSO PROMISING Plan Areas (especially DCCSP) are poised to leverage broader market trends: Development Type Real Estate Trend DCCSP Area RHASP Area Residential Pandemic led to continued interest in less-expensive, more suburban markets +Tustin and study areas are slightly cheaper than Orange County on average +Minimal new rental and for-sale product represents major unmet market opportunity Younger cohort seeks active lifestyles, access to bike/ped and recreation amenities +Combination of high Walk Score (89 vs 51 city avg.) and attractive walking environment More typical, suburban commercial corridor with limited walk appeal (Walk Score ~70) Retail Shift to place-based, experiential retail in post- pandemic age of online shopping +Unique historic character of Old Town lends an inherent sense of place More limited sense of place due to major thoroughfare STAKEHOLDER INPUT Economic & Planning Systems EPS PPT Presentation |12 DEVELOPMENT POLICY CONCERNS OF STAKEHOLDERS Schedule Certainty Outcome Multiple rounds of review can create delays and increase entitlement costs, project timeframe Some policies and requirements are unclear and subjective “Approvable” projects may not be financially feasible CITY POLICY CONTEXT Economic & Planning Systems EPS PPT Presentation |14 CITY POLICIES AND DEVELOPMENT FEASIBILITY Both Plan Areas have unique policies and requirements that directly affect development economics. Standard policy drivers of project economics: –Ground floor retail requirements –Parking requirements –Height limits Development policy concerns noted by stakeholders: –RAR / discretionary review process (for residential) –Fees & inclusionary housing requirements –Open space & storage requirements Removing policy barriers / costs generally involves trade-offs. Economic & Planning Systems EPS PPT Presentation |15 EVOLVING STATE LEGAL CONTEXT Law / Statute Description DCCSP / RHSP Application State Density Bonus Law More units and / or concessions for inclusionary housing.Partially overlaps with IHO Housing Accountability Act (HAA) + Amendments (SB 330, 8, 167; AB 1515, 3194) Timely processing and “objective” standards for housing approval. Restricts moratoriums or caps. Area Plans may be exempt as housing is discretionary (if not in conflict with Housing Element) Housing on Commercial Corridors (AB 2011) Requires ministerial approval of housing on “commercial corridors.” Including Density Bonus, allows 38-72 units/ac. Projects must be 15% aff. and use “prevailing wage” labor. Applies to sites with > 50 feet frontage on streets > 70 ft. wide where multi-family is “permitted” SB 6 Allows housing on commercial sites by right, but not “ministerial.”Requires “skilled & trained” labor. Elimination of Parking Minimums near Transit (AB 2097) Eliminate parking minimums for projects < ½ mile from major transit (e.g., commuter rail, bus lines with 15-minute headways) City evaluating applicability CEQA Infill Exemption (Cal. Code Regs. Tit. 14, §15332) “Infill” projects bypass public review periods and portions of CEQA if developers submit (and City accepts) “Class 2 exemption findings” City could prepare Class 2 exemption report template for use by developers. DEVELOPMENT FEASIBILITY ANALYSIS Economic & Planning Systems EPS PPT Presentation |17 POLICY OPTIONS & LEVERS CONSIDERED RAR Process Parking Strategies Other/Vacant Site Incentives Marketing / Economic Development Initiatives Mixed-Use Retail Requirements Affordable Housing Regulations Economic & Planning Systems EPS PPT Presentation |18 HOW DO WE DETERMINE FEASIBILITY? Residual land value (RLV) approach with static pro forma Helps us answer the question: –Is net value of a proposed project (before cost of land) equal or greater than property / site value? Project Value Project Costs (excluding land) Site Value Two ways to estimate site value: comparable sales or existing income stream Economic & Planning Systems EPS PPT Presentation |19 GOAL IS TO INCREASE FEASIBILITY OF REDEVELOPMENT Market Value Land Acqui sition Direct Costs Soft Costs Project Value Project Cost Market Value Land Acquis ition Direct Costs Soft Costs Profit / return Project Value Project Cost INFEASIBLE FEASIBLE Meeting return thresholds are an additional “cost.” This hidden “cost” increases with: Project Risk Project Timeline Preliminarily, per unit residential values in Tustin appear sufficient to cover typical project costs. Feasibility analysis is forthcoming. Economic & Planning Systems EPS PPT Presentation |20 INFILL DEVELOPMENT ECONOMICS CAN BE TRICKY Infill redevelopment projects often higher cost than greenfield/vacant sites Market Value Land Acquisi tion Direct Costs Soft Costs Profit / return Project Value Project Cost Buying a property with existing tenants / revenue stream Demolition and/or environmental “cleanup” related to prior use Upgrading old infrastructure, access Meeting parking requirements on small / irregularly-shaped parcels Preserving historic structures and /or mitigating construction impacts on neighboring properties Often leads to higher costs Economic & Planning Systems EPS PPT Presentation |21 CONTEXT FOR UNDERSTANDING RESULTS Static pro forma feasibility analysis can show: –Generalized business case for development given market conditions –How policy changes will affect property development economics in general,including for similar sites within Specific Plan area –Economics (values vs costs) for a specific development project/scenario Analysis does not show: –Willingness or motivation of property owners to pursue development or sell at a reasonable price –Time and expense necessary to obtain entitlement –Property specific factors that require due diligence (e.g., cost of environmental clean-up, cost of buying out existing lease terms) –Expertise or financial capacity of potential developers Economic & Planning Systems EPS PPT Presentation |22 BASELINE SCENARIOS USED TO TEST POLICIES Baseline scenarios conform to existing Specific Plan guidelines: –Within Specific Plan height limits –Meet affordable housing requirements (Voluntary Workforce Housing Program) –Meet minimum retail frontage requirement –Assume park impact fees set at market land value estimate –Meet existing parking requirements Test financial impact of certain policy options: –Increasing height limits –Waiving affordable housing in-lieu fee –Reducing ground floor retail requirement –Capping/reducing park impact fees –Reducing required parking ratios POLICY OPTIONS & IMPLEMENTATION WORKPLAN Economic & Planning Systems EPS PPT Presentation |24 POLICY TRADE-OFFS / POTENTIAL IMPACTS Development feasibility is just one lens for evaluating land use decisions. City must weigh other policy trade-offs, which may require more analysis. Type of Trade Off Reducing barriers may…Comment Urban design and architecture Produce taller, denser buildings that may be unpopular Objective Design Standards can address most concerns Affordable/inclusionary housing Produce few/no affordable housing units Minimal development also means few/no affordable units Traffic and other environmental impacts Increase traffic and other infrastructure demands Additional CEQA analysis may be triggered after plans’ EIR caps; may reduce VMT per capita Long review periods for project approval Limit City’s ability to pick and choose among projects Objective Design Standards can address most concerns Development does not include desired retail uses Lead to residential-only buildings where mixed-use desired Already a risk; can incentivize by differentiating retail node policy New Burden on City Services Increase service expenditures but also generates new tax revenue New infill development likely to provide net positive revenue to City Economic & Planning Systems EPS PPT Presentation |25 IMPLEMENTATION TIME-FRAME OVERVIEW Near-Term (6 – 12 months) Straight-forward, easy-to-implement administrative or policy changes to incentivize near-term (re-) development feasibility. Mid-Term (12 – 24 months) Policies that further improve feasibility for residential mixed-use and implemented in conjunction with approval of objective design standards (ODS) Long-Term (24+ months) Policies and programs that may require longer term planning and implementation efforts, including approval of funding tools / resources and CEQA analysis Economic & Planning Systems EPS PPT Presentation |26 IMPLEMENTATION SCHEDULE FOR POLICY OPTIONS Near-Term (6 – 12 months) •Preliminary residential parking standards update •Set all residential Park Fees equal to RHASP rate •Temporarily suspend affordable housing in-lieu fee •Expand fee deferment •Commence public realm improvements: ›Parklets on El Camino Real and Main Street ›Gateway signage and Main Street streetscape Mid-Term (12 – 24 months) •Expand developer services and educational materials •Revisit Voluntary Workforce Housing Program Pending ODS: •Modify retail requirements (incl. parking) •Eliminate RAR Program •Modify height restrictions •Relax residential private storage requirements •Clarify residential density bonus approach Long-Term (24+ months) •Increase residential capacity •Refine parking strategies and pursue supply investments •Complete / expand public realm improvements and activation and branding initiatives •Explore economic development, site marketing efforts •Implement policies to accelerate redevelopment of vacant sites Fall 2023 Economic & Planning Systems EPS PPT Presentation |27 NEAR-TERM ACTIONS (6 –12 MONTHS) Policy Option to Consider Description Implement preliminary residential parking standards update Reduce Plan Area residential parking ratios (from 2.25 to 1.5-1.75 per unit) for Specific Plan areas. Set all residential Park Fees at equal level based on RHASP rate Create administrative rule to use “market” land value equal to $2.5 million per acre for park fee calculation based on already established land value for non- subdivision projects in RHASP. Provides certainty and likely cost reduction for developers. Temporarily suspend affordable housing in-lieu fee Introduce City Council motion to temporarily suspend inclusionary housing in-lieu fee all Specific Plan area projects for 18-36 months. On-site requirements still to remain in effect. Would be effective after the Housing Element Rezone, expected October, 2024. Expand fee deferment Adjust administrative rules to allow developers to pay all impact fees at Certificate of