REAL ESTATE NEWS

California's Executive Directive 1 (ED1) aims to expand the affordable housing supply and may meaningfully increase the viability of mixed-income housing projects. In fact, there's evidence that the change is already working.

Los Angeles offers a clear case study of the directive's implications, as it is designed to expedite processing for shelters and 100% affordable housing projects.

This has reduced friction in the development process and pushed developers toward income-restricted housing, enabling them to move forward more predictably, according to Paul Rahimian, CEO of Los Angeles-based real estate lender Parkview Financial.

Entitlement and permitting processes have long been among the most significant barriers to the delivery of affordable housing, according to Rahimian. However, this recent policy shift is improving project feasibility.

Previously unattractive developments in an economic sense are now drawing renewed developer interest, he said.

Notably, Rahimian has observed growing momentum in small- to mid-scale multifamily projects (approximately 30–80 units), primarily in infill locations across Los Angeles.

"While [Parkview's] approach remains predominantly market-driven, nearly 50 percent of the new ground-up multifamily opportunities currently under review incorporate some form of affordable housing component," Rahimian told GlobeSt.com.

Historically, pre-construction reviews and permit issuance in Los Angeles often extended over several months, involving multiple rounds of revisions and prolonged negotiations with the City," Rahimian said.

"However, the City of Los Angeles' ED1 program—now permanently codified in the municipal code—has materially streamlined this process."

Under ED1, projects providing 100 percent affordable housing are subject to pre-construction review within 60 days and permit issuance within five days thereafter, he said.

"These accelerated timelines and enhanced regulatory clarity are significantly expediting overall development schedules and are contributing to reduced project costs," Rahimian said.

Section 8-backed rents and partnerships with non-profits are helping projects come together, he added.

Affordable housing developments are typically subject to rent restrictions that vary by project location and regulatory framework. In many cases, Section 8–backed rents enhance revenue stability by providing rental assistance vouchers that subsidize a portion of tenant rent.

These vouchers are tied to Fair Market Rent (FMR), which is often higher than standard affordable rent limits, according to Rahimian.

"Tenants are responsible for covering the remaining portion of the rent not supported by the voucher," he said. "As a result, operators can achieve higher effective rents, which in turn supports increased net operating income and enhanced property valuations."

Additionally, developers and operators frequently partner with nonprofit organizations to unlock property tax exemptions or reductions.

"Depending on the depth of affordability provided, these tax abatements can range up to 100 percent of assessed property taxes," Rahimian said. "Reduced tax burdens materially improve operating margins and further enhance asset value from a capital markets perspective."

From an investor's perspective, Rahimian said the current market environment presents a compelling opportunity to gain exposure to affordable housing to pursue attractive risk-adjusted returns.

"Investors may participate directly by partnering with developers and providing equity capital for specific affordable housing developments, with returns aligned to traditional equity investment structures," he said.

"Alternatively, investors may opt for indirect exposure through specialized funds that allocate capital to affordable housing projects, participating either as equity or debt providers based on individual risk tolerance and return objectives."

Source: GlobeSt/ALM