August 20, 2019 - From the August, 2019 issue

ULI-LA Mover & Shaker: Tony Salazar on Affordable Housing

At the July 17 ULI-LA Mover & Shaker event at Jerde's DTLA office, Tony Salazar, Director at McCormack Baron Salazar, Inc., and Michael Banner, President of Los Angeles LDC, discussed the state of affordable housing development in California. Salazar shares his experienced perspective on creating successful, mixed-income communities and what it currently takes, from a developer's perspective, to entice affordable housing production in cities across the country.


Tony Salazar

“We, as the real estate industry, have ripped this country apart; we have totally segregated people by income.”—Tony Salazar

Michael Banner: What do you think we, as an industry, ought to be focused on in terms of how to create greater diversity, share equitable opportunity, and be inclusive? 

Tony Salazar: I’ll try to take that question apart. Let me say something about the industry and how it affects diversity and economics. We, as the real estate industry, have ripped this country apart; we have totally segregated people. I’m not talking about race because this country has already done that before and we did it explicitly. I’m talking about segregating people by income. Every time we build a development at certain price points, we’re segregating people by income. This country and this industry have been doing that for decades. There’s no economic integration in a lot of developments. Even subdivisions built out in the suburbs are sold between certain price points, so that they attract people within that income range. What has happened over the decades is that the most common element that people have together is living in a particular income range. 

I’d like to take a step back. I’m in my 39th year of developing affordable housing. My mission has been to go into the worst, toughest neighborhoods in this country and rebuild them. I use housing as my platform, but I have to build other things to support the housing: day care centers, schools, etc. because those are the things that make good communities. Our strategy as a company—because people were moving out of the city and into the suburbs in great waves—was to create mixed-income communities in order to keep people who have revenue to help support the retail and give them a better chance at success in that community. For us, mixed-income communities were always the basis for rebuilding and were always the foundation for creating opportunities for people both in housing and employment. Creating a well-balanced social ecological environment across mixed-income and mixed-generational lines is how you rebuild a good, healthy community. 

Today, we need to go back to that. If we had buildings that had mixed-income elements where we were including workforce housing with higher end markets, or senior housing with single people or families, then we wouldn’t be having these problems. We wouldn’t be having this total separation by incomes with concentrations of poverty and low-income people. It creates a difficult strain on all other elements in society. Things are still segregated, and all that is still causing problems to our social service systems and police forces. 

I do more development in San Francisco than I do here. My biggest problem in San Francisco is getting the police department to do its work in troubled neighborhoods. What happens with police departments and other government agencies is when I’m spending $100 million to build on a corner and across the street they’re selling drugs, when I call the police department, they say “Eh, leave it there. It’s contained in this area, and we don’t want it to spread around.” That containment philosophy that people have also makes it difficult to rebuild communities and neighborhoods. I say that because, like I said, housing is my platform. But I’m concerned not just about housing. I need to be concerned about the environment as a whole, and everyone in our company has seen these developments in a holistic way. That’s why we do so many different things as a company, not just affordable housing.

Michael Banner: Based on my experience, if you’re going to fix a community, a long laundry list must be addressed. Some say as long as you have affordable housing, we’re okay. But you also have to have the other nine or ten things that make a community function... You need somewhere to buy food; you need somewhere to get your taxes done; all of that must be addressed. 

Tony Salazar: Let me add to that, because that’s a great point. I speak at ULI events and events like them all over this country, and the thing that I tell people all the time is that the real estate industry is vast. There are people who buy, sell, trade, regulate, legislate, monitor, invest, lend and all of it is in the real estate industry. As a result of that, people do all kinds of different developments. I have friends that develop warehouses, self-storage facilities, McDonald’s; our industry is vast. 

Once you’re in a neighborhood or community, you know that everything you’re doing is linked together: homes, retail, security, schools, parks, open space, libraries, and employment centers. You can’t ignore it. You can’t be so focused on your development that you’re not seeing it a holistic way. There are people that zero in, do their development, and not try to tie it in with the community in some way.

Michael Banner: Young people who are wondering why their community looks a certain way: this is the group that we want to bring in. How do we get them excited about doing what you do; about fixing their own community? 

Tony Salazar: Let me start with public housing. If you haven’t gone over to see Pueblo del Sol, it’s right on the other side of First St. and Mission. We were working with the Housing Authority and it was a tough public housing development. There were 10 gangs within that one 600 unit development. There was a program called the Hope VI program from HUD that would give the Housing Authority $50 million to tear down an old public housing site and rebuild it into a mixed-income community. 

Our company has a long history of working in public housing and converting concentrations of poverty like that by tearing them down, rebuilding, and converting them into mixed-income communities. This development took three developers. We partnered with Related and the Lee Group. We’ve now torn down and are in the process of rebuilding 46 public housing developments in this country— close to $2 billion in public housing developments alone. We tear them down, rebuild them, and manage them; we really turn those concentrations of poverty where, for architectural planning purposes, they’ve created islands where the streets do not go through and connect with the neighborhood, so we’ve reconnected the street grids and created mixed-income and multi-generational housing. 

After Hope VI there was something called the Choice Neighborhood award. HUD said they were no longer just interested in developing the boundaries of a community; they were going to develop the whole community. California received two Choice awards, one in San Francisco and one in Sacramento, and we’re the developers of both. It takes a partnership between us and the residents who are living there for us to go in and say, “we’re going to move you out, tear down your development, and we’re going to build you a new one and you can move back in.” It takes a lot of work and trust to do that. Our history—our M.O.— is to create new communities of opportunity.

