| By Elizabeth Millar
Anyone who has been in the real estate industry for more than a few years has seen some dramatic changes in the market. Over time, the average square footage of single-family and apartment homes shrinks and expands to accommodate economic and family unit size fluctuates. Area property values rise and fall based on regional expansion and net migration. Federally-controlled interest rates often define the winners and losers in the investor pool. Through all of these changes, city planners have delineated locations within greater metropolitan areas as cities and suburbs. Today, there is a new dynamic that shouldn’t be ignored, the gradually disappearing line between city and suburban property lines.
Redefining the City vs. Suburbia Boundaries
Since the late 1940s, when William J. Levitt built the first planned community just outside New York City for WWII veterans and their families, we have thought of suburbs as mostly an area detached from the business district. In the early decades, when most women stayed home, and the husband commuted into the city, there were few businesses beyond a grocery, drugstore, gas station and a few shops in these primarily residential areas. When we hear the word “suburbia,” a picture of the white picket fence surrounding a single-family home with flowers lining the path to the front door pops into our head. This quintessential image is pleasant, but no longer the norm.
The twenty-first-century reality, where millions of people work from home – about 43 percent of all working adults work remotely today – means that fewer people feel pressure to live close to the office. That doesn’t mean multifamily housing is losing market share in the city. Hundreds of US cities report more than 50% of residents rent. However, the face of suburban living is changing; suburbia is no longer primarily furnished with cookie-cutter single-family homes. You’ll find sprawling malls, hospitals, commercial tenants, and both detached single-family and apartment homes all within the same area.
Demarking where the city ends and the suburbs begin is very complex today. Market analysts suggest it’s time to cease using geography as the basis for defining markets and embrace density as a more reliable housing intelligence driver. Using this alternative framework provides a more nuanced method of understanding what modern renters need and expect from multifamily housing providers.
Viewing the Changing Landscape Through a New Lens
Rather than continuing to use city limit boundaries to establish metropolitan statistical areas, it’s time to view housing stock with a fresh lens. By defining areas based on density, market analysts get a clearer picture of the true market share of multifamily housing versus detached single-family dwellings. Urban and suburban areas tend to share many common characteristics today, including a growing multifamily housing presence in areas traditionally viewed as suburban. City planners and developers armed with this “new” information can create more realistic development and expansion plans.
Not every renter is looking for a nest in the center of the city, although that will always be an attractive location for some. Likewise, everyone who wants to escape the city, isn’t looking for the white-picket-fence American dream of the 1950s. Some want a well-managed apartment home in a community close enough to visit the city if they chose, with convenient access to everything they need from entertainment and shopping to medical care and work opportunities.
The sands are shifting in the housing market. It’s time for real estate professionals to embrace a new way of studying it. Arbitrary lines on a zoning map are no longer delivering the data we need to respond to the changing multifamily landscape.
In a 2018 HOA budget survey, 72% of board members indicated that they weren’t confident in the returns they were getting on their reserve funds and/or operating funds. To help, we’ve outlined six ways to improve your returns with the guidance of your HOA management company. Read the full article and download a complimentary guide here >
1. Only invest in money market accounts and CDs
Your responsibility as a fiduciary is to protect the assets of your association. That means only investing in FDIC-insured money market accounts and CDs and avoiding risky investment vehicles like mutual funds, bonds and stocks.
2. Trust HOA professionals for investment advice
Look to your California community management company and financial services provider to help your board make sound investing decisions. Some boards research investment information themselves via the internet or financial publications, which is time that may be better spent creating better HOA policies.
3. Learn HOA investment fundamentals
Board members should have a basic understanding of HOA financials and state legislation when it comes to managing reserve funds.
For instance, in California, the board must review the current reserve revenues and expenses on a quarterly basis.
4. Work with an HOA-specific financial services company
Work with an HOA financial services company that can help you get the most out of your reserve funds. They should have a large portfolio and existing relationships with banks in order to obtain competitive rates on your behalf.
