Amanda,
>> Amanda.
>> All right. Well, welcome everyone.
It's great to catch up with everybody.
We want to begin though, and I want to
welcome EVC. It's been a long time since
we've seen one another. want to welcome
all of our guests here who are probably
going to speak tonight. Um, but let's
get started by opening up this special
meeting of the EVC and the Planning
Policy Commission. And it's currently
5:31 p.m. Today's meeting is a hybrid
meeting. It is in person, but staff or
members of the public may be attending
virtually or in person. I'm going to go
out on a limb and say we probably do
have a quorum this evening.
>> Yes, we do.
>> Okay. and I want to get to
introductions, but I also want to let
people speak first in case they have
somewhere to go. So, tonight we're going
to offer up some time to do a public
comment. And first of all, has anyone
signed up for public comment?
>> No.
>> No.
>> Would anyone like to speak?
>> Okay.
Okay. But having said that, we do want
to offer some guidelines. So, first of
all, for anyone that would like to
speak, we ask that you come up to where
Kristen is and speak clearly and pause
frequently. Please state your name uh
before you speak. And if we have any
virtual attendees, we ask that you speak
um during the public comments that you
mute when you are not speaking. And if
you're having any technical issues, you
can try rejoining the meeting using a
different device such as a smartphone or
tablet. And you can use the call-in
information in the meeting invite to
join. We take these seriously. They are
important part of the public process.
They are factored into the decisions
that we make and we do ask that people
keep their public comments to five
minutes or less. Okay, we want to begin.
So I think there are some hands for
public comment.
Okay,
perfect. Thank you. All right. Well, I
do want to it's been a long time since
we've met together, so I want to go
around the room real quickly and have us
introduce one another. Um, you can let
us know what board commission you're on
and maybe just one thing that you enjoy
about serving on your commission. And
I'll start. Um, Jason Voice, I've been
on the planning policy for a while. I
enjoy doing the work of the public. It's
a lot of fun looking through
different regulations that hopefully
make our city better. That's the idea. I
think that's the goal we all have. But
uh yeah, that's what I enjoy. I I enjoy
doing homework. I'm a nerd. So, I'll
start there. Okay.
>> I'm John Crass. I'm the PPC. Been doing
it for two years.
Been in Isqua for 10 years, 20 years
before that in Seamish. And one of the
things that I love is helping make uh
Isqua a better livable place for not
just now, but in 10 years from now.
Hi, I'm uh Eric Allener, also a public I
mean uh uh policy planning commission
planning policy commission commission of
planning policy.
Um I've been on it for about a year or
two years, something like that. Um I
want to echo what Jason was saying. I
think we are all here trying to make
Isqua a better city. Uh my particular
interest is in affordable housing.
Uh my name is Jesse Patterson. I am on
the PPC. I've been a resident Isiqua for
about 14 years and on the commission for
about four of those years. And uh I just
like hearing um different perspectives
from different uh people across the the
our community and helping use those
perspectives to guide our planning
policy.
>> Hi, my name is Sandy Matthews and I'm
also with the planning policy
commission. Um I've been on for about a
year and I've lived in Isqua for a long
time about 23 years I think. And um the
thing I really wanted to do was because
I have a background reviewing
um different kind different cities their
policies. I'd actually wanted to their
planning commissions and such. I' I
really wanted to be involved and use
some of my background hopefully to help
um make some changes or make for the
better for our city.
Good evening. Kata Zakarov, a resident
of Isiqua Highlands for about six years
and on planning policy commission for
about two years. And I have joined the
commission because I would like to learn
more about the city and also to help it
grow and to see it grow into the future
and hopefully we can do something good
with our policies and help our city grow
good. Thank you.
>> Good evening. Kelly Richardson and I am
with Economic Vitality Commission. I
have been on the commission for about
two years now. I love jobs and having
jobs give people a sense of pride and
they have the ability to also then help
other people through all that um as well
as um our retaining our businesses um
both large and small um and affordable
housing. All of those elements make a
great community.
Hello, I'm Kimberly Capistant. I'm new
to the Economic Vitality Commission, but
I'm six years uh just coming off of the
arts commission for the city of Isiqua.
I'm also the DMO for the city of Isiqua,
which means I'm the destination
marketing uh organization that helps
bring tourism to Isiqua. So part of what
my job is is to really um decide on, you
know, how to market best those wonderful
entities that we have here. We're also
known as an outdoor recreation um halo
city for not only Seattle but Belleview
and working with those partners to try
and bring in more revenue for Isiqua. So
thank you so much.
>> Good evening. I'm Jennifer Larson and
I'm not a resident of Isiqua, but I am
part of the business community. I work
with Sanmar. I've been there about 10
years and what I really enjoy about
being part of the economic vitality
commission is a chance to participate in
and give back to the community and
Isiqua is a wonderful community to do
that in.
>> Hi everybody, my name is Robert Lurch
and uh lived in Isiqua for 20 years. I
the owner of Pickles Playland. We're a
doggy daycare downtown. And um one of
the the the highlights for me for being
part I'm part of the EVC is that at the
very end of our meeting we go around and
talk about new businesses coming to town
and who knows about what's happening and
kind of getting the the insider
knowledge about who's coming and I I
love that part. So thanks guys.
>> Hi my name is Kim Lee. Uh I work at
Broadstone uh and also associated with
Lakeside Industries, a manufacturing
business here in town. Uh I'm a resident
of Isiqua and I've been for the last
four years and on the economic vitality
commission for about that long as well.
Um I believe strongly in the economic
vitality in Isiqua. And so by that um I
mean you know a vibrant employment
center where people can also live and
those two things go hand in hand.
Good evening. My name is Chris Richley.
Uh been on the economic vitality
commission for six years now going on a
14-year resident. Also work in Isiqua at
the Harborstone Credit Union. I also
echo what Kim's saying as far as being
able to live, engage, and actually, you
know, work in the same community is
important. So affordable housing falls
into that. Also, I'm a big believer in
big small businesses big business. big
business doesn't exist unless small
business was ever formed, right? So,
anything and everything business is what
I'm, you know, I'm about. I'm from from
a small business family. So, that's
that's what drove me to the EVC.
I am Brett Holmstrom, incoming member.
Oh, I got have a name tag now on the
PPC. Isqua resident for about five
years. because I'm a small home builder
in town and hope to use that background
to help uh planning going forward to
smooth things out a little bit.
>> Good evening everyone. My name is Leslie
Millinder Irwin. Um I am a commissioner
on the PPC. Um is resident for three
years. Um I am very passionate about uh
affordable housing and uh specifically
uh senior housing. I believe that um
it's very important to make sure that
our our seniors have a safe place to
live and a safe beautiful place to live.
So um I am uh very happy to be involved
in uh volunteerism with the city. Thank
you.
>> Hi, I'm Genevieve Adair. I've been with
the planning policy committee for about
a year now. I've lived in Isiqua about
two or three years now. Um, I love
Isiqua and I just hope to help maintain
its charm and everything that's great
about it. So, that's why I'm here. I
love learning the nuts and bolts of city
management and code as well. It's a good
break from my day-to-day life.
>> We all love code.
All right. Well, thank you. It's great
to meet all of you. I know I've met some
of you, Chris. I've known a long time
and Kim and but it's always good to uh
get to know our new commissioners and
say hi and I hope everyone got some
pizza in our audience. Okay, we're going
to move on to our agenda because we
don't have a lot of time together so we
want to make the most of it. So the
purpose of this special meeting is to
allow the economic vitality and planning
policy commissions to participate in an
overview and discussion related to
promoting building investments in
Isiqua. We're going to hear
presentations from staff and also from
developers.
Um, one thing I'm going to ask from our
participants around this table is if you
do have a comment, please go ahead and
raise your placard so we don't have a
free-for-all. This will make it a little
bit easier on staff and myself so we can
pick people and make sure everyone's
getting a fair amount of time to speak.
So Kristen Leon, our planning manager,
is kick
is gonna be
>> theatrical here.
>> Uh Kristen Leon, our planning manager,
will be kicking it off this evening. So
Kristen, when you are ready, please go
ahead.
All right. Thank you all for coming
tonight. This is great. Um and really we
have four giant pizzas in the room. So
feel free to get up and drinks. Feel
free to get up at any time and go go get
those. This is not a super formal
meeting. So um I don't want to take it
home. Um yes we are here to talk about
promoting building investments in
Isiqua. So in back in 20
maybe
there we go.