We want to train people, residents, and local communities how to be involved in the development process. Torti Gallas has been with us for several of these developments. They do a charrette where they bring residents in and they ask what they want; what are residents looking for; what kind of cabinets or kitchens etc.  All of that is resident driven and resident involved, so at the end of the day, they aren’t just customers; they are creating a community of people who understand development.  Every day we’ve got to train and teach people, because when they come back to live there, they’re there for a long time. That unit stays public housing, and these people have very little to live off of. They pay 30 percent of their Social Security, or SSI towards rent. They’re living in a new unit. It’s incumbent upon us to train them how to be good tenants, how to be good owners, and how to understand the development and their community. 

 So we’re constantly involved, whether it’s with the youth or the parents. Let me say one thing about what we’re most proud of over here at Pueblo del Sol. So, we have to reconfigure that community and rebuild the infrastructure in it. It’s off the Gold Line, and we designed that development with that goal in mind. We converted the elementary school from grades 1 through 5 to pre-k through 8, and we built a new high school with the school district.  The kids were being bussed all over the city and had a drop-out rate between 50-60 percent. The kids there now are graduating high school; they’re going to college; and two or three of them are going to Princeton. That’s what a development is about; it’s about developing for a purpose to make a difference, change the city, and change people’s lives. If your development isn’t doing all of those things, then your development is just an island; it’s not making a difference. I say that, and I’m going to say it several more times, because everyone in here represents a cross section of the industry. Everyone has to keep that in mind in a boardroom every time we sit around a table: How do we make a difference? How are we changing the community? How are we changing the city? How are we making lives better?  

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Michael Banner: Let me ask one more question. Federal housing policy, in my opinion, is not getting better, it’s getting worse. Do you think, based on your experience, that we ought to be challenging our local leadership to better address the housing problems that we have? And, if you had to pick one issue/problem at the top of the list, what would it be?

Tony Salazar: Let me respond to you first about federal policy and then what we need to do locally. Economically, it’s very simple. People don’t earn enough money to cover rent that's sufficient to cover the cost of land, building, and operation. Either somebody has to fill that gap, or we have to pay people more money. The federal, state and city governments have to fill that gap. The federal government’s contribution to housing has been, in my 40 years, going down every year. That puts the pressure on state and local governments to fill that gap.

The other thing is, at the same time the federal funding is going down, they’re giving their contribution to state and local governments to say, “you guys deal with the problem.” The pressure that we used to put in our industry, on the people who financed the gap— the federal agencies— is now on state and local agencies. Still, the amount of money that goes towards housing is 75 percent federal money, it’s just coming locally and from the state.

Cities and states are forced to prioritize what they want to see done. The City of LA’s priority is homelessness; it has put its bond money, tax revenues, and political efforts there. In the City of San Francisco, they’re tearing down and rebuilding every public housing site that they have. In the City of Dallas they’re focused on building for first-time homeowners. Every city has its priority, and it’s got more control over its money. 

I need three things to develop: land, subsidy and money, and political will. I need those three things. When it comes to development, as a developer of affordable housing, if I don’t have those three things in the city that I’m working in, I just go to a different city because I can’t work there.

The City of LA has subsidies and capital—it’s got the bond money and state money from Sacramento—and political will. But the will is at City Hall, not there in the communities. That’s where the rub is here. Communities aren’t there to support them, and if the communities aren’t there, then they’re waffling at City Hall.

But the land and the way we are treating this process of building here in the city is very difficult. What we’re being told as developers— whether for affordable, market rate, homeless or, senior housing— is to go find the land, work it out with the community, come back to us at City Hall, and then we’ll give you some money. There’s very little political effort or will to go out and do it with land. 

I’ll give you an example, when former governor Jerry Brown was the mayor of Oakland, he would have Developer Day. He’d invite us for Developer Day, we’d get on a bus, and we’d drive around the city of Oakland. He’d say, “here’s a block that the city acquired. We want a senior building here, and over here we want a retail center, and over here affordable and market-rate housing. And here’s what we’re willing to do for you: We’ve assembled the land, we’ve optioned the land, we’ve rezoned the land, and here are the subsidies.” 

We’re not willing to go that far here; not for homelessness, not for affordability, not for a lot of things. If the government wants to finish the job, it’s got to take that extra step, because all we’re doing right now is bumping into each other. Who’s going to pay the most for the land to get what it is they want, and then go back to City Hall? That’s my big rub, and that’s my one thing. You said give you one thing, that’s my one thing.  

Audience Question: What have you seen change since the end of Redevelopment under Gov. Jerry Brown? 

So everyone recalls that Jerry Brown eliminated the redevelopment agencies in California and collectively the impact of that was a loss of about $1 billion for affordable housing. We lost $1 billion, which leverages an enormous amount of money, and ended at a time when we needed the capital most. There were a lot of projects lost and set back and to this day, it hasn’t been recovered. The state is just catching up to that with other bond issues and other kinds of funding mechanisms. 

Let’s consider the housing crisis: we’ve got to build more and we’ve got to build density. The solution is production. We’re not going to solve the problem through filtering; we have to build more housing across many income groups. Until we start addressing density on the properties that we have, we’re not going to solve this problem. So, you’re going to disrupt some communities, but you’ll create new communities. Neighborhoods evolve and change. It’s not the buildings that create community, it’s the people.

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© 2019 The Planning Report | David Abel, Publisher, ABL, Inc.