By utilizing FirstService Financial, FirstService Residential clients typically earn rates that are 4 to 5 times higher than the national average. In one case, FirstService Financial partnered with a Dana Point association to increase their annual interest by more than $27,000 by leveraging existing bank relationships and evaluating the association’s current investments.
5. Review HOA investments regularly
Reviewing your reserve fund investments on a regular basis is important. Banks often offer teaser rates to customers, which will go away over time. Review your portfolio quarterly to make sure rates don’t change.
6. Create an Investment Policy
Last but not least, create an HOA Investment Policy. Karla Chung, vice president of FirstService Financial said,
Yesterday’s Sears is tomorrow’s transitional housing facility.
We already know that shopping mall anchors gone belly-up can serve plenty of purposes in a second life: community college campuses, medical facilities, mega-churches and even public libraries. Transforming a defunct J.C. Penney into a destination grocery store like Whole Foods has proven to be a particularly attractive method of adaptive reuse, so much so that numerous flailing malls are being resuscitated with supermarket-based life support.
And here’s another idea: Turn them into affordable housing hubs for the homeless.
It’s a magnanimous but somewhat radical idea, especially depending on the status of the mall. In a scenario in which the rest of the mall is still active, housing for at-risk individuals where the Sears used to be could potentially drive some shoppers away.
When Los Angeles Times columnist Steve Lopez asked readers last year for their thoughts on the best use for a dying mall, many suggested housing for the homeless with on-site social services. He responds:
I like the thought, but practical realities present some limitations. Some malls are doing fine as is, but even among those that are struggling, the land is still worth a fortune. Owners would want top dollar whether they sell or rent out their land, and I’m not sure a tent city would pencil out.
Plus, changing the use of the land could require zoning changes, and that’s fraught with bureaucratic and political challenges, as well as possible neighborhood opposition.
But in malls that are either truly dead or on their way out, really why not put an empty department store to the most big-hearted kind of use, at least temporarily?
Virginia shelter finds unique temporary home
To prove Lopez to the contrary, you needn’t look further than Landmark Mall in Alexandria, Virginia, where a shuttered Macy’s has been reborn as a homeless shelter.
As grand redevelopment plans for the property continue to be ironed out, the developer has opted to donate the old Macy’s to Carpenter’s Shelter, a local homeless nonprofit, for a year and a half. (One of the original anchors, Sears, remains open for the time being and the mall itself has been used as a filming location.)
Several years back, Carpenter’s Shelter faced a quandary: Larger modernized facilities, complete with adjacent affordable housing units, were planned to be built for the nonprofit across town on the same site of the 60-bed emergency shelter that the organization had operated for the past two decades. It was an ideal situation — Carpenter’s Shelter wouldn’t have to move, it would just get really nice new digs in the exact same spot.
Yet with the so-called New Heights redevelopment project due to take 18 months to complete, Carpenter’s Shelter was in need of an interim home, and the just-closed Macy’s at Landmark Mall fit the bill. In addition to the largesse of property owner the Howard Hughes Corporation, Carpenter’s Shelter wound up in a dead mall because it was one of the only available areas in affordable housing-strapped Alexandria zoned to allow a homeless shelter.
It took 12 weeks for the organization to transform a section of the mannequin-stuffed department store shell into a habitable space. Fifteen months after Macy’s rang up its last purchase, the first residents of Carpenter’s Shelter moved in.
It’s a temporary arrangement, true, but also one helping to make a huge difference for homeless individuals who will be moving out of the Macy’s once Carpenter’s Shelters permanent new home is complete. (Some Carpenter Shelter residents are former employees of the very same Macy’s store.) And, more importantly, it opens up the real possibility of turning vacant anchor stores into much-needed homeless shelters and transitional housing hubs.
Explains the Washington Post:
The idea that spurred this transformation represents a new way of thinking that is bringing together three economic phenomena: the collapse of the brick-and-mortar retail industry, the disappearance of affordable housing in America’s boom towns, and the struggle to reduce homelessness, which remains as intractable as ever.