So, we adopted the central Isiqua plan
back in 2012
and with the idea of focusing all of our
future growth in on the valley floor in
central Isiqua primarily off of the
hillsides. Um, part of that was so that
we could get transit, which we hope is
coming our way. Um, and there was a lot
of redevelopable land down there. So,
that was that was a good place to put
it. we needed to be able to meet have
our capacity to meet our targets, our
statemandated housing and jobs targets
that we get every year as well.
Um we're particularly interested in
growing in our regional growth center
which is the green area up there. It
our regional growth center we were um
designated as such in 2015.
It is having one of these that means
that that is where the city is supposed
to focus its future growth. It also
means that is where transit will go. It
also puts us higher up when we apply for
grants for infrastructure. It puts us
higher up um in line when we apply for
infrastructure funding from the Puet
Sound Regional Council and other and
other government agencies. So, it's
important that retain that status and
they need to see progress going forward.
So, we need to see more growth there.
So, there are several development
factors um as you all know when when
developing. You've got the land use
regulations which are way up here at the
top. You can see those. Those are easy
to touch, right? Piece of paper, you can
change it. Um but you also have market
factors. You have um construction costs,
taxes, tariffs, land costs, all these
things that we don't have a lot of
control over. Um one another one we have
control over the land regulations and we
have control over partnerships. So those
are the two things that we are focusing
on right now.
little lag time.
There we go. They we have four key
strategies um that we're working from.
One is to remove our regulatory barriers
which is through the land use code.
Improve our permit processes which is
something that we've been working on
since 2022 when we had a national
consultant come in and say, "Hey, here's
how you can work on improving things and
make it more efficient." We can create
incentives through the land use code and
through programs that are out there and
we can also do proactive marketing um
for investments in the city.
So we're doing that through builder
outreach and communication and we want
to really create a momentum and change
perceptions. You know not isqua is such
a hard place to build but isqua is
willing to work with you and look what
they've done to change their code and
look at the processes that are out
there. These these are improved. It's
not perfect, but gosh, it sure is going
the right direction, right? The other
one is to build relationships and trust.
So, I don't I don't know how many of you
know, we've started meeting with we've
started having a builder round table and
discussing with smaller and larger home
builders what's working, what's not,
where can we make improvements, oh, here
are some things that we've got going on
that we can't change. It's just been a
nice conversation
um talking about how to fix speed and
predictability and flexibility and
clarity so that when developers come in
it makes it easier for everyone all
around.
So out of all this also as part of the
land use code we have several
amendments. So 15 different amendments
were proposed. Uh they came from a
council retreat talking to different
homebuilders from staff. as we see
things come in, we keep a running list
of things that didn't work. We might
need to fix this. And then back in 2023,
we updated our Title 18 land use code
and created a whiteboard. There were
some things that were just too big to
touch during that process. And so, we're
working on getting those done as well.
All in all, some of these were combined.
Um, we are doing about 37 of these. Some
are in process. The others are being
done and they're part of this list that
I'm going to show you. Um there are
there are 17 things. We've got it mapped
out by quarter. We're taking two to our
city council on June 29th. They have a
public hearing coming up on May 14th.
We're actually going to talk about those
tonight if anybody's interested. Um at
our planning policy commission that
follows this, not with you guys. Um so
I'm just going to run through these
really quickly. Um we're doing we are
talking about reducing our outdoor
amenity space requirements. uh
revisiting our stepback requirements in
uh initiating a self-certification of
ADUs program revisiting our and right
sizing our floor area ratios some of
those aren't working. We are planning on
getting our statemandated parking
requirements about two done about two
years ahead of time. We are looking at
our natural context areas within central
Isiqua and the transparency
requirements.
Uh we're talking about allowing multif
family use in the urban village multif
family or you urban village commercial
and retail zones
providing flexibility to meet the intent
of design standards. Right now we're our
code says you must do all these things.
Uh we're looking more at a menu system
than what it is now. We're going to
revisit our variances and departures
through block connectors are tend to be
a little restrictive. Uh we need to
allow more flexibility there.
peer review. Right now, we require peer
reviews. We don't have all the staff
that we need in house with the
specialties that are required. And so,
we're looking at what really does have
to go through peer review. Can we do
more staff training and do that in-house
instead? We're going to look at ways to
mitigate redevelopment. Isqua's hard.
There are a lot of environmental
constraints in central Isiqua. There are
a lot of wetlands that are there that
have been paved over. There are streams
that are there that um are also built
right, you know, concrete running right
up next to them. But we want to improve
those things but still allow
development. So we're looking at that,
looking at more options to meet
sustainable development requirements.
Right now we require that if you're
10,000 square feet or more, you have to
be platinum lead platinum. And the uh
climate action plan is being redone
right now. So they are talking about
options for this process.
We require structured retail parking
along we require we require retail uses
along structured parking on the
frontage. So we're looking at reducing
or eliminating that. We're looking at
incentives and
programs for affordable housing, multif
family tax exemptions, inclusionary
zoning and development bonus program. We
are going to try and rightsize our
impact fees which seem to be a little
big. And we're also looking potentially,
not me, I don't know how to do this, but
looking at AI potentially to help with
permitting in the city. Again, I noted
that we are working within central
Isiqua. Does anybody have any questions
before I move on? Doing a lot of
talking. No. Okay.
>> Just two so far, but we are planning to
do them, I believe, quarterly.
Pardon me.
>> They were they were Yes, they are the
groups have seen those.
>> Yes.
>> And they like them.
>> Okay.
>> So, we are working we are focusing
specifically on central Isiqua, which by
the way has five different neighborhoods
within it. And each one of these has
visions. These were the central Isiqua
plan was sort of revamped in 2016. There
was a moratorium. We re redid all the
visions, created new neighborhoods. Each
one has a vision. So the two that are in
central Isiqua are Gilman and Pickering.
Gilman is south of I90. And part of it
is it's a jewel of the city. It's
mixeduse transitoriented development,
diverse housing types, smaller street
grid system, great access to parks.
Pickering values diversity, opportunity.
It's got Costco as its corporate
headquarters. It's got convenient
connectedness to Isiqua Creek and to the
state park and it's a multifaceted
destination place.
So all of these that we're doing, we
want to make whatever development
happens work within these visions
and that that's okay. So next are
targets. I mentioned that we have jobs
and housing targets. Our targets for
2044, between 2019 and 2044, we have to
plan for and accommodate 3,500
additional new units.
This year, King County started something
new and that they also added an area
meeting. They attached an area median
income to these. So
in theory, ideally in practice, but in
theory,
about over half of those have to be
below
50% area median income, which is hard to
get, very hard to get. Only 600 363
would be market rate. So we also need to
consider that we know that we're not
going to get that number. I'm just
putting it out there. We know we're not
going to get it, but we need to try to
get pretty close to that.
So we actually have capacity for 11,000
about 11,000 units in central Isiqua and
our target's only 35. So clearly it's
out there. Um but here's the issue.
We've got these policies and visions we
know we need to work within. We have the
capacity, but how do we make it work in
the market? So I'm going to stop here
and uh see if you have any more
questions again and then I'm going to
hand it over to some of our developers
over here to talk. Any other questions
before I take a break?
No. Okay.
All right. Let me switch over.
>> Yes.
>> Do we need to use these or no?
>> Yes, please. We're on just a reminder,
we are on TV, so
>> Oh, okay. Um, and and I
hope I don't want to derail the
conversation, but I I do want to point
out on back on the AMI slide
>> for context, and most of you may know
this, but 30% of AMI is is permanent
supportive housing that requires a
significant amount of supportive
wraparound services to serve those
renters. And so when you say we need to
do our best to provide that, can you say
a little bit more about the city's
obligation there? Because I know we're
talking about market rate housing today
and obviously it's all in market rate
housing is connected to affordable
housing, especially when there's
programs that allow for those two
functions to coexist. But can you just
say a little bit more about that?
>> I I think a lot of that is really city
involvement. You all may know about the
trail head development that's happening
our our tod
that's been a process that's been
ongoing since 2017 and the city made a
deal with Century Link then Lumen and we
found them a another location to move.
We reszoned that property so that they
could locate there. They eventually
decided to go away but then there's a
cell tower. So the city said, "Hey,
we'll help you find a place to relocate
the cell tower because you can't build
on this property without it." So we
helped to move the the cell tower. A lot
of that is us working with Arch, working
with affordable housing developers,
working with market rate developers in
Kirkland in Belleview. There's a
development over there where two work
together on one site and you have an
affordable housing and you have market
rate housing. It's it's a lot of city
involvement and a lot of negotiation
that has to take place, but it can we've
it's been proven that it can be done.
