Case Study

Hope on Alvarado

8 min read

Chinese factory fabricates for LA’s homeless 

Floor by floor, an apartment building is being fabricated in China and built in the Westlake neighborhood of Los Angeles. If this sounds strange, it is because terms like “fabricated” and “built” are taking on new connotations in the emerging realm of offsite construction. Case in point: the Hope on Alvarado Apartments, an 84-unit complex intended to house the chronically homeless and those with mental disabilities in an area about two miles northeast of the city’s downtown corridor, with public transit available nearby.

“Our mantra is to build quality units with the quickest delivery possible,” declares Scott Baldridge, president of Aedis Real Estate Group of Laguna Beach, CA, Hope’s developer, whose aim is to create a sense of community through safe and secure affordable housing, “the foundation by which residents can begin developing their own dreams.”

Funded through Low Income Housing Tax Credits and tax-exempt bonds, Hope on Alvarado is expected to open by the end of the year and is now pre-leasing. The five-story structure is composed of a one-story concrete podium and four stories of modular steel units, manufactured by a company northwest of Shanghai in Zhengzhou, China, shipped from the Port of Shanghai and offloaded at the Port of Long Beach, trucked about a half hour to the site and hoisted into place by industrial cranes. “They’ve been fantastic,” says Baldridge. “They even came over for the lifting ceremony.”

The original idea for the project came from trying to figure out how to deal with Los Angeles County’s burgeoning homeless population, now estimated between 38,000 and 55,000, depending on how the term is defined. Ironically, according to KABC Television news, homeless people had to be moved off the site before construction digging could begin.

“I’ve been in affordable housing for almost 30 years,” Baldridge says, “first as a banker, then in the nonprofit sector, and a developer for almost 15 years. During that time, we’ve operated in ten or 12 states, mostly through acquisition and rehab. But as homelessness has been getting worse, I’ve worked with different groups trying to find a path to finance these projects. We didn’t want to do a one-off but wanted to be able to scale up; do something more programmatic that could really get at the problem. So, we started researching modular construction, and if you’re going to do projects modularly, you have to commit, so we developed a unified team with an architect and a contractor who handles everything.” The team includes KTGY Architecture + Planning and HGB Construction Corp.

Interesting, but Scary
Ronne Thielen is the executive vice president of R4 Capital of Newport Beach, CA, a national affordable housing syndicator, who has been one of the space’s leading advocates. “Scott called us looking for debt and equity,” she says. “It looked like something interesting, and maybe a little scary. But we did a lot of research, went out and met with the [participants], and asked, ‘What does the developer do? What does the manufacturer do? What does the contractor do? Who is responsible for what, and who has liability for what?’ This becomes extremely important when you get down to the investor level. In the end, it was a very, very thorough review, and we really bought into the concept. It was such a well-conceived project; they had done all of their homework.”

From the outside, the modular heavy gauge steel units look a lot like standard shipping containers, and, in fact, that was the original idea. “We started out with the idea of repurposing existing shipping containers,” Baldridge recalls, “but then found out we could modify the basic design to fit our specific needs.” The apartment units come from the Chinese factory with electrical and plumbing infrastructure installed, as well as kitchen cabinets and Energy Star rated appliances, dramatic floor-to-ceiling windows, utilities and wall, ceiling and floor finishes. Each of the steel rectangles weighs between 15,000 and 30,000 pounds. The contractor’s subcontractors hook up all electrical fixtures and plumbing and bolt the modular units to the existing platform. Alvarado Street does have to be blocked off when the cranes are at work, but only for a week per story.

The plan calls for 61 efficiencies, 22 one-bedroom units, all subsidized to a level of 30 to 60 percent of area median income (AMI), and one larger, one-bedroom apartment on the ground floor for the resident manager.

The ground floor will also have meeting spaces and offices for social service providers, along with a leasing office, bicycle storage area and mechanical room. Another space may be designated for a fitness center, depending on the residents’ needs and desires. The building is close to public transportation and it is anticipated that most residents will not own cars so it includes an eight-parking space garage, considered appropriate for a project of this type. There is a rooftop recreation area. Each apartment will be provided with a bed and essential furniture.

Rental and social service subsidies are funded by sales tax revenue that was voted for in 2017, specifically for homeless housing. A rental subsidy for all units provided by the Los Angeles County Department of Human Services will total $1,685,230 annually, with wraparound services at an additional $432,000. Brilliant Corners nonprofit will vet residents to make sure they’re ready for this type of housing, and then coordinate with and oversee Homeless Health Services LA, which will be the actual on-site provider through a contract with Los Angeles County.

LA’s Affordable Housing Funding Funnel
“The city, which has been great to work with, has what is called a coordinated interest system to act as a funnel for affordable housing,” Baldridge explains. “They have been working at least a year or more on this, focusing on the chronically homeless, the streets, shelters, assessing problems such as addiction, lack of proper medication or nutrition, and figuring out what services these people need.”

The rental subsidy is guaranteed for ten years, and with the bond financing, the building will remain affordable for at least 55 years. And even with move-in/move-out times, the vacancy rate is expected to be no more than two to five percent at any time.

“We also have a professional property management company to maintain the asset,” says Baldridge. “And we have been meeting the best part of a year now, planning coordination among all the groups, trying to anticipate any interventions that may be needed and getting the social service providers involved. Our goal is that no one gets evicted.”

One Floor a Week             
The modular method already has a proof of concept. Hope is situated on a tight .44-acre sloping site at 166 on heavily trafficked, six-lane North Alvarado Street, requiring the sinking of deep pylons to stabilize the concrete podium on which the prefabricated units are stacked. “What’s really interesting,” says Baldridge, “is that we got delayed at the worst possible time. February was the wettest month anyone can remember, and between that and permitting issues, we lost several months. But once the concrete podium was poured and built, we were able to finish one floor every week, which shows that with this type of construction, you can catch up even if you’re significantly delayed.”

HBG’s Danny Moizel estimates a traditional “stick built” structure of the same size and capacity would take about twice as long overall to complete.

While the permitting and site inspection are handled in the normal way by the municipality, the fabrication and suitability of the modular units is certified by the state, through contracts with engineering companies that review plans and construction. Thielen says, “When modular units in California are inspected by the state Housing and Community Development Agency [HCD], it’s their responsibility to make sure they meet all of the code requirements, so they hire a third party that goes to China, and they scrape the walls, make sure the paint is thick enough, go down through every single detail of how these [modules] are built. The city of Los Angeles and county have no say in how they come in; all their rights are on the ground. It’s a very interesting and unique process.” The modules meet or exceed every applicable HCD and U.S. National Building Code standard and are considered earthquake and hurricane-safe and termite and mold-proof. The project has a GOLD Green Rating.

“Once you’ve got your process approved, state certification is about 30 to 45 days,” Baldridge adds. “We’ve already learned a lot. We have three other [modular affordable housing] projects in the pipeline, and we’re making minor modifications and improvements along the way. We think we’re going to be able to get our projected 13-month building cycle down to ten.”

“We are extremely hopeful about modular housing,” Thielen affirms. “We watched the delivery process and it is fascinating how it comes together. The lower costs make a huge difference. This is a great opportunity and I think it is a wave of the future.”

Story Contacts:
Scott Baldridge, [email protected]
Ronne Thielen, [email protected]