As the homelessness crisis mounts across the country, there’s a growing chorus of those who believe that repurposing empty mall anchors and big box stores for transitional housing is smart — there’s certainly an ample (and growing) inventory of them. And even if many dead malls will eventually be redeveloped into new mixed-use retail destinations, a large number of these projects, like Alexandria’s Landmark Mall, are years off. (Eventually, as is the trend with many shuttered enclosed shopping malls, the Landmark Mall will be reborn as an open-air “live-shop-dine urban village” complete with apartments and beaucoup public green space.)
Why not make the best of a whole lot of vacant square footage in the meantime?
“The fact is that there will be millions upon millions of square feet of retail space that are not going to be used over the next five years . . . and they can be used for all kinds of things,” Amanda Nicholson, a professor of retail practice at Syracuse University, tells the Post. “I think it would be an inspired idea.”
A step in the right direction (where the cosmetic counters used to be)
Anticipating that other shuttered mall owners might follow in the same benevolent path of Landmark Mall, the research and development arm of Los Angeles-based KTGY Architecture + Planning has conceived a conceptual blueprint for future Macy’s-turned-transitional housing facilities.
KTGY calls the concept Re-Habit, a “plan for repurposing obsolete big-box stores into essential uses, including smaller retail spaces, housing, employment, and support for homeless individuals.”
“With big box stores such as Macy’s, J.C. Penney and Sears closing in record numbers, repurposing such vacant spaces becomes increasingly necessary,” says Marissa Kasdan, a senior designer with KTGY. “At the same time, the housing affordability crisis and other factors are driving up demand to house and service homeless individuals. Re-Habit offers one adaptive-reuse solution for multiple problems.”
In the Re-Habit space envisioned by KTGY, an 86,000-square-foot anchor store has given way to a dynamic facility centered around a spacious courtyard and dining hall. There’s also a rooftop garden for resident use and three different sizes of “bed pods” — sleeping rooms of various sizes that become less communal in nature the longer a resident stays in an integrated support program. For example, a new arrival would start in a large bed pod shared by as many as 20 other residents. As the transition process continues, that resident can graduate to a smaller two-person bed pod that offers greater privacy and independence.
And in the true spirit of its retail roots, Re-Habit would feature a “retail plaza” including upscale thrift boutiques, coffee shops and other establishments staffed by residents as a means of providing job training and meaningful employment.
In conceiving Re-Habit, KTGY consulted with the Long Beach Rescue Mission to glean insight on how such a cavernous raw retail space could best redesigned to accommodate low-income and homeless individuals. What would a housing nonprofit want and need from it?
Robert Probst, the mission’s executive director, considers himself a fan. “I’m very excited about this idea,” he says. “Re-Habit, if run correctly, can be a self-contained environment, with people living, working and then moving into affordable housing. It would be a reward for people who are ready to change their lives.”
Kasdan of KTGY admits that many developers won’t be entirely gung-ho about the potential of resurrecting a dead anchor store as “self-supporting mixed-use transitional housing.” Still, as she explains, the idea has potential.
“For most big-box owners, this would not be their first choice for reuse. But on the flip side, many have asked us about new concepts for incorporating residential units into their developments. Re-Habit expands the reuse possibilities and allows everyone to consider communities’ larger needs.”
She adds: “Such a project does not need to appear as a ‘homeless shelter.’ By partnering with the right team of developers, social services, government entities and community groups, it’s possible to create an attractive environment that transforms obsolete space into a real asset.”
Just think, the same Sears appliance department where you bought a washer and dryer for your very first home could someday serve as the sleeping quarters for someone who has experienced a rough patch but is on the road to one day owning their own washer and dryer, too.
“Is this maintenance job becoming a capital improvement?”
“How can we extend a component’s useful life?”
Do these questions sound familiar? The truth is everyone in your homeowners association (HOA) wants your property’s components to continue to function smoothly and look good. That requires undertaking necessary routine maintenance and repairs as well as capital improvement projects. Properly funding these two types of activities depends primarily on your knowledge of how they differ and how they work together and a deeper understanding of useful life and reserve studies.