>> Yeah.
Thank you, Kristen. Let's see. Does this
just press to the next?
>> Great. Um, I'm Carl Sheret, Avalon Bay
Communities. And then I have a few other
folks here with me who I'm just going to
have sit for now, but they'll feel free
to yell in if you guys have comments or
questions. Um Mark White, Trimble
Residential, Michael Chen, McKenzie,
maybe just to start just explain um our
relationship with city, what projects
we've worked on just to give a bit of
context and why we're here today. Again,
Carl Sharet, I'm working on the trail
head project as the market rate
developer that was just referenced.
We've also had a bit of an ill- fated
adventure trying to develop a property
about two blocks to the east. Uh
day-to-day multifamily development of
institutional size.
>> Mark, do you want to just step up here
so people know who you are? Sir, my name
is Mark Hoy with TM Residential and I'm
going to go next. So, I'll kind of give
a full introduction when I'm when I'm
up.
>> Good evening, commissioners, staff. Uh,
Michael Chen with McKenzie, associate
principal, uh, land use planner, been a
planner since I studied it in college,
so I'm practicing what I actually went
to school for. Um, been in the industry
for almost 30 years. Um, both on the
public and private side. uh projects in
Isiqua. I've done everything from
retail. Um the Fred Meyers, the Lazy Boy
here, the food bank is currently uh one
of our projects. We're working with uh
schemata. Um and then the Springs, which
is a 255 unit senior housing project up
at the Highlands. Um I commend all of
you for your service. I've been there um
eight years as a planning commissioner
for the city of Ron before I had to give
up my seat because I moved out. But um
yeah, I'll be speaking later about the
process and I work up and down the west
coast and other jurisdictions and trying
to, you know, get a broad perspective of
what other jurisdictions up and down the
West Coast are doing, what's working,
what's not. So that's it. Great.
>> Thank you. Um we're here really just to
serve as a resource for you all. I'll go
to the next page. Kristen had mentioned
um kind of the challenge of
accommodation versus delivering
apartments, right? You all have done a a
great job focusing on the vision and the
zoning and getting the city teed up to
allow development. What we're really now
focused on is how do we translate that
from accommodation to actual delivery?
How do we get new housing online in
Isiqua in the near future? Um I'm again
I'm specialized in housing, but Michael
certainly could talk about commercial as
well. I think here we wanted to give you
a bit of a development 101 on just what
we're seeing in the market today. How do
I evaluate properties? How do um
developers look at isiqua and what makes
us say yes or no? And more importantly,
what makes the capital that we require
to build these projects say yes or no.
Kristen was kind enough to point out
that this chart that I've shown um is a
little bit outdated. We're still waiting
for the the data from Washington's OFM
on the housing starts and deliveries for
the last year or two, but I think the
general premise remains the same. that
Isiqua has not seen the level of housing
development that I think um we all would
like to see and particularly that's
concentrated in central Isiqua. We've
not seen the vision come to life yet. So
again, we'd love to be a resource and
just do a little bit of what works, what
doesn't work. Feel free to jump in with
questions at any time, but we will do a
more formal Q&A at the end here as well.
I always like to start with for folks
that just housing and and development in
general takes a long time. Um Chris had
mentioned the trail head project that's
been almost 10 years in the making here.
I'd love to say that's an outlier, but
it's it is difficult to get projects set
up. Um it depends on the complexity,
timelines of the municipalities, the
availability of capital. But each one of
these um moments in time, these
milestones is a risk that the developer
is trying to solve. getting through the
purchase and sale agreement of piece of
land, getting through due diligence,
getting through the entitlements with
the city. All of this takes time and
that's where we really look to the
cities to be partners with us to try and
create efficiencies and condense this
timeline. Time for us equals risk, big
risk. Um, entitlements often take 6
months and can extend years. Typically,
we're spending hundreds of thousands if
not millions during that process out of
pocket. We generally don't have a lender
for that work. Um, and it's at risk,
right? If the project doesn't move
forward, there's no way to recoup those
costs.
We can employ uh numbers of consultants.
We have normally 20 consultants on any
project at least. We're working through
building permits. We're sourcing equity.
Um, all this process, the point is the
money goes out day one, but the returns
don't occur down the road. It's a highly
capital inensive business. This is no
longer the business where you call your
friends and say, "Hey, I want to build a
building." you got to go get a loan, you
got to go get an equity partner. Um, and
that's what a lot of we're really facing
today that has been difficult. So, as I
mentioned, capital is hard to find, but
it's also very selective and mobile. So,
it used to be again maybe local banks
were your lender and it was a very
regional type of business. Today, the
capital that is building the projects
that we would like to see built in isqua
and the rest of um the Seattle region
are institutional in nature and they're
large loans, right? We're talking hund00
million projects. You're normally
getting a loan for $60 70 million. Uh
and you need a partner. And increasingly
that money has been, as I said, mobile.
Lately, it's been going to the sunb
belt, right? Some of it's regulatory,
some of its demographic changes, but
we're fighting harder and harder for
every dollar that we try and secure for
housing development in this region. Not
just against ourselves. and Mark, you
know, him and I compete on projects, but
we're comp competing with our um our
partners on the East Coast, in the Sunb
Belt, everywhere else. And so capital is
a really important part of our business.
It cost us about $500,000 per apartment
to build a new apartment building in a
mid-rise scheme. You know, we're not
talking high-rise skyscrapers. Um we're
not talking single family homes. For a
standard apartment, it's about $500,000.
And given the timeline and the risks
that is mentioned, there's normally more
projects available than there is money
to fund those projects. So as much as I
may love my project or Mark may love his
project, I need to convince somebody
else to love that project as much as I
love that project, right? You need to
love your baby, need them to love your
baby as much as you do. And Seattle
sadly is not at the top of the list for
investors these days. Um, you know,
we've had our own share of state level
regulatory issues, the discussion of
rent control, taxes, all of that factor
in, but ultimately it's not as easy to
get a deal done anywhere in this region
as it used to be.
So, I think we sometimes gloss over the
concept of what is it a project does it
pencil or not, right? Like how do you
get a deal done? We always say we need
the project to pencil. And so, just
taking a quick step back on how the math
works from our perspective, we're
generally solving for a return on cost.
It's a math problem. We're trying to
make the returns be attractive enough to
attract that capital. We're looking at
something called net operating income.
So, kind of the money that's left over
after you pay all of your expenses on an
annual basis and dividing that by the
total amount of investment into a
project. That's the return on cost or a
yield that we're generally benchmarking
ourselves on. But more importantly is
that yield needs to be feasible. You
need to be able to demonstrate that
you're making a return that is
reflective of not only your own cost of
capital. How much are you borrowing?
What does it cost to borrow on that
money, but then what are you getting
compensated for? What is your capital
getting compensated for on the risk of
taking that long entitlements process of
building of not knowing where the rents
are going to go, not knowing if you're
going to have a war in the middle of
your uh development. You know, there's a
lot of variables. It's a long lag time.
And it takes us um you know, say we even
get shovels in the ground, it's
typically 24 to 36 months before we have
residents even moving in and paying
rent. And so there's a lot of exposure
to to markets during that period.
We're also seeing a bit of a tailwind or
a bit of a headwind after a long
tailwind of interest rates going down.
Many of you know last 40 years we've had
a a pretty strong bull run in interest
rates in bonds. Rates have gone down.
that has made capital more and more
accessible to us, cheaper and cheaper
for us to build new buildings and it's
generally bailed out broadb bad projects
and given a tailwind to projects that
maybe were on the cusp of getting done.
You normally would be able to find a way
to get it done. Everything's changed
since co and that's really I mean a
40-year period of of the wind being at
your back now going into the wind on
your front. It's difficult for our
industry. Um, we're now facing rising
interest rates and those interest rates
are impacting not just again the the
loan that we take and the interest that
we pay on those loans, but what sort of
return expectations does our capital
have? It's benchmarked against these
interest rates. So, it costs more to get
the money, but we also have to deliver a
larger return all else equal.
We're generally solving for uh returns,
you know, 100 to 100 basis points above
um the premium above the rate at which
you could purchase buildings today. So
we need to again need to get compensated
for the risk relative to just going and
writing a check for something that
already exists. But it gets stacked on
top of that interest rate.