Occupancy rather than at permit issuance. Commence planned public realm improvements Complete construction of parklets on El Camino Real and Main Street, as well as gateway signage and streetscape improvements on Main Street. Economic & Planning Systems EPS PPT Presentation |28 Current Policies Residential Parking 2.25 per unit Park Fees $32,256 per unit Aff Units 5% Very-Low + Fee ($6,900 per unit) NEAR TERM POLICY OPTIONS IMPROVE FEASIBILITY Changes: •Residential parking reduced to 1.59 spaces per units •Park fee assumes land value at $2.5M per acre •Affordable Housing In-Lieu Fee Set to $0 Near Term Policy Options Implemented 1.6 per unit (avg) $16,800 per unit 5% Very-Low + $0 in Fees Increased from negative to positive Example Large Site •Same as above + in-lieu retail parking Description 4-Story Horizontal Mixed- Use (Wrap & Retail Strip) Size 8.9 acres, 449 units Residual Land Value per acre $2,669,000 Feasibility @ Existing Use Value Unlikely 157% increase Description 4-Story Vertical Mixed-Use Size 0.45 acres, 40 units Residual Land Value per acre ($5,092,000) Feasibility @ Existing Use Value Infeasible 4-Story Horizontal Mixed- Use (Wrap & Retail Strip) 8.9 acres, 449 units $6,850,000 Feasible 4-Story Vertical Mixed-Use 0.45 acres, 40 units $2,897,000 Unlikely Example Small Site Economic & Planning Systems EPS PPT Presentation |29 MID-TERM ACTIONS (12 –24 MONTHS) Policy Options to Consider Description Expand developer services and educational materials Continue efforts to streamline permitting and implement a “one-stop shop” on City website for relevant information (e.g., affordable housing requirements, objective design standards, fee schedules, density bonus) Revisit Voluntary Workforce Housing Program Conduct program review and feasibility analysis to optimize rules consistent with Housing Element, evolving State law, economic considerations. Modify retail requirements and associated parking Identify key retail nodes; allow residential only if sufficient ground floor retail is provided. Consider relaxing retail parking rules for smaller, vertical mixed-use projects (e.g., reduction for Old Town) and refine/promote in-lieu fee policy. Eliminate RAR Program and allow residential in most Plan Area locations Eliminate long, discretionary review/allocation process for residential to provide developers more certainty (until EIR unit count limits are exceeded) and ensure housing is allowed in most Plan Area locations (including all RHNA sites). ODS and other Plan Area requirements will still apply. Modify height restrictions Increase allowable heights where historic resource protection is not a concern. Relax residential private storage requirements Relax requirement for private on-site storage for every unit (e.g., remove entirely, set as percentage of units, or look to match neighboring cities). Consider expanding bike / scooter parking requirements. Clarify residential Density Bonus Approach City should develop an official Schedule or Brief (posted on website) to specify how State Density Bonus is determined under Plan Area “form-based” rules. Economic & Planning Systems EPS PPT Presentation |30 LONG-TERM ACTIONS (24+ MONTHS) Policy Options to Consider Description Increase residential (unit-count) capacity Update the EIR for the Specific Plan areas with higher unit counts or implement administrative waiver program for compliant residential projects (using CEQA Infill Exemption {Cal. Code Regs. Tit. 14, §15332}) Refine parking strategies and pursue supply investments Implement strategies to manage parking demand and supply. Refine or eliminate certain parking standards, plan/finance facility investments, update fees, refine parking management (e.g., time limits, metering). Complete and expand public realm improvements, explore activation and branding initiatives Complete City capital projects to enhance public realm; explore complementary activation and branding programs that engage with businesses, property owners, public, etc. Explore economic development and site marketing efforts Evaluate potential for targeted projects or partnerships that catalyze private investments. Develop marketing materials to highlight investment opportunities and future projects within the Specific Plan areas. Implement policies to accelerate redevelopment of vacant sites Implement carrot/stick options (e.g., waivers, concessions, taxes, code enforcement) and explore public-private partnerships at key sites. Economic & Planning Systems EPS PPT Presentation |31 RECOMMENDATION Receive and file the Downtown Commercial Core and Red Hill Avenue Specific Plan Reassessment report prepared by EPS; Direct staff to prepare resolutions for applicable items from the recommendations list and agendize those for City Council consideration on or before February 20, 2024; Direct staff to prepare an agenda report further describing and outlining the scope of specific plan amendments for applicable items from the recommendations list on or before March 19, 2024; Direct staff to prepare an agenda report further describing and outlining the strategy initiatives for applicable items from the recommendations list on or before April 16, 2024. THANK YOU