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Low-Cost Housing Goes Affordably Green in Chula Vista

Hey you, Mr./Ms. Conventional Apartment Developer! Yes, you. Don't attempt to ignore me by rolling up your construction�loan documents and sticking them in your ears. Open those eyes, tightly shut as the credit market for new luxury condominiums, and take a look: A 42-unit rental complex for low-to-moderate income households in Chula Vista has put you to shame, by building what appears to be the greenest building possible, and on a stringent budget. Known as Los Vecinos, the year-old project has earned a Platinum LEED rating, and boasts the highest-ever score among all the housing types evaluated by the national green-building group. So, Mr./Ms. what's your excuse now for not going green.

True, Los Vecinos, which opened last year, was able to tap subsidies unavailable to commercial builders � but so do all other low-income developments. So don't let the presence of subsidies fool you: This project is money-smart. After tax credits and rebates from the city, state and federal agencies, the net increase in cost for green materials, including extensive photovoltaic panels, was only about $235,000. That's less than 2 percent of the $17.7 million development cost. How were these economics possible? The answer, according to a Wakeland Housing Development Corp., the San Diego-based non-profit that built Los Vecinos, was primarily the homebuilder's willingness to embrace green-building standards in the first place � the rest takes care of itself, to a large extent. "The amazing part of the going-green process was how simple it turned out to be," says Wakeland's executive director, Ken Sauder. "Many of the decisions were common sense," he adds. Green materials are also falling in price, as demand slowly steps up. Further, the non-profit homebuilder, which plans to continue owning Los Vecinos, can achieve continuous savings in maintenance costs through the use of sustainable materials, which are also highly durable. In short, sustainable construction is an investment in long-term fiscal soundness of a low-income housing development, by lowering costs without damaging the living standards of working�class renters. In fact, the lives of many renters may likely be improved by living in an environment that is adequately heated, cooled, and ventilated. As in nearly all low-cost housing developments, Los Vecinos had many funding sources. Here's how the numbers work: Those include $9.44 million in tax credit equity, a $1.9 million permanent loan from the California Community Reinvestment Corp., $228,000 of deferred development fees, a $263,234 solar-power rebate from the local utility, $167,000 in business investment tax credits and a $5.6 million subsidy from the city. In addition to the solar rebate mentioned above, Los Vecinos also benefitted from other incentives that the state offers to builders of low-income housing. The total project cost of going green, before subsidies and incentives, was $568,000, or $13,537 per unit. Those costs include the added price of green construction materials, plus about $50,000 for a LEED consultant. TCAC lowered that cost by $275,962 by awarding Los Vecinos a 4 percent increase in its basis cost, qualifying the project for a higher level of tax credit equity. In other words, the project's overall tax credit increase in value, making the project even more attractive to investors, who often want to buy up as many credits as they can. The homebuilders also project $10,000 in expected rebates from San Diego Gas & Electric. When the arithmetic is done, the total increase in cost above that of conventional construction is only $328,088, or $7,907 per unit. Sauder, the homebuilder, admits that he was nervous when first contemplating green construction. "I knew there were higher costs involved," he said. Currently, Wakefield appears committed to sustainable, energy-saving projects. The non-profit recently completed the 77-unit Parkside complex in downtown San Diego, which qualifies the homebuilder likes to describe as transit-oriented (it's within walking distance of the San Diego trolley.) and a positive example of urban infill, like a bright new dental plate in an old mouth. This new project is aiming for a LEED Gold certification. Of course, when the budget is tight, and the developer is paying a premium for green materials, something has to give. In this case that something is architecture. This shortcoming shows up most glaringly in an undistinguished, unadorned fa�ade. Even so, the exterior scores minor points by breaking up the bulk of the building into a set of vertical masses that resemble a row of two-story townhouses from a distance. Up close, the minimal detail unintentionally seems to broadcast this is a "project." In an ideal world, that is, one with bigger budgets, beautiful design would crown the achievement of inventive sustainability. But austerity of design does not detract from the significance of Los Vecinos. It's might not be as fancy as a high-end market-rate complex, but in a world on the bring of environmental catastrophe, what would you rather have: lavish design or lower heating costs? Let's get back to hectoring the conventional homebuilder, the one who says all this green stuff is too expensive and too complicated. She is no longer allowed to say, "I'd like to build sustainably, but gosh, I just can't afford it. It's the market holding me back, you know." (At least, I'd like to stop hearing those excuses.) The market, of course, and not idealism will be the means to induce apartment developers do the right thing, i.e. when investors start asking for those amenities. That brings us to a cultural issue: that is, the culture of real estate investment. The value of apartment buildings, like other kinds of commercial real estate, is based on the income they produce after expenses. Unfortunately, money saved on maintenance and energy costs rarely figure into such calculations, because building owners often pass along utility costs to their renters. In addition, construction lenders, who are often not imaginative people, dislike the idea of extending more on construction loans without a corresponding increase in rental income. (This myopic, penny-wise-pound-foolish attitude is apparently common throughout the industry: I have heard of property managers who balk at paying more for energy-saving light bulbs, even though those bulbs demonstrably last longer and save money in the long run.) Until investors awaken to the dollar value of sustainability, developers should equip themselves with spreadsheets to show their lenders that lower utility costs make the developer a better loan prospect. Meanwhile, apartment developers should set aside their excuses, and find a way to build their projects as well as a low-income complex in Chula Vista.

--Morris Newman

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