I tell people we would have done a deal
uh in this region somewhere around a 5%
return. So if we would have invested
$100, we probably would have made 5%
annually on that investment going
forward. We now need to target a return
that's about six and a quarter. So all
else equal, you know, ignoring the fact
tariffs, construction costs, inflation,
rents, rents would need to go up, all
else equal, 25% for me to do the deal
that I would have done 5 years ago
today. So that's a huge number to try
and beat before we even get into cost,
please.
>> Indefinitely. Yeah. And so
>> correct. And so that's how we we look to
get to a stabilized return of that. So
that's exactly right. Indefinite
>> uh our return on capital used to be a
target return used to be around a 5%.
We're trying to build a spread between
you know we would have been able to buy
a building for a 4% return. We can now
buy it um for 5% return. So that 100 bit
change. Um so we're we're looking now at
like a six and a quarter versus a five
previously.
Does that make sense?
>> Yeah.
>> Sorry, that does make sense. Great.
>> Just going back just one little step.
You had mentioned earlier that um sort
of the timelines.
>> Just for sort of context, what is the
the current timeline to get everything
from permitting from Isiqua versus let's
say another marketplace? And you could
just say hypothetically, let's say
Scottsdale or whatever you're working
at.
>> Yeah. I mean, I think regionally
Washington is tends to be complex and
the first rank suburbs of Seattle um all
tend to be reasonably complex. Isiqua
historically has been more complex. Um
every project is different. I'd hate to
say there's a magic number, but it would
probably take us
one to two years to get entitlements on
a deal in in here. uh probably towards
the the shorter end of that in other
municipalities locally. Everyone's
changing. Everyone's trying to get
better. Uh and some of it has to do just
with the quantity of the throughput,
right? Like there was really busy for a
while and everybody was all the
reviewers were, you know, they're
couldn't meet their timelines. Now it's
pretty quiet. Hopefully people can meet
their timelines a little bit easier, but
there's also less staff available to do
the reviews. So, it's always a balancing
act compared to Texas. I mean, you can
literally show up with a plane set in
Texas and get a permit within a month.
You have to live in Texas and they're
not complex buildings in the same way.
>> Yeah.
>> So, just going back to that
>> Sorry, I've got a I've got a question.
>> Oh, please.
>> How long uh is your average holding
period for properties?
>> Sure. So, we're a little bit different.
Mark and I have very different business
models. Um, Avalon Bay is a publicly
traded REIT, so we tend to hold
properties for 10 plus years. The
general internal guidance is 15 to 20.
Um, merchant developers tend to build it
and I won't speak for you, Mark, but you
generally, you know, want to sell as
quick as you can to an institutional
buyer like ourselves. So, we're a little
unique. I'd say Mark is probably more
typical of the market. Yeah, we I'd say
that we you know the
you know how we operate we we create the
business, stabilize the business and
then sell the business. That that's a
way to do it. There's other ways to do
it. We we certainly have had long-term
hold as well, but most of the capital
that's out there for the multif family
development world wants to create the
business, build the business, sell the
business. So,
>> thank you.
I I spoke about costs earlier and rents
and I think this is something that
oftentimes gets lost in the news. I
mean, we're all dealing with inflation
in our everyday life and it's no
different than uh what we see in our
business. Our costs, this is our own
internal numbers for a mid-rise um
apartment building from call it February
2020, what we're calling pre-COVID,
although who knows what the world is um
to today is up about 44%. So, the cost
to build an apartment building is up
about 44% in this region. That's higher
than other regions. We we you know our
labor costs are higher, our material
costs are higher. Um million different
reasons for that. But our rents have
only gone up about 14%. And again, we've
seen rents go up and that's made the
headlines. I don't think the costs have
made the headlines in the same way. So
again, all else being equal, we would
have needed rents to go up 20% just to
make the deal make sense in today's
interest rate environment. We now have a
situation, well, nothing did stay the
same. Things changed. Costs went up,
rents went up less. So, we're fighting
not only uphill on the overall
macroeconomic climate, but locally the
market dynamics have shifted that have
made it really difficult for projects to
get done.
You all, ISQUA um have some other
specific challenges beyond just the
macro environment. It's it's a difficult
place to do business oftentimes not
through any fault of of the city. It is
just you know your geology and and your
location are challenging. High
groundwater table is kind of my first
when I talk to people. We can't build
parking below grade here in this in the
way that we can in Redmond. That has
million trickleon effects. We can't get
as many apartments on a single piece of
land as we would in other markets. It
challenges the way we lay out sites. It
makes it more expensive to build
foundations. All of that really is a
large contributor to the cost of doing
business in Isiqua. As um Kristen
mentioned, the the critical areas,
especially within the valley floor, are
very challenging. This this map shows um
some of the wetlands. there's others and
and there's streams and there's buffers
associated with each of these. So, it
limits the amount of land or the
viability of land relative to
maintaining its existing use. Uh it's
infill development. It's not green fill,
right? We're not going buying a farm and
building, you know, just stamping out
buildings. It's complicated. You have to
demo buildings. You have to work within
existing constraints. That makes the
land more expensive. We talked a little
bit about inclusionary housing here.
That's a cost that's born um everywhere
these days for the most part, but isqua
is, you know, has a has a part to play
in that. Title 18 code um very well
intended. It's really complex. The code
for central Isiqua is really complex to
the point where I don't think anybody
really knows oftentimes what they're
trying to accomplish. So code can be
good, it can be bad. Um I think we're
trying to find ways to make it clearer
and more flexible. Lack of a citywide
MFTTE program. MFTTE uh multifamily tax
exemption. So a lot of cities have
leveraged opportunities to develop
housing in exchange for affordable
housing or inclusionary housing in the
buildings. you get a tax break. That
doesn't occur here in Isiqua, at least
on a citywide basis. That's an area
that's a challenge for you all. And the
rents of Isiqua still remain slightly
lower than than pure cities. It's still
easier for me to go build a building in
Redmond. The rents are higher. The costs
are equivalent, if not even cheaper,
because of the the parking issue I
mentioned. Um same goes for Kirkland.
Same goes for Belle. You know, there's a
regional competition. The rents aren't
high enough to justify the level of
construction that um other cities might
see. Again, costs tend to stay the same.
I'm building the same building here
versus there. I'm going to choose the
one that that returns a higher return.
I just, you know, again, going back to
what happens if we don't do anything.
We're on this trajectory today.
Hopefully, this new normal I've circled,
um, you know, Kristen will update my
numbers for me and and we will be headed
in the right direction, but the general
economy is not heading in that
direction. So, we're trying to find what
can we do to reverse this this trend. Um
and without policy action by you all, I
don't think things will really change
here. It's difficult enough for us to do
business in Redmond and elsewhere
because of all the things I just spoke
about. Isiqua um has those other
challenges that make it even harder to
do business here and justify the the
risk return that I that I spoke about
previously.
Um and really what happens is a lack of
supply and and lack of supply, I mean
research will show that lack of supply
is the greatest contributor to rent
growth. So while your rents may be
relatively low to your pure cities
today, they will continue to outpace the
region if no new supply is provided. And
research also shows that it particularly
uh impacts the class B and class C
properties that we would typically think
of as more naturally affordable. So
building new supply, while it may um
increase the rents of that that new
construction, right, I'm building
projects that will be expensive. That's
the reality of new housing. But it it
creates a relief valve for the
properties that are slightly lower
priced. And if that relief valve isn't
there, those prices continue to go up.
So I developer had mentioned, I think
this is um increasingly
the the the center of our discussion
with cities lately is that the goal of
additional housing supply if if the goal
is additional housing supply that
feasibility needs to be treated as a
policy objective rather than a market or
developer failure. We I would love to do
business in Isiqua. There will be places
for me to do business without the re
throughout the region. Um I would like
to do business in Isiqua because I love
the city and there's great um reasons to
be here. But sometimes the city needs to
play a part in that or the counselors
need to play a part in that in helping
create feasibility of projects that
don't otherwise make sense. the cities
that are leaning in and finding ways to
work with developers are the ones who
are going to benefit from this
constrained capital environment to get
new um housing built. Sure. Is it Chris?
Chris,
>> can you go back onto the what you were
saying about the peer cities and the
rent?
>> Yeah.
>> Because when you look at it, when I
think about from a business perspective,
>> I mean, I manage a I manage a branch.