To learn more about the importance of budgeting for maintenance and capital improvements, read on and complete the form below to download our helpful white paper,Pay Now or Pay (More) Later? Making the Most of Your Reserve Study and Maintenance Budget.
If you’re like many residents (and even board members) who live in HOAs across California, you may not understand every single thing about maintenance, capital improvements and useful life. Not to worry! We’re here to explain the relationship between maintenance and capital improvement projects and how you should partner with your California HOA management company to budget for them. And to make sure your management company is on the same page with you in terms of maintenance and budgeting projects, read our article, “React, Outsource, or Prevent? Find Your Association’s Maintenance Style.”
What’s Considered Maintenance?
As a refresher for you, day-to-day and preventative maintenance are activities that are meant to restore components to their original condition and prevent them from deteriorating any further. These activities should be funded in your budget as expenses under the “Repairs & Maintenance” (R&M) line item.
With proper maintenance, components have a better chance of reaching their expected useful life. For example, activities such as making repairs to your irrigation systems, landscaping, touching up the paint in your hallways, regular cleaning of your pool, changing lightbulbs and other tasks that your HOA property management company attends to frequently or on an ongoing basis are classified as maintenance jobs.
What’s Considered a Capital Improvement?
A major replacement or repair that will increase a component’s market value beyond its original or current state should be categorized as a capital improvement. Generally, you will undertake this type of project to reduce future operational costs (such as utility or maintenance costs) or to enhance your residents’ quality of service. For example, if you replace your building’s roof, upgrade to a more energy-efficient ventilation system or install LED lighting throughout your community, you are undertaking a capital improvement project.
Capital improvement projects should be funded from your reserves rather than from your operational budget. Since these projects are costly, your HOA management company needs to plan for them and collect money over time to pay for them. That’s where a reserve studycomes in. Having a qualified reserve study specialist conduct a study helps you determine which components will need to be replaced, how much more useful life they are likely to have, the estimated cost for the project and the annual amount of money your association needs to put into your reserve fund to pay for it.
How Do You Determine “Useful Life”?
The amount of time that a component will serve its original purpose is referred to as its “useful life.” “Every component has a useful life given to it by the manufacturer,” said Rodney Riepenhoff, reserve study specialist and corporate engineer for FirstService Residential.
Manufacturers estimate useful life based on certain assumptions about a component. However, factors like additional wear and tear, regulatory changes, environmental conditions or unexpected obsolescence can affect its actual useful life.
How Do You Make Sure Maintenance and Capital Improvements Work Together?
How closely your management company adheres to the manufacturer’s recommended maintenance schedule will significantly impact a component’s actual useful life. Riepenhoff points out, “Many communities do not do all the required maintenance, often because of the cost.”
In the long run, however, this can wind up costing the HOA more because it reduces the component’s useful life. The need to replace a component sooner than expected not only means reducing the return on investment (ROI) of that component, but it also means having an unexpected expense for the new component. More than likely, your HOA will not yet have enough in your reserve if the amount you’ve been putting aside was based on a later replacement date.
The lack of an updated reserve study is often to blame when an HOA is unaware that its preventative maintenance has been inadequate. “Or the HOA hires a third-party vendor that is not doing the necessary work, and they have no checks and balances in place,” said Riepenhoff.
How Do You Extend “Useful Life”?
Diligent maintenance can actually extend a component’s useful life. For instance, if replacing certain parts on a component allows it to function more efficiently or if your materials are of a higher quality, the component is likely to last longer than expected.
One Los Angeles high-rise association learned about the relationship between maintenance and capital expenditures the hard way. Inadequate guidance and support from its community management company resulted in years of neglected preventative maintenance at the 228-unit high-rise. This included unresolved water drainage issues from the pool and surrounding area, which caused numerous leaks into the parking lot below. Riepenhoff evaluated the issue when FirstService Residential took over the HOA management services. While resolving the drainage problem did require a $120,000-capital improvement project, this was $280,000 less than a previously recommended improvement. Additionally, the association now has a maintenance plan to help prevent costly damage to the community in the future.
