What a difference a recession makes.
Within months of a gala celebration marking the groundbreaking of the much anticipated Working Artists Ventura (WAV) project, backers of the much-anticipated $57 million cultural hub have found themselves scrambling for millions of dollars still needed in construction financing.
A cornerstone of Downtown Ventura’s redevelopment, WAV is envisioned as an anchor for the city’s so-called cultural district (See “WAV breaks ground,” News, 2/14/08). It will feature 69 affordable housing units serving low-income families and individuals at the corner of Ventura Avenue and Thompson Boulevard. Fifty-four of those units will be specially designed to attract and meet the needs of painters, sculptors, dancers, musicians and other artists. Another 15 will be reserved for recently homeless individuals trying to make a fresh start. Thirteen ocean-view condominiums, meanwhile, will be sold at market rates to help pay for the project, while a 6,000-square-foot commercial area will feature shops, galleries and other arts-oriented businesses. The project also has a green focus, and will be the first affordable housing project in Ventura County and second in California built to Leadership in Energy and Environmental Design standards.
A different sort of green problem, though, might put a kink in those plans, even after the February ceremony recognizing the WAV groundbreaking included celebration of the project securing all its funding. Despite their optimism, key figures behind WAV now admit economic insecurity and a battered real estate market are taking their toll, even though they remain confident the project will remain on schedule for its summer 2009 opening.
“It’s a tiny problem but it’s a real one, and it just has to do with the credit crunch,” says Chris Velasco, the president of Minneapolis-based Projects Linking Art, Community & Environment (PLACE), the nonprofit organization working with the city of Ventura to build the WAV community.
“It’s not going to be a big surprise with anyone that mortgages and credit have gotten very tight,” he says, noting that lending for the for-sale condominiums at WAV has shrunk. “We’re trying to fill in the gap by borrowing $3 million from another source.”
Calling from a business trip to London, Velasco explained the funding problem isn’t throwing a wrench into any of WAV’s plans because the condos will be the last part of the project built.
“We haven’t stopped anything,” he says. “We have probably several months yet to try to solve this problem, and I’m hoping that money will get a little bit looser.”
Work has begun at the WAV site. Bulldozers and earth movers have already begun tearing at the ground. More importantly, Velasco is convinced other lenders will step in to cover the gap WAV must fill (the condos are financed separately from the artists lofts and low-income housing because they are not affordable units). Since construction on the condos won’t start for quite some time, Velasco says the process will be slow because lending terms aren’t favorable right now. He says quotes have been made for rates between 7 percent and 16 percent; whereas the loan Washington Mutual still has for the affordable units is 4.6 percent.
“We’re going to keep hunting around,” he says. “The other money that we’re trying to find is just not very affordable, but if we have to we’ll pay higher rates.”
What Velasco means is the project will not be stopped in its tracks by the lending snag and will pay more if absolutely necessary, but good terms can probably be reached before the end of the summer.
Rumors the problem could hamper fundraising efforts for the last grants and donations the project needs are unfounded, he says. It still needs to raise about $130,000, money he thinks will be easier to come by once the construction takes a few more steps forward, and potential donors can visit the site to see for themselves what is taking place. Ventura’s relatively small size compared to other communities Velasco has worked with and the tight circles of its philanthropic community and civic leadership mean rumors resonate more loudly.
“I have worked on projects before in Seattle and Chicago and Houston,” he says. There are still rumors, but there’s 5 million rumors. [Ventura] is a good scuttlebutt town. That’s for good and for bad.”
Sid White, Ventura’s economic development manager, also says there’s nothing out of the ordinary about the situation facing WAV.
“That’s normal for projects like this,” White says. “Putting together a $57 million financing package isn’t a slam dunk thing to do, and you’re going to go through a rigorous closing process.”
Only a block away from WAV another long-anticipated project that broke ground last year is now sputtering. The Olson Company-owned Renaissance Walk housing complex on Santa Clara Street has been put on hold, only months after the company tore up the former site of Ventura Unified School District offices and a high-profile archeological dig at the site that turned up a variety of historic treasures. Olson pulled its permits Dec. 31, 2007, and, in light of the crumbling housing market, will spend up to a year considering how to proceed. Either they will start construction or be forced to sell the property.
“I think if you’re looking at the projects Downtown everyone is sharpening their pencils, and now they have to look at it from that perspective,” White says. “The ones that are flexible are the ones that are going to go with the flow and adjust their opportunities.”
Not all the news is bad for Downtown developers. Dan Frederickson, the former president of Kinko’s who now lives in the neighborhood, is building a six-story office building on California Street. Its office space is seen as crucial to city efforts to entice companies to Ventura which might create the environment for high-quality and high-paying creative jobs. Such jobs, many believe, would lure more creative professionals to the city, fortify the city’s tax base and stimulate demand for housing. Frederickson’s project, like WAV, may also be symbolic for those who have been hesitant to commit to a city and a neighborhood that hasn’t seen much new construction in the past decade.
“When you see Dan’s steel coming up, that’s when the folks in town will know that it’s for real,” White says.
Velasco has a similar sentiment about his own project and its potential to stir excitement for Downtown.