Only one of my employees lives out of
four in Isiqua. So if that if you're
what you're saying is our compared to
our peer cities if I heard you right to
clarify you're saying is rents are lower
than our peer cities. Do you have that
exact number of how much lower? Because
I don't see that honestly as a business.
>> Yeah I think it depends on where you're
looking. I mean we tend to operate in
the the newer construction um more
modern product more modern apartments
those will trade at a discount to a
newer building in Redmond for example.
When I say peer cities, and maybe it
depends on who you compare yourself as a
peer to when I think of Kirkland and
when I think of Redmond and the places
we're doing business,
Isiqua would trade at a slight discount.
I would underwrite slightly lower rents,
not meaningfully, not, you know, not 10
20%, but a slight discount, which makes
all the difference when you talk to
capital. But you're right, um, at the
lower end, I think there's more
variability. Part of the challenge of of
Isiqua is there's not the diversity of
housing stock that you see in other
cities, right? the class B and class C
and class A minus and you know the the
ADUs whatever it is there's more options
outside of Isiqua. So that's part of it
too is that we're trying to increase the
diversity of the housing not just the
quantity
>> and that's where I was wanting you to go
with that.
>> Yeah, we're on board with that. I can't
disagree.
Um
we mentioned that the cities can't
control everything, right? Interest
rates are out of your hands.
construction, labor, capital
requirements, rents. That's not
something that we're looking for for the
cities to solve. But there are
opportunities for the cities to work on
on items like development timelines,
parking and building requirements,
density efficiencies, fees, risk
exposure, all these things that really
make up this policy work plan that um
has been, you know, hats off to the city
for for trying to to work with
developers and figure out what is the
most cost-effective way to get new
housing developed. I would add though
looking at this list, a lot of the items
that are on the near-term, they're the
easy wins. They're the little things
that help and it's good to have those,
right? Some of it's just showing the
intent that we want to help, but the
real meaty things that are going to move
the needle. You know, I the the step
back requirements and the amenity space
requirements, that's great, but that's
not going to solve a 20% rent gap,
right? When we get into things like
redevelopment within buffers and how the
critical areas work, when we get into
inclusionary zoning or impact fees,
those are the things that really move
the needle and those are a little bit
further out. So, um, we're hopeful that
that we'll find a way to move forward
there, but it is a lot of work still to
come.
I would also add, uh, I think the the
intent and investor perception, as
Christian Kristen alluded to, is is
really important, right? Like there has
been a perception locally that it's
difficult to do business in Isiqua. And
when you have capital that's struggling
to um figure out where to focus and
they're being dragged in a million
different directions because everybody's
got a project and everybody's saying
this is the greatest thing in the world.
It's easy to say no to a project when
the reputation is oh well it's just
going to get stuck in litigation or it's
going to get drugged out. Um you know
the the cities can play a great partner
in saying look we want development here.
We want thoughtful responsible
development. We want, you know, what we
want, but we want to be a partner to you
all and find a way to a solution that
goes a long ways um with changing
investor perception and allowing us to
find the capital that we need to build
these projects.
Is there one or two items on that list
that you would say
uh if the city were to focus on one of
those two items that would make it more
palatable for you know suppose of the
timeline we've got existing I'm not
going to speak on your but just hey if
we had a magic wand we'd say these two
would be the most important ones to move
up on the list as far as timing wise.
>> Yeah I tried to put some fun little
dollar signs here that that I thought
were my perspective on it. I think
everybody will have a different
perspective, but Isiqua is so challenged
by critical area buffers. It is such a
unique function of the city. Um,
and when I'm talking about buffers, I'm
talking about parking lots, right? I
think of the Hobby Lobby site where
that's a major potential development
site in a great location, but we can't
touch it because there's too many
buffers that come off of those streams
that would make it you would have to
pull yourself back from that stream
beyond even the extents of where the
parking is today. that it's just going
to sit as a parking lot for indefinitely
until policy is changed. I know that
that the state has some um there's kind
of a tension between city and state
regulations and that's not an easy
solution, but other cities are dealing
with that. Kirkland's having the same
discussion of how do you you know infill
development is hard when you're also
trying to manage the and and navigate
these these buffers. Uh and then
inclusionary zoning, inclusionary
housing is a huge tax on new housing. I
think, you know, there's certainly an
argument for it, but having it be well-c
calibrated, having an incentive, making
it a funded inclusionary program um with
a well-calibrated MFT program makes a
big difference to our to our
underwriting.
Yeah. Hi, Kelly.
Thank you. So, when I look at Isiqua, I
see basically like a sea of surface
parking mostly in one and twotory
buildings. And you know, not only do we
need more multifamily affordable
housing, but we also need uh more
commercial space. I hear that quite a
bit with everything that I do. Um and so
do you and do you foresee these factors
affecting commercial space as well?
>> Yeah, absolutely. I mean, it's that I'm
speaking through the lens of a a housing
developer, but it it applies the same to
anything redevelopment of these infill
sites. Um cities are going to have to
grapple with what the right way forward
is here. Our perspective is that, you
know, improving a uh a surface parking
lot that has direct runoff into streams
is more important than maintaining the
buffers that are set out um or finding
some balance in between. But the same
argument would apply for commercial
development, right? We can't we can't
justify the purchase price of an
existing building with a large shopping
with a large um with a large parking lot
if there's not an incentive to redevelop
that site. So, I know that's a sticky
subject and I don't want to derail the
conversation because there's many
pieces, but I I absolutely think it
applies the same to to housing and to
commercial.
I threw a development case up here, case
study up here just for you all to
understand, you know, the math behind
it. Um, and I think this will be in was
this going to be be passed out to folks
later or there'll be a digital version.
>> Okay. So, if you if you're curious just
on how we look at things, um this is
just a generic there's no specific deal,
but when I'm underwriting a normal deal
in the Northwest right now, I'm
underwriting and getting to a yield as I
mentioned that that return of about
five, you know, low 5% call it and a
target return of of a low six. That's
with some pretty reasonable rents. I
mean, you look at this in a $2,600
one-bedroom, I don't think anybody is
going to say you're you're being cheap.
um we need those rents in order to get
close to the returns, but we're still
not getting there. Some of that is the
affordable housing that that drags the
co that drags the revenues down, but
it's um the math doesn't work for very
creative sites at the moment. The
fundamental model is broken. Costs and
and incomes I included in here just so
you all know, you know, where's the
money go, right? It's not uh it's not a
black box. The money gets spent on
various things. I mean, structures are
obviously a big piece of it. Land is is
a relatively small piece of it. We tend
to think of, you know, land will just
adjust. You could write the land almost
down to zero in this scenario and this
project still barely makes sense, right?
Land is it's not a rounding error, but
the construction costs, the hard costs
themselves, and the rents are
meaningfully more important. And Avalon
Bay is a big company, right? I get the
best terms. I can borrow at the best
rates. Like, if any if it should work
for anybody, it should work for me, and
it doesn't work for me.
I'll let Mark talk because he's the one
who seems to find a way to make all
these things work. Um, so maybe he has
the secret.
>> Go ahead, Mark.
>> Yeah, thanks. Hi, everybody. Um, my name
is Mark Hoy. So, I'm the managing
partner for Trammor Residential. So,
we're an apartment developer nationwide.
I run the region here in the Northwest.
Um, you know, I have this map on the
screen that shows we're primarily
focused on suburban development, right?
This is this is our portfolio over the
last decade or so. We're building in,
you know, Shoreline and both and Lynwood
and Woodenville and Redmond, Belleview,
um, etc. And we built one project in
Isiziqua, which is I I'll have a little
case study of of how that deal came
together and explain what we built
there. I think you'll probably know that
deal, but more importantly, I'm I'm here
partly as a community member as well. I
live in Samish Plateau, just on the east
side of kind of near East Lake High
School. So, you know, tonight I skipped
my daughter's nine-year-old daughter's
softball game to be here, and I learned
when I pulled up that all of the gears
in my truck.
>> So, so my um so my daughter's wearing
the other team's catching gear,
apparently. So, that was my fault. I
forgot to drop it off. But, you know, we
we're very in the local community,
little league coaching and the Cub
Scouts and etc, etc. So, my mom was at
Providence Point, right? So, we're very
we're very invested in the in the local
community.
>> Yeah, that's right. Um, so the next
slide here. So, this is the location.