Riepenhoff does warn that it’s possible to overdo maintenance. Some communities continue to maintain a component when it would be more cost effective to replace it. How do you know when it’s time to replace rather than maintain? Riepenhoff said, “When the yearly cost outweighs the replacement cost, it’s time to replace it.”
Can a Maintenance Job Become a Capital Expenditure?
There are definitely times when your HOA receives the unexpected news that a maintenance job is not enough to resolve an issue. A deeper look into the problem might uncover surprises that turn the job into a capital improvement project. For example, you may have had a leak in your roof that you assumed required a simple patching. However, when your roofers examined the problem, they found more widespread damage that requires a roof replacement. Originally, the maintenance job would have been funded out of your operational budget. Now, your HOA will need to pay for the project out of your reserve fund. (Hopefully, you have the necessary money in your reserves.)
Which Criteria Differentiates Maintenance From Capital Improvements?
When to categorize an expenditure as a “maintenance job” versus a “capital improvement project” is a case-by-case determination. Some factors you should consider include:
- The component’s value
- Your goal in performing the work
- The scope of the work
- The actual result
- How the work will affect the component’s value, equity return and depreciation
Now that you have a better understanding of the purpose of maintenance and capital improvement work at your community, you can budget for your projects more effectively. Matching your maintenance plan to your capital improvements will help improve your community’s property value and enhance the comfort, safety and enjoyment of every resident.
A quarter-century ago, it was the murder capital of the United States.
Now East Palo Alto is about to become the Bay Area’s latest city of million-dollar homes, a turnabout wrought by the region’s inexorable housing shortage.
Real estate website Zillow expects the median value for East Palo Alto property to rise from $964,000 to $1.1 million over the next year. Morgan Hill, Alameda, Newark and Daly City are other Bay Area cities expected to soon strike seven-figure values.
East Palo Alto Mayor Ruben Abrica saw a mixed blessing for his city crossing the $1 million threshold. The city collects more taxes to provide services, and many long-time home owners have reaped the benefits of selling in the hot market, he said. But federal statistics show only one-third of East Palo Alto homes are owner-occupied, leaving a large population of renters left out of the real estate boom.
“It is a very strong reminder that we have to keep doing everything we can to preserve housing for the middle class, the working class,” said Abrica, who helped found the city in 1983. “That’s who we are.”
East Palo Alto will be joining an exclusive club in the U.S. — just under 200 communities in the country boast home values over $1 million. About one-third of those communities are in the Bay Area, with San Martin, Milpitas and San Jose recently added to the list.
The median home value nationally is $217,300, according to Zillow. The San Francisco and Oakland metro area has a median home value of $953,000, while the San Jose metro checks in at $1.3 million.
East Palo Alto has geographical advantages — set near the heart of Silicon Valley between wealthy Palo Alto and Menlo Park, easy access to U.S. 101 and Facebook’s expanding tech campus on its border.
But city educators say about 40 percent of the children in the Ravenswood City School District are considered homeless. The school district has expanded food pantry programs and built a free laundromat for needy families.
And the city’s violent history is never far enough past. It had the highest per capita murder rate in the country in 1992, when drug wars tindered violence in the small city and led to a homicide almost every week.
But the area has rapidly gentrified. Crime is down. Last year, the city had just one murder.
Omar Kinaan, an agent with Golden Gate Sotheby’s International, said buyers look to East Palo Alto for investment properties or good values. Bay Area home shoppers with $1 million to spend have fewer choices, he said.
“In our area,” Kinaan said, “it’s a challenging budget.”
Real estate agent Catherine Gortner started selling homes in East Palo Alto in 2003 to Stanford doctors and other professionals. Her mix of clients moving into University Square has become dominated by tech workers drawn by short commutes and bigger homes.Many families send their children to private schools or surrounding districts through a transfer lottery, she said.
Many of her original clients would have trouble affording East Palo Alto today, Gortner said. “It’s not surprising,” she said. “It’s not just East Palo Alto — it’s everywhere. That’s why people are leaving the Bay Area.”