Affordable rental housing has been a hurting proposition, becoming a full-blown affordable housing crisis.
A January 2023 proposed project by Thrive Living, a developer affiliated with New York-based Magnum Real Estate Group, involving 800 housing units atop a Costco Wholesale in Los Angeles begins this year, a portion of which would be for low-income households. It might be an approach that provides one tool for increasing the amount of affordable housing.
For more than a decade, the U.S. has fallen short of building sufficient housing, particularly the affordable type. A recent NMHC research note indicated that CoStar-defined affordable units — one-star to three-stars — have fallen from 39.0% of all apartments in the first quarter of 2014 to 30.3% in the third quarter of 2024. Upper-end units have become the “vast majority.”
Initiative failures to expand affordable units have fallen on rocky ground. As developers have told GlobeSt.com over the last few years, construction costs require levels of NOI commanded by four-star and five-star properties. Some Biden administration initiatives or proposals have fallen short of their promises. Expiring LIHTC units could add to the affordable housing crisis. Even overseas investors are worried about affordable U.S. housing, says AFIRE research.
“The housing crisis is not a problem the commercial real estate industry can solve alone,” said one respondent in the AFIRE study. “It’s going to take a lot more partnerships between public, private, and philanthropic entities. Between us, the government, and philanthropic capital, we need to address this problem at the local level.”
One item in the toolbag might be large-scale mixed-use developments like the L.A. project, for which construction should begin early this year, according to the Wall Street Journal. Out of the 800 apartment units, 184 would be set aside for low-income households.
“I want to build thousands and thousands of apartments every year, not hundreds,” Ben Shaoul, Thrive’s founder who also runs Magnum Real Estate Group, in New York, told the Journal.
Rent from Costco would help underwrite the residential development. Simultaneously, the residential portion would give Costco access to an urban market as well as the residents above. Baldwin Village, the site of the development, has a poverty rate double the national average.
If the concept works, it could attract attention from other big-box retailers interested in densely populated urban outlets beyond their usual suburban fare.
Shaoul told the Journal that he thinks the development will cost $425 million. The company is using its cash and a loan to buy the land. He’s seeking a separate loan for the retail portion, as well as New Markets Tax Credits, a tax structure that provides incentives for private investment in economically distressed areas.