So, we're we're one of only two we built
one of only two developments that was a
podium in Isiziqua. So, a po I guess I
should stop there. A podium is
concrete for a level or two or three
with wood framing above it. Right. So
that's it's a higher density type of
product is is your trailside a podium
deal. Yeah. So so that gives the density
that is really required to to build
multifamily housing. And I think it's
important to note that you know Carl
kind of touched on it but you know our
industry the multifamily development
world we don't build million-dollar
condos and $2 million single family
homes. We're building product for the
middle income people, right? Anywhere
from 80% to 120% of AMI is generally our
customer. So we're building housing that
teachers live in, that the police and
firefighters live in, etc. So we don't
build ultra fancy. I I will say we build
for the masses, not for the classes,
right? We build kind of right in the
middle where there's demand, where
people really need housing. And um we
really focus on that because that's
partly because where it's needed. Um and
and that's that's where generally the
capital wants to invest as well. So this
project is in the Isiqua Highlands. So
it's just behind like the HomeGoods and
Dex Sporting Good. And I was just going
to walk you through this development. So
only two of these podiums have been
developed in Isiqua. One is kind of
behind the REI. It's called Veil. Is
that right? Okay. So Veil and and this
one. So we spend a lot of time to build
good communities, right? We we take a
lot of pride in what we do. We want to
make sure it's a nice place to live. Um,
you know, this property in particular
had a lot of people that would live
there for a year or two, then try to go
buy a house, right? Um, so it's it's
it's a it's a nice community. We want to
build nice product. This one was unique.
Um, you can kind of see the the photos
here. This is the the interior of it. We
want to build nice finished out units.
On the top right, we have bike rooms and
we call it a bike kitchen, right? So,
repair your bike in the in the inside
the building, but very livable, nice
fitness centers, uh nice community
spaces, co-working, etc. We want to make
it a a community and an extension of
your of your actual housing unit.
Um Carl hit on a lot of this, but I I
just he just wanted to go through some
of these details. So, and and by the
way, please if you have any questions,
I'm happy to answer them. Um, so in
general, two to three years of work
before we can start construction and
four to $6 million of of cash out of
pocket before we can start construction.
So, before construction starts, all of
that money is at significant risk,
right? Okay. So, if the deal doesn't
come together and you can't and you
don't have a lender or you don't have an
equity investor at the table to um to
invest in your project going vertical,
that money is completely at risk and
often times lost, which is a big hit to
the business obviously. Um so, we need
to attract the construction lender 55 to
65%, maybe get to 70, but we like to
stay somewhat low leverage. And then we
need to attract an equity investor um to
contribute 85 to 95% of the of the
equity. So, you know, Carl's firm is a
little bit different than mine. He's a
public public company. Usually has
internal money. May have some other
investors.
>> Still got to ask for it.
>> You still got to ask for it.
>> Yeah. Yeah. I'm not saying it's easy.
I'm not saying it's easy, but you know,
our our business is we we always have to
bring in a a third-party limited partner
equity investor. So, you know, Carl kind
of hit on it where, you know, Seattle
metro, I'd say the whole West Coast has
in general fallen out of favor with the
institutional equity investors. And
that's a combination of all the things.
It's complicated. It's hard to build. Um
the costs are very high. The land is
expensive.
um the regulatory environment, you know,
some investors just stopped showing up
because the rent control pass and
they're just like, we don't want to
invest in a in a state that has that,
right? So, there's a lot of headwinds to
actually attracting capital and the
capital is global, right? I mean, it's
not like it's it's going to invest in
San Francisco or Seattle. It's going to
invest in Indonesia or the US, right? So
when when there is capital available for
multifamily development, it's it's it's
oftent times not as attractive in on the
West Coast as it is in Florida or Texas
or or etc where it's a little bit easier
to build and the regulatory environment
is a little bit less complicated. Um and
I think the big one there is there needs
to be a proven business plan. There
needs to be there needs to be some kind
of profit, right? Because if there's no
profit, there's you can't attract
investment. Um so this this is actually
the on the left side here this is the
actual Hartwood project in the isqua
highlands. So the actual construction
cost we started construction in 2019
um and and the total project cost $68.5
million.
So this is when we had about a 55% um
construction loan. We had a J it's
actually a Japanese equity investor um
put put the money into the deal and then
we contributed our share of it. I
believe it was 9010 on the total project
cost um from our from our organization.
Um and that deal worked at the time. Um
on the right side here I just we just
did some simple math. I talked to my
precon team to price this out and we
just said listen what what would this
cost today? And the answer is about $87
million. Right? So you can see there is,
you know, there's an assumption there.
The land value went from 5 a.5 million
to 8.5 million. And land is is tricky,
right? Because a lot of these land
owners in Isiqua have owned the land for
a long time. These part these big
shopping centers with giant parking
lots, somebody might have owned that
land for 10, 15, 20, 30 years. And in
2019 or 2020 or 2021, the land value was
$8 million. Well, today it's maybe four
or three or two. They just don't sell,
right? They just don't sell. So that you
can't force a land seller to to sell the
sell the land to you obviously and they
just refuse to sell. So that it's a
sticky price. So when when asset
valuations come down, land doesn't
always go with it. Land just kind of
stays because the sellers aren't
incentivized to sell. They'll just hold
it indefinitely or for another 10 years
or the next cycle or whatever.
So land value is just up from 5.5 to
8.5. Financing costs are huge. I mean it
went from 1.7 to $3.5 million. So the
our underwriting our interest rate in on
the Hartwood project was about three and
a half% allin. Well, now it's six and a
half, right? So So that adds another
million and a half almost $2 million of
additional cost to the development.
Um, construction costs are up
significantly, but our construction
costs here were $50 million, we think,
per square foot, $362 per square foot.
Today, we think that same hard cost
would be $451 per square foot. So, goes
from $50 to $62 million. So, the the the
costs are always ramping up. Soft costs,
you know, all the architects live
locally, the civil engineers live
locally. um they their co all their
employees cost of living is going up.
They have to pay their employees more.
So all those costs are always inching
up. So today that that project would
cost we think $87 million to build.
Yeah, please.
>> So I look just rough math. So your per
unit is up 30%.
>> Yeah.
>> So what would the rent need to be?
Because I'm not sure what the rent is on
the current project. Would this just be
not even doable because you're already
pushing your return on
>> on that? Like I guess the first question
is what's the current
>> yield that you have right now on and
then what would it be in this based on
the current rent and then what would the
rent have to be to get to that same?
>> It's a great question. I don't have the
exact answer. Um but the the yield on
this $68.5 million was roughly a five
and a half. The yield on I I did not run
that math, but the yield on the 87 is
probably a five, but Carl made the point
earlier, which is on the on point, which
is the yield requirements in 2019 were
five and a half. The yield requirements
today are six and a half, six and a
quarter maybe, right? So the ye so the
yield's upside down. The costs are up
and the yield requirements are up, but
the yield is actually down. So the rents
would have to be 30% higher than they
are today probably to really make it
work.
>> Yeah. So you would you would never be
able to convince somebody. Now Isiziqua
is unique. Now investors are very
interested in investing is in Isiqua if
you can get a project through the
process and that's that's a big
challenge that we're we're here to kind
of talk about and help on. Um so could
we finance the deal at $87.6 $6 million
maybe, but we probably wouldn't spend
the5 or $6 million for two or three
years now.
Starting right now, we wouldn't spend
the $3 million or $4 million to to get
to entitlement without that other equity
investor in tow. And that other equity
investor is likely not there unless it's
a six and a quarter. And there's there's
no way it's going to be a six and a
quarter on the $87 million.
So that's the that's the problem, right?
I think the flip side of this too is the
asset valuations are down, right? Um, so
you know, Carl alluded to it, but yield
on cost is a direct relationship to
what's called a cap rate. So
capitalization rate. So an investor and
you know, we we actually sold the
building in 2021. So an investor would
pay, you know, back in when we started
construction in 2019, the market was
okay, the exit cap rate is approximately
4%. So we're building for five and a
half yield. So there's a 1 and a.5%
spread over the cost to build that that
compensates us and the investors for
that risk. Um the cap rates today four
and a half to five. You probably only
bank on a five. The underwriting is
generally 4.75 on an exit in five years.
Um so you you still need that point and
a half spread. So that's where you get
to the six and a quarter six and a half
yield. And those are just humongous
swings. those those percentages sound
small, but they're 30 40 $50 million
swings um in in total projects. So,
that is
the end of my presentation. I'm hopeful
you guys can I'm happy to I came for two
reasons, to learn and to educate. So, I
love to love to answer any questions or
learn more. Yeah,
>> just a quick question. Um how many units
is this for the Hartwood?
