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HomeMy WebLinkAbout1703 Balboa Blvd Coastal Res'l Dev't PrmtCITY OF NEWPORT BEACH PLANNING COMMISSION STAFF REPORT January 17, 2008 Meeting Agenda Item No. 4 SUBJECT: Coastal Residential Development Permit No. 2006 -003 (PA2006 -278) 1703 W. Balboa Boulevard APPLICANT: C. Frank Zavala PLANNER: Brandon Nichols, Associate Planner (949) 644 -3234, bnichols(&citv.newport- beach.ca.us PROJECT SUMMARY The applicant is requesting approval of a Coastal Residential Development Permit (CRDP) to allow the demolition of a 10 -unit apartment building located at 1703 W. Balboa Boulevard, in the City's Coastal Zone. The apartment building is proposed to be replaced by three detached single -unit residential structures. The purpose of the CRDP is to ensure compliance with Government Code Section 65590 (Mello Act), which regulates the demolition of low and moderate income (affordable) dwelling units in the Coastal Zone. In accordance with the provisions of the Mello Act, it has been determined that 8 of the 10 existing units are considered affordable. Staff recommends that the Planning Commission approve Coastal Residential Development Permit No. 2007 -003. Project Setting The project site is located on the Balboa Peninsula at the southwest comer of W. Balboa Boulevard and 17th Street. The 10 -unit < lots, within the Two - Family Residential (R -2) building is therefore non - conforming to the inconsistent with the property's General Plan de Properties to the east, west, and south of the s with single- and two -unit detached residential Community (PC -51) is located to the north of the partment building straddles three legal zone district. The 10 -unit apartment underlying zoning designation and 3ignation of Two -Unit Residential (RT). to are also zoned R -2, and developed structures. The Marina Park Planned property across W. Balboa Boulevard. 3 Fall ON-SITE T1�,O-Unit Residential I TWO-Family_ Residential Multi -unit re s i de ntla I NORTH Parks and Recreation Planned Community Mobile home park SOUTH Two-Unit Residential Two-Family Residential Residential (single- and two-unit)_ EAST Twa-Unit Residential Two-Family Residential Residential sin le- and WEST Two-Unit Residential Two-Family Residential Residential (single- -and two-unit). . 91 4� AN no. WD RYEAIN6�._ 1 KO MR oNA jj� R4, IV. IN e Mi R-1 3 Fall ON-SITE T1�,O-Unit Residential I TWO-Family_ Residential Multi -unit re s i de ntla I NORTH Parks and Recreation Planned Community Mobile home park SOUTH Two-Unit Residential Two-Family Residential Residential (single- and two-unit)_ EAST Twa-Unit Residential Two-Family Residential Residential sin le- and WEST Two-Unit Residential Two-Family Residential Residential (single- -and two-unit). 3 Coastal Residential Development Permit No. 2006 -003 January 17, 2008 Page 3 Project Description The applicant proposes to demolish the non - conforming 10 -unit apartment building and construct three single -unit detached residential structures (one structure on each of the three underlying lots). The new structures will conform to the use requirements and development standards of the R -2 district. As stated, the existing apartment building has 8 units that are considered affordable to very low, low, and moderate income households (3 very low, 3 low, and 2 moderate). This information was provided by the applicant and verified through City income surveys mailed to building residents. The income levels (very low, low and moderate) are establishedladjusted each year by the State Department of Housing and Community Development. The City implements the Mello Act through the CRDP process. The Mello Act Under Section 65590, a city or county may not approve the demolition of existing housing units occupied by low or moderate income households unless provision is made for their replacement with new affordable units. The replacement units must be located on the site of the demolished structure or elsewhere in the Coastal Zone, if feasible. If location onsite or within the Coastal Zone is not feasible, the units must be located within three miles of the Coastal Zone's inland boundary. The Mello Act contains a number of exemptions whereby an applicant for demolition can be relieved of the obligation to replace the units; however, the exemptions can only be used if the jurisdiction determines that replacement of the units is infeasible (the issue of feasibility is discussed in the following section). In this case, the applicant can be relieved of the replacement obligation under the following scenarios: 1. The City has within the area encompassing the Coastal Zone, and three miles from the inland boundary of the Coastal Zone, less than 50 acres, in aggregate of land that is vacant, privately owned and available for residential use. 2. The City has established a procedure under which an applicant for demolition can pay an in -lieu fee into a program which will result in the replacement of the number of dwelling units that would have otherwise been required by the Mello Act. Feasibility Analysis The Mello Act states that replacement affordable units must be provided if "feasible ". The Mello Act defines feasibility as "capable of being accomplished in a successful manner within a reasonable period of time, taking into account economic, environmental, social and technical factors'. The City retained the real estate 6 Coastal Residential Development Permit No. 2006 -003 January 17, 2008 Page 4 development consulting firm Keyser Marston Associates (KMA) to analyze the project and determine if it was financially feasible for the applicant to fulfill the replacement requirements of the Mello Act. The results of the KMA analysis are attached as Exhibit 1. The zoning of the property limits development to six units; however, for the purposes of the feasibility analysis, KMA created a hypothetical 8 -unit project in which all 8 existing affordable units would be replaced onsite (this hypothetical project could be possible if the applicant chose to pursue a density bonus under California state law). The mix of affordable units in the hypothetical project is equivalent to that of the existing building (2 moderate, 3 low, and 3 very low). To determine total development costs for the hypothetical 8 -unit project, KMA calculated the following: 1. Estimated site acquisition costs ($2.1 million) 2. Estimated direct construction costs ($1.77 million) 3. Indirect costs and financing costs ($816,000) Using the above criteria, KMA estimated site acquisition and development costs at $4.69 million. KMA then compared this figure to