Developing affordable housing is very much like developing market-rate housing except that the affordable housing developer uses more sources of financing. Both types of developers go through the process described below. Although the development process is a lengthy one for both types of developers, the affordable housing development may take even longer than the market-rate development because of the number of financing sources.

Steps in the Development Process:

• Concept
• Pre-development
• Development
• Construction
• Operation

The Development Team. Early in the development process, the developer will have to assemble a development team. Typically the development team includes:

• Developer/Nonprofit general partner
• Architectural team
• Attorneys
• Tax credit investor
• Lenders and funders

Concept and site identification. A development process may begin with the availability of a certain parcel of land, or the developer may begin with a desire to create a certain type of development, for example, apartments for large families near schools and bus routes. Members of a neighborhood council's housing committee may identify a site or may want to encourage the development of a particular type of affordable housing, such as housing for homeless people, large families, people with disabilities, seniors, etc.

Questions about the development concept:

• Who will live there? Families, seniors, renters, owners?
• Available finance?
• Where will it be built?

Questions about the site:

• What can be built on it?
• What types of approvals and permits are needed?
• Are there any toxic wastes or other environmental issues on the site?
• What site improvements will be required, e.g., underground parking?
• What are the community concerns and desires?

Pre-development. During the pre-development process the developer must obtain enough information about a complex set of factors to determine the "feasibility" of the development, that is whether the development can be carried out. During the pre-development process the developer does the following:

• Selects a development/design team
• Evaluates the site
• Begins outreach to and consultation with local government, housing advocates, community groups, neighbors and other stakeholders
• Modifies the development concept as necessary
• Creates site plan and schematic design
• Identifies sources of financing and schedule of applications
• Negotiates tentative or conditional financing commitments
• Buys or enters a sales contract to buy the site (Obtains site control)
• Conducts a financial feasibility analysis

The feasibility analysis looks at what can be built on the site, what it will cost and the possible sources of financing. Development costs fall into four or five general categories. The following are the costs that must be included in the financial feasibility study:

1. Land costs. Land costs can include the land and buildings if the development is a rehabilitation project.
2. Construction costs also called "hard costs." Hard costs are the actual costs of constructing the building and parking. Construction costs include the cost of the contractor's profit and overhead.
3. Site Improvements
4. Soft costs including:
• Architecture, engineering and other design fees
• Legal and closing costs
• Taxes, insurance during construction
• Loan interest during construction
• Financing fees
• Marketing and leasing or sales
5. Development impact and building fees. These include fees imposed on new development for schools, sewer hookups, fire hydrants, parks and the fees for building permits. Building permit fees include building, mechanical and electrical and plan check fees.

Development.

• Complete design, working drawings and cost estimate
• Continue community consultation
• Submit applications for loans, tax credits, etc.
• Purchase property
• Obtain planning, zoning and environmental approvals

1. "By-right" development. The zoning code spells out what can be built on a particular parcel. The zoning code sets out both the maximum physical dimensions of the building, the parking requirements, and the permissible activities or uses on a parcel by parcel basis. If a developer wants to build something that fits within the zoning code then the City's role is ministerial, meaning the City doesn't exercise any discretion over whether the building is desirable or not, but simply whether the minimum requirements of the zoning and building code are being met. For example, in a particular commercial zone, the developer may be allowed to build "by-right" a number of things including a mini-mall, a 3-story office building, a gas station, a grocery store or a 3-story apartment building. The neighbors might prefer an apartment building on the site, but if a developer decides to build a mini-mall, the City would not have a legal means of stopping the development. The developer would still have to get a building permit and have various inspections, but as long as the developer meets the technical requirements the City is legally obligated to issue the building permits.
   
   
2. Side Note:
   Planning or Building & Safety?

   Developers must work with two City agencies on entitlements: the City Planning Department and the Department of Building and Safety.

   Zoning approvals are the responsibility of the City Planning Department. Building permits are the responsibility of the Department of Building and Safety.

   Building & Safety makes sure that the proposed development fits the building envelope allowed on the site or that any necessary variances have been obtained. Building and Safety is responsible for reviewing the architect's plans to ensure they comply with all applicable building codes, issuing permits, and conducting inspections during construction to certify that the construction complies with plans and codes.

   Building and Safety also assesses and collects the various fees assessed on the development for schools. Building & Safety is also responsible for enforcement of the zoning code – like cracking down on people who build without obtaining permits or who use the property in a way that is not allowed under the zone.

   Both departments provide information by telephone and have the answers to frequently asked questions on their websites.

   Entitlements. A developer seeks to "entitle" a parcel when the planned development doesn't fit within the strict requirements of the zoning. Sometimes the parcel needs to be rezoned, but other times the adjustments sought are relatively minor. The point is the City has the discretion to approve or deny the requested changes.
   
   Sometimes a developer must go through the entitlement process to build exactly what the community wants. Any new home ownership development that involves subdividing the land or setting up a condominium requires discretionary approvals from the City.
   
   If a developer wanted to convert an old warehouse building to lofts, and the parcel was zoned industrial, the developer would need a zone change because housing is not allowed in an industrial zone. The City, after public hearing and at its discretion, could approve a new zone that fit with the General Plan and Community Plan.
   
   On the other hand, many entitlement issues are more technical – a variance for a set-back, side yard, floor area ratio, lot coverage or how the building will be used. For example, the LA Housing Department encourages developers to put child care centers in new affordable developments for families. However, in some zones although child care centers are allowed in apartment buildings, they can only have up to 19 children, and it isn't economically feasible to run such a small center. A developer who wants to include a larger child care center must seek discretionary approval from the City.
   
   The City's zoning code is a complex and weighty document of some 1,000 pages. Some developers say it is very difficult to build anything without getting some discretionary approval by the City. Many developers hire consultants who are experts in the zoning code and the entitlement process to assist them in getting through the process. These consultants are sometimes called "expediters," and they usually attend any public hearings with the developer.

• Obtain building and other permits
• Conduct construction bidding process

Construction. In addition to the contractor, developers may also hire a construction manager who oversees construction on behalf of the developer, identifying potential cost savings, ensuring that materials specified are appropriate and of adequate quality, ensuring that all materials used are as specified and bid, and that the work is carried out correctly.

[Chart with construction costs by building type (from Rosen inclusionary study)]

• Select contractor
• Initiate construction
• Conduct inspections for construction draws
• Decide upon and conduct marketing outreach
• Manage construction close-out

Operations.

Rental housing:

• Hire staff
• Complete lease-up
• Manage and maintain building

For-sale housing:

• Set up and manage condominium association until most units sold
• Market and sell units

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