>> This is 135 units.
>> Thanks.
>> Yeah. And this was unique. This was in
the in the Isiqua Highlands. So, this
was I believe this was inside the Isiqua
Highlands. This was the only remaining
piece of land that would that could be
rental housing.
Yeah. Yeah. Thanks. It's we we spent a
lot of time to get it right and it
turned out well for us. We'd love to
build more in Isqua. It's just, you
know, it's hard. You know, back to this,
you know, my first slide that, you know,
we've been able to be successful in in a
lot of different cities. Redmond in
particular, um Belleview as well, um
Isqua, we've tried to make other
projects work, but it's just really
tough. Um the critical areas that Carl
mentioned, I think that's a really big
one to focus on. We were we're in the
middle of an entitlement in Belleview
near the Belleview Club, if you know
where that is, just south of there,
south of downtown. And we went through a
grueling effort um last fall on the
critical area updates in Belleview. So
they adopted critical area buffer
updates that said the end of current
pavement is the end of the buffer.
Right? So like the Hobby Lobby example,
it's already a parking lot. As long as
you don't go outside the parking lot,
you could still build in it in in the
new Belleview code. That's smart. I
mean, think about if if you want net
ecological gain for your streams,
building new products and capturing and
treating the water runoff is is far more
healthy for streams than I forget the
name of the the pollutant, but it comes
off the tires. I always forgive. Yeah.
Yeah. So, right now, all that runoff
coming off the tires, hitting the
parking lot, getting rain, washing it
into the stream. So if you build new
product multif family or other, you have
detention basins. You you pull that
water in, you treat it, and it flows
back out as clean water back into the
stream. So it's a true net ecological
gain if you if you actually build on
that parking lot versus leaving it as
is. It's far healthier for the salmon
and the fish and the, you know, beavers
and otter and orcas and etc, etc.
>> I have a quick question. Yeah. So I
noticed you have three projects in
Redmond.
>> Yeah. what type of u things like whether
it's land use I mean we mentioned that
why is aquas challenging the topography
you know different things that make our
city quite unique what made redmond uh
so attractive to you
>> well I I wouldn't say it was more
attractive it was just achievable to get
approvals and and they're
they they actually you know if if you
want to look at you know the urban
planning 101 they did a really good job
they they bought a bunch of old re
retail They tore it down and built the
the downtown park if you've seen that
recently. They have the train station
that comes a block couple blocks away.
Then they upzoned everything 10 year 10
15 years ago to accommodate that
housing. So they had a pretty well it
was not easy and Redmond is not an easy
place to build either but they they made
they had a process that we could
predictable and we could get through it
and we're willing to risk that capital
to to get through that process where
isqua's just definitely been harder
across the board and the the other thing
so so Redmond has affordable housing
requirements with no incentives. So so
everything in Redmond that you see on
the screen that we've built in our
screen here there's three projects. So
they all require 10% of the units to
have to be at 80% AMI rents forever with
no incentives. So theoretically that
levels out in the land valuation, right?
So that so there's no guessing where
Isiziqua has and there's there's an
MFTTE like a like a trial MFTTE. There's
like a two.
>> Yeah.
>> Yeah. Yeah. So, so Isiziqua, the one
thing that's tough on Isiziqua is, you
know, like those are two of the project.
So, a project called the Charles in the
top right and a project called Central
Park on the second from the top right.
Those are both eightstory buildings. So,
five levels of wood framing over three
levels of concrete. They both have one
level below graded concrete as well. Um
but the the um I mean
that that product type is is inexpensive
compared to a a type one project, right?
For example. So isqua has rules where
the taller you build, the more
affordable units you have to to to
provide which then does the opposite. it
it kind of well I mean proofs in the
pudding so to speak nothing's been built
right so anytime you layer in
requirements for affordable housing it d
it reduces the NOI and reduces the yield
so what's been happening is nothing
so so figuring out a way to to properly
incentivize that affordable housing
through the MFTTE is really important
and I I I' I'd advocate for adopting
what Belleview has done which is a
12year MFTTE.
Um, and that's what that does is 20% of
the units are 80% AMI rents for the
12-ear period. And then that after 12
years, there's there's two options. One
is it either is extended by the
jurisdiction, so for additional 20 12
years, so 24 years in and probably in in
perpetuity hopefully, or it that those
units roll back to market rate.
So I think that's a fair way to to um
incentivize
housing and inclusionary housing. As as
a citizen, I like inclusionary housing.
I think you know we as a society tried
the housing projects over there and the
market rate housing over there and the
housing projects over there. That's a
thing about I have kids. It's like can
you imagine the school bus pulls up and
five kids go to the affordable housing
complex and five kids go to the
neighborhood. That's just that's just a
bad policy. So inclusionary housing for
people and and children especially and
citizens is a smart idea. As a business
guy, it makes it hard as well though. So
have making sure it lines up accurately
is a really important detail that you
guys should really focus on. Is it safe
to say? So it's it's not just city
processes. It's also the inclusionary
flux that we have here versus Belleview
Redmond and then some of the density
programs that they have.
>> That's right. Yeah.
>> We don't have.
>> That's right. Yeah.
>> Yeah. And then you know the the critical
areas are hard. So the crit so the two
things that I would encourage you to
really improve on is critical areas and
looking at Belleview's code and Nicole
would be happy to send it around but um
you know having the the buffer end at
end at the extent of the existing
pavement is a really smart policy. Um
and it's in I mean here I think it's 150
feet right? It's 150 ft from from the
edge of the of the stream or wetland and
that's a humongous area, right? So,
>> if I may, um, great question and I and
thanks for talking about the land use
policies which are really important in
Redmond. I will also point out
Microsoft,
>> right? they the employment base that
they have in Redmond is very strong
>> and uh we have some great employers
here. Costco's headquarters, but I just
want to point out that housing and
employment go hand in hand and as we as
an economic vitality commission are
advocating for more jobs here, uh those
those employers and employees want to
also live in the same community. So, I
just want to point out that synergy
there. That's really important. And
don't forget transit, right? Correct. So
all of these projects we've built in
Redmond are all within walking distance
of
>> at the time future train stations. Now
they're actually operating, right? So so
that infrastructure um so investing in
areas where the the cities are investing
in themselves is a really important
concept for us, right? So so making sure
they have that transit infrastructure
and I know it eventually will come to
um hopefully. But um but I mean that
that's that's really important just to
be able to get um around different
regions.
>> So in the central I know the water table
where I live
>> we're even now. Um
>> it's a rim shot up there.
>> I live right next to a creek so I
understand that.
>> Um central Isiqua do they have the same
water table issues or is it or does that
allow underground building because I
don't
>> I'll just having just looked at this
yesterday. Um, so the trail head site
that's it's 2 feet beneath the ground
level. So to do anything below grade is
>> even there next to you just just the
elevator pits going the Yeah.
>> Yeah. Just elevator pits going into the
below grade. So you really have no
excavation.
>> And that and that's honestly that that's
kind of common for the region. Like our
project in downtown both
>> same thing, right? We had terrible
soils. We drove 1,500 piles. The
neighbors loved that for for for four
months. We were driving piles, but there
was the Pete was there and you it
wouldn't support the building. So, you
have to drive piles down to support it.
So, it it's it most cities on the east
side have some of these complications.
Not all neighborhoods and areas, but the
communities can can figure it out.
>> Like the Highlands probably doesn't
because Talis did not.
>> That's right. Yeah. We our our highlands
project has one level of semib below
grade but
>> and so so the central isqua then is
really on the lake Samameish old lake
Samameish uh bed right and that's what's
happening and so in order to um build on
that area you have to have pilings which
then also add more more construction
costs right even more
>> millions of dollars more millions of
dollars yeah I mean it's significant
Um, yeah. And not only that, but this
the foundations get thicker, right? So,
when you think of a 6 in slab or an 8 in
slab or a 12in slab, once again, that's
millions and millions of dollars that
you never see or or or there's never an
experience from any of the residents or
community. It's just a cost to do
business.
I missed my softball game. Any other
questions?
I'm happy to I'm happy to answer any
questions. So,
>> I I really appreciate um the feedback
and the information and the education
and I think it's really important for
our community.
>> How can we also educate other
commissions so that we can sort of all
be working holistically to help ensure
that we have affordable housing and have
more jobs here?