the projected sales revenue if each of the units were sold at restricted prices affordable to very low, low, and moderate income households. Based upon this calculation, total sales revenue for the project would be $1.08 million. Acquisition and development costs therefore exceed projected sales revenue by $3.61 million. Based on the analysis, KMA concluded that acquisition and development costs for the hypothetical 8 -unit project exceeded projected revenues before any consideration of developer profit; therefore, the project was considered infeasible. Furthermore, KMA concluded that the development of any replacement units on -site would not be financially feasible under any affordable /market rate scenario. In -Lieu Fee Analysis Because it was determined that on -site replacement of the affordable units was not feasible, KMA conducted an additional analysis to determine the in -lieu fee that would be required to construct the units in an offsite location in the Coastal Zone or within 3 miles of its inland boundary (Exhibit 2). Physical construction of the units was not considered feasible since the applicant does not possess an additional site on which to develop the units. For the purpose of the in -lieu analysis, KMA assumed that the City would chose to fulfill the replacement housing obligation by assisting a developer in the acquisition and substantial rehabilitation of an existing apartment project. This was assumed to be the most practicable way to replace the units. Based upon their analysis KMA estimated the �p Coastal Residential Development Permit No. 2006 -003 January 17, 2008 Page 5 cost to provide 8 replacement units in an off -site location at $3.05 million ($382,000 per unit). To determine whether or not it would be reasonable for the applicant to pay the in -lieu fee, KMA estimated the value of the existing 10 -unit apartment complex (by capitalizing the projects net operating income) and compared this figure to the value of the property if developed with 3 single -unit detached residential structures (the applicant's proposed project). Based on the KMA analysis, the value of the property as a 10 -unit apartment building is $2.1 million. To calculate the value of the property if developed with three single -unit detached residential structures, KMA calculated the following: 1. Estimated construction costs ($3.97 million) 2. Projected sales revenue ($6.21 million) 3. Threshold developer profit of 10% of sales revenue ($621,000) After subtracting construction costs and threshold profit from sales revenue, KMA concluded that the value of the property as 3 single -unit detached residential structures ($1.62 million) is actually less than the value of the property as developed with a 10 -unit apartment complex ($2.1 million). Because the financial analysis indicates that the proposed project will generate a lower return than the existing apartment building, KMA concludes that the applicant cannot feasibly make any in -lieu payment to fulfill the replacement housing obligation. General Plan The following General Plan Housing Element policies and programs were considered relative to the proposed development: Policy H 1.1 Support all reasonable efforts to preserve, maintain, an d quality of existing housing of existing City housing economically feasible. and residential neighborhoods, esources for as long into the improve availability and and ensure full utilization future as physically an Policy H 2.1 Encourage preservation of existing and provision of new housing affordable to very low, low, and moderate income households. Demolition of the building will result in a net loss of 7 units and the loss of 8 affordable units; however, given the small size of the existing 10 -unit project, the age and poor condition of the existing building, and the fact that the building is non - conforming to the underlying zoning and inconsistent wit the General Plan, it is staffs determination that demolition of the building represents a minor impact to the City's overall and affordable ki Coastal Residential Development Permit No. 2006 -003 January 17, 2008 Page 6 housing stock. It should be recognized, however, that future demolitions of apartment projects could result in a negative cumulative impact on the City's overall supply of market rate and affordable dwelling units. Summary Based upon the KMA analysis, it is not feasible for the applicant to replace the affordable units lost through demolition of the building, nor is it reasonable to assess an in -lieu fee to replace the units. Staff concurs with the analysis and recommends that the applicant be relieved of the replacement obligation under Exemption No. 1 discussed earlier in this report (less than 50 acres of vacant, privately owner land available for residential development). Given this conclusion, staff recommends the Planning Commission approve Coastal Residential Development Permit No. 2006 -003 thereby permitting the demolition of the 8 existing affordable units. Alternatives The Planning Commission has the following alternatives: 1. Determine that replacement of all or a portion of the existing affordable units is feasible, and require the applicant to provide for their replacement. Based upon the KMA analysis, this would result in a cost to the applicant of approximately $382,000 per unit. This assumes the applicant would choose to acquire and rehabilitate the unit(s). 2. Deny the Coastal Residential Development Permit, thereby preventing demolition of the apartment building and the 8 existing affordable units. Environmental Review Staff has reviewed the proposed project and has determined it to be exempt from the requirements of the California Environmental Quality Act under Class 32 (In -Fill Development Projects). This exemption applies to environmentally benign in -fill projects which are consistent with local general plan and zoning requirements. PUBLIC NOTICE - Notice of this hearing was published in the Daily Pilot, mailed to property owners within 300 feet of the property and posted at the site a minimum of 10 days in advance of this hearing consistent with the Municipal Code. Additionally, the item appeared upon the agenda for this meeting, which was posted at City Hall and on the city website. co Coastal Residential Development Permit No. 2006 -003 January 17, 2008 Page 7 Prepared by: Brandon Nichols, Associate Planner EXHIBITS Submitted by: 1. KMA Financial Feasibility Analysis 2. KMA In -Lieu Fee Analysis 3. Government Code Section 65590 (The Mello Act) RAUSERSIPLMSAaredIPA'sWs - 20071PA2007- 1661Pianning CommissionIPA2007 -166 PC staff reportdoc M