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Ruling Aids Affordable Housing Developers

A favorable ruling for Enhanced Affordable Development, an affordable housing developer based in Los Angeles, regarding Rancho Santa Fe Village in the city of San Marcos, could have repercussions for affordable housing builders throughout the state.

A “determination letter” passed down from the Department of Industrial Relations of the state of California this year found that a project receiving tax credits and tax-exempt bonds is not subject to wage and other Labor Code requirements applicable to “public works” projects.

In other words, affordable housing developers who had interpreted an amendment to the Labor Code in 2001 to require all affordable housing projects to be considered “public works,” thereby subjecting them to prevailing wage mandates, will no longer be constrained by these guidelines.

“This is a significant ruling,” said Gary Downs, an affordable housing attorney and partner in the San Francisco office of Pillsbury Winthrop Shaw Pittman LLP, an international law firm.

Downs and an associate, Paul Schrecongost of the San Diego office of Pillsbury Winthrop, argued the case on behalf of the developer, Enhanced Affordable Development, whose project in San Marcos is being financed in part from a loan of low income housing bond funds.

State law requires contractors to pay workers on public works projects local “prevailing wages,” which are set by the Department of Industrial Relations based on labor surveys, that typically only union workers participate in, according to Downs.

Downs said prevailing wages are sometimes 36 percent to 55 percent higher than market wages, which substantially raises construction costs and the price of housing, resulting in fewer affordable homes.

Unlike market-rate projects, affordable developers cannot pass costs for paying prevailing wages to future tenants, because they cannot afford to pay higher rents, according to Downs.

“From an affordable housing developer’s standpoint, it (this ruling) will save those developers millions of dollars a year for certain projects. And it also means that projects that were once not viable under prevailing wage, will now be viable,” said Downs.

Reactions to the ruling among San Diego’s affordable housing advocates are mixed.

“It’s a double-edged sword. On the one hand, the affordable housing produced using tax-exempt bonds might benefit the very construction workers building the projects. On the other hand, this ruling will impact some of the construction workers in adverse ways through lower wages,” said Bobbie Christensen, director of communications for the San Diego Housing Commission.

Donald Cohen, the president of San Diego’s Center on Policy Initiatives, said the critical issue is that “workers who build affordable housing have to be able to live in it and to raise their families in it.” On the whole, he said, prevailing wage standards are a good thing.

This issue is far from settled.

Downs said the “determination letter” issued Feb. 25 was appealed March 28 by the State Building and Construction Trades Council of the AFL-CIO, which has asked the Department of Industrial Relations to reverse its decision.

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One Sold, Two To Go?:

The Shidler Group, a San Diego-based real estate firm, sold one of the three buildings it owns in the Sorrento Tech Business Park , a fully leased, 30,097-square-foot research and development building , at 10070 Barnes Canyon Road for $6.1 million. The buyer was Bixbykibbee, LLC, out of Encinitas, according to Matt Root, the president of the Shidler Group.

The property was acquired when the firm purchased a 15-building portfolio of research-and-development buildings in Sorrento Mesa in August from Orange County-based Mullrock Umbrella LLC for $61.9 million.

The building is fully leased and serves as the corporate headquarters for Information Systems Laboratories, a scientific and engineering company.

“Our strategy is to stabilize some of our smaller buildings, fully lease them and then over time, we will look opportunistically to sell them to 1031 buyers and also to users,” said Root.

Root said of the two remaining buildings in the complex, one is fully leased by San Diego-based LightPointe and the adjacent 37,000-square-foot building at 10180 Barnes Canyon Road remains vacant. Root added that there are two tenants in negotiations now.

He is not worried: “The leasing market in Sorrento Mesa is just phenomenal right now,” Root said.

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Closer To Completion:

San Diego-based Janez Development announced that it arranged a $34 million debt and equity package in order to complete the 38-unit Oceanside Terraces , a mixed use condominium project in Oceanside. Janez also secured $26.4 million in construction financing from Chicago-based Corus Bank and from Newport Beach-based Buchanan Street Partners.

The project, which broke ground in October, is expected to be completed in April 2006.

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Office Condos:

The recently completed 50,000-square-foot Balfour Corporate Center, an office condo project in Carlsbad Research Center, closed its first sale in April to San Diego-based Safeguard Business Systems.

The two-story building, which will consist of 16 to 33 units (depending on the users’ space requirements) ranging from 1,500 to 3,000 square feet, is being offered for sale with rates starting at $265 per square foot. The owner is a joint venture partnership that includes a San Diego developer, Lawrence Woodward, and Aliso Viejo-based Shea Properties, the commercial development arm of J.F. Shea Co.

“Office condominiums have been tremendously popular in other major markets and are steadily gaining traction in the San Diego area. We have seen the trend become more mainstream in such markets as Phoenix, Atlanta and San Jose,” said Matt Strockis, a vice president with CB Richard Ellis’ Carlsbad office and a part of the team representing the project.


Send residential and commercial real estate news to Heather Bergman via e-mail at hbergman@sdbj.com or via fax at (858) 571-3628. Call her at (858) 277-6359, Ext. 3114.

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