“Once there’s a little bit of excitement, that can help stimulate the activity for those other projects,” he says. “The frustrating part about the construction schedule for me is you start going down in the ground, but once we start going up I think you’ll see the excitement level go up.”
White, meanwhile, remains confident about WAV’s ripple effect.
“It’s going to be a renaissance once it all starts falling into place,” he says. “The ingredients are there, and you just have to stick through it.”
Doug Halter, a two-time city council candidate who has been heavily involved in the Downtown scene, helped conceptualize the WAV project. He says he was surprised to learn about the financing troubles the project is facing, particularly because of its multi-tiered financing model.
“It’s disappointing news because I really thought with so much government influence on the project it would at least be able to carry the momentum,” he says. “I think one of the best things on this project was the win, win, win.”
Halter wasn’t as optimistic as White or Velasco.
“I really don’t have any reason to doubt [Velasco], but I know from construction financing typically that if there’s any construction going on at the site then they’re very reluctant to extend any new financing,” Halter says. “It definitely concerns me because this is a pivotal project for Downtown.”
While WAV was approved relatively quickly, Halter says the hesitation bankers now have to pay for construction is something that should have been expected and may have been avoidable if long anticipated projects were processed faster.
“It’s part of my frustration for why I threw my name in for city council against three likeable city council candidates,” he says. “As a community, as a government we really have no regard for the impact of time on economics.”
Halter says he and other critics of the city’s slow planning process “saw the writing on the wall” about the economic slowdown.
“We knew that we had a short period of time. That was the longest economic, prosperous time that I knew of in my lifetime,” he says. “One of the best things about the WAV project was that it really took two years to get out of planning, which was a miracle.”
One of Downtown’s newer minds agrees with Halter that the neighborhood may have missed its boat during the last economic boom.
“[The] bottom line is that almost nothing was built Downtown in the last real estate cycle that ran from 1998 to 2006,” says Rob Edwards, the executive director of the Downtown Ventura Organization. “A combination of any of the following is likely responsible for this: local government over-regulation, lack of any real incentives to build, poor explanation of the new codes, plus weak developers who can’t perform but promise city staff that they will. Add to this the abuse the local guys in it for the long haul regularly take, like Mark Hartley [an investor behind many Downtown properties], who gets jerked around on a regular basis by the Design Review Committee. If he was a casual out-of-town developer he would’ve packed his bags by now and left.”
In an e-mail to the Reporter, Edwards wondered why the infill development and reuse of old buildings popular in Los Angeles and other metropolitan areas didn’t take off as quickly here.
“Now the neighborhood will have to wait for the next real estate cycle to see any construction occur,” he says “This hurts the small business owner who absolutely needs a lot more density of people within a mile of California and Main Street to survive. Density of buildings and the consumers that inhabit them are a must to support the restaurants and retailers we currently have.”
Developers aren’t only delayed by the economy. Lee Sehon, for example, says his Palm and Poli Associates’ plan for a mixed use development at the corner of those two Downtown streets must navigate the engineering complexities of building on a steep hillside lot. That means the group is spending a large amount of time getting working drawings together before taking the next steps. However, Sehon says, the reality of the current economic climate means developers like him are spending money strategically.
“There’s limited funding available, so we use it only where it’s most efficient,” he says. “Why you don’t see projects breaking ground Downtown is because the financial sectors are so screwed up, banks are just extremely difficult to deal with right now on constructing lending and financing.”
Private construction like Frederickson’s, Sehon says, will be a better indicator to banks of the health of Downtown than WAV, because the commercial building has the same sort of financing other builders will have to deal with, unlike the publicly financed art community. Because of what’s happening with banking at a national level, they’re not lending money except under the most stringent circumstances. Banks overstretched themselves during the boom years, and now they don’t have the reserves necessary to lend money as liberally. Once they have reserves, then building will pick up Downtown, Sehon says, because more loans will be available.
Saying there are about eight or 10 “quality projects” Downtown, Sehon shares Edwards’s and Halter’s position that had permits been processed more quickly, this problem could have been avoided.
“I imagine half of them would probably have been built already or under construction,” he says. “They’re high-quality, super killer projects for Downtown, and because they missed that window they’re now taking much longer and having to meet higher financial hurdles right now.”
Ventura may be in a better position, however, because so many property owners and developers involved Downtown also live and work there.
“What’s wonderful about Ventura is we have a handful of guys Downtown who are local and really concerned and dedicated to bringing Downtown to the next level,” he says. “You have a handful of guys who live here and work here and love being here and are not giving up.”
Even properties that are up for sale, like a parcel at Main and Palm owned by James Mesa — a prominent landlord and construction firm owner rumored to be unloading his properties to refocus on a proposed hillside development — could easily trade hands locally, Sehon says. When they are sold, the infusion of fresh capital could jump start development.
Whatever Downtown’s fate and whatever was done in the past, Sehon says he hopes the City of Ventura does whatever it can to preserve the permits and entitlements projects were already issued, even if they change hands.
“Over the last three years people have worked really hard to get those things approved, not only on the private side but on the city side,” he says. “They have taken a ton of effort. It would just be a crime to allow these projects to lapse in their entitlements and have to start all over again. I think everyone, including the city, would be most interested in preserving those things until they’re ready to pop.”