>> I don't I I don't I don't have a answer
to that one. I don't I don't know. But I
I will kind of address your one comment
about affordable housing.
The stuff we're building,
it's not affordable from a from a from a
low income renter, but it's affordable
housing. This is you don't have to buy a
$2 million house. Your rent might be
make $200 or $3,000 a month, but this is
this is kind of middle income. It's not
subsidized and it's not it's not for um
lowincome people des making minimum wage
but if you're a teacher making $75,000 a
year in the Isakqua school district you
can afford this right so it's not so I
think this is important for the
everybody to understand that there this
this is affordable housing in the grand
scheme of things right it really is
and in and just the whole latter effect,
right? So now, okay, somebody who makes
$80,000 a year lives here. Well, now
that opens an apartment that was built
in 97, you know, that one's now
available for somebody else. So, so
increasing supply. I'm a huge GMBB. I
mean, I have I have no development
activity happening right now in Isiqua.
But I I you know, in Samish, there was a
big fight about the town center. You
probably heard about that. All my
neighbors at cocktail parties and Cub
Scout events and little league games are
all up in arms and I'm just like, "Shut
up. Shut up. You the traffic's not I
mean, no big deal." It's like, "Yeah,
there'll be there'll be 800 more cars on
the road, but you know what it you are
your kids going to live, right? Where
are the Where are all the kids going to
live? They're not the answer is not
here, right?" So, anyway, my wife told
me to shut up on that one.
some internal strife.
So anyway, okay. Well, happy to turn it
over or I didn't know there was pizza,
so I might grab some pizza on the way
out, but
>> I'll be real quick. Um, you know,
sharing off of what Carl and Mark had
noted, um, you know, they they focused
on the development cycle, right? So
after they get the deals and the
partners, it's moving forward with the
project and having uh well, first I'd
like to commend, you know, Chris and
Minnie for taking on that huge list of
items because that's a great start. And
I could say, you know, having permitting
projects throughout the West Coast, even
in the state of Washington, I could
share some jurisdictions that are doing
it sort of expeditiously. Um yeah, the
the peerreview one is sort of a a tough
one, right? And I mentioned it at our
round table that having that core staff
at the city establishing relationships
with developers and the community um is
a win, right? Because you have residents
that are have concerns. They know who to
go talk to. Developers have certainty of
who's being at the city and who's going
to like kind of be an advocate for them.
Um I would say you know last decade it's
been great working with staff on the
projects every you know currently
working on the springs it's a little
different because it's up in the Isqua
Highlands it's got a development
agreement but even with that I mean we
started in 24 and we're hoping to break
ground here in 26 another year and a
half of construction you know that's
four years before the first resident
moves in and how many you know it's a
different model because it's senior
housing. So, it's a little different
than what Carl and Mark are building,
but it still takes, you know, I would
say
I just looked at the permit fees the
other day. Plan, review, and permit
fees, half a million dollars. So, that's
upfront costs. Developers got to hold on
to over probably millions of dollars in
consultants thus far. They're carrying
costs of the dirt. They haven't closed
on it yet. They're about to. So, they're
probably into it, you know, close to 10
million.
and they haven't seen much and then the
hard costs really hit once, you know,
permits are issued. So all that carrying
cost um is you know timing it really
helps I would say um you know we're
we're looking for flexibility and that's
built in some of the discussions about
the permitting aspect um with the
critical areas in the central
area. It would be nice to have land use
and engineering together. Um, for
example, City of Vancouver has that
process. It's called a concurrent
process where you submit your land use
and you know your engineering plans are
at like 60% already. So when you get
land use approval, you basically have
final engineering to move forward and
then there's still the building, right?
And that could fall behind. Most of the
sites will require some type of piling
reinforcement that could come later. So,
it it helps with phasing to get things
going instead of all in one package
because then there's just more cost by
the developers of having to put all that
into one package versus kind of phasing
it out. So, that's something to take a
look at. It's not a one-sizefits-all,
but at least having that option
depending on the site specific. It gives
the developer consultants a way to like
figure out what's the best path. Should
it be traditional, you know, land use,
engineering, and then building or could
it be consolidated? So,
um mentioned peer review. It's been you
it's been a struggle, you know, because
uh getting multiple multiple pages. I
don't even need to go into how many, but
it it's um it's been tough to for our
team, you know, because we have
deadlines, too, based on our uh our
client, they want us to turn things
around two weeks, right? When you get 72
pages of comments, it's pretty tough to
turn that around in two weeks. So, but
we still met it. you know, it still had
to be done to meet the timeline of the
project to keep it going. Um, like I
said, it all comes down to when they're
closing on the dirt and they want to
have permits in hand before they could
close. So, um, the great thing is, and
Kristen, I believe there's planned
action EIS, right? So, that's great. I
mean, um, Mark and Carl both know that
SEPHA is usually a big risk. you know
when when sites are tied up usually
there's different benchmarks of when you
know costs or deposits are due and
usually once you have sea that clears a
big hurdle right a timing hurdle um
because once you clear sea generally
it's you'd like to say cruise control
with building permits and then
construction uh even without seepa
because you've already done the planned
action is there's as they mentioned the
critical areas and that that could be a
challenge
Um definitely echo what's already been
said about the buffers. I know city of
Seattle does it not trying to compare as
Seattle but there is a process where you
know edge of existing development is
your buffer and it's not just wetlands
it's also all critical are steep slopes
included. So
>> yep
um it's kind of you guys touched on it a
couple different times and this is more
of a macro point. So say um the critical
areas we match what Belleview does. We
figured out if that's the right thing to
do. I don't know enough about it, but
let's just say
>> um one of the issues you said was the
land isn't valuable enough to sell. Does
this now the macro point now all of a
sudden we create a market and now these
people who own these larger
um lots are now going to put it on the
market. So now there's more land in play
and but just by having that now that all
of a sudden creates the flywheel where
right now if if there's no land to buy
either you have to over way overpay for
the land so you actually want to buy it
right before those changes but that's
the difference. Um but the um but yes
does that or I should be in the
government um just kidding. Uh or does
that uh um not this government uh does
it will that make a big enough
difference to get things started in the
next few years if there's larger will
this create a market of more land out
>> as soon as the policies are in place
that allow development to occur the you
know by default the land value will
increase then incentive advising those
land owners to consider selling, right?
So that's the that's the the hard part.
That's, you know, that's the reality.
But by implementing these those those
policies, the land value will increase
because of what can be built on it.
>> I mean, there's a you know who all the
land owners are. Rowley owns a lot of
it. And I'm not sure if that's an issue
for them, and there's the ones who own
I'm not sure who owns the Hobby Lobby
area, and there's some other ones. Um,
have they given you that direct
feedback that says, "Hey, it's it's
worth, you know, X, but if it was worth
3X, I would now I would I would sell you
this property." Or is it
>> Well, like like the Hobby Lobby, it was
on the market a few years ago. Did it
sell somebody
>> sold to a a retailer?
>> Yeah. So at a long term, like we'll just
>> Yeah. So the So the highest and best use
of that land was to keep it as is. So it
traded for the a cap rate on the current
operations income from that from that
asset. So the land value was less than
the than the shopping center value.
>> So the so the best the best most
valuable use. So in in Redmond, I used
to work in Redmond. Um the old Sears
complex is now turning into
>> um multi-use, multif family, whatever.
All that
>> that what made that happen?
>> Land use policy. That was the change
that was that was the trigger that
happened. Transit.
>> Yeah. Yeah. Transit as well, right? So
the the land's policy changed
long before Sears went away. But yeah,
that's right. And
>> just those a lot of these sites are
outdated, right? Like what a Sears pad
is not worth what it used to be. But if
you're not able to redevelop it into
something else, it sits and someone
finds a use for it, but it's not the
highest and best use if you just took
the restrictions off at some level. So,
a lot of these sites that these retail
strip centers and you know smaller um
you know outdated office buildings,
they're worth what they're worth today
because you can't do anything else with
them. But if they're if there was more
flexibility on what you could do with
them, the value would be certainly
higher than what they're current.
>> So residential has a higher value than
you know office offices like what's
happened off of Eastgate too. You're
seeing those.
>> Yeah, we're we're building off of
Eastgate and Eastgate. Yeah. There's two
big cranes in the air. That's those are
our deals. The but the offices are
unique but I mean a lot of times the
office buildings are being purchased and
torn down to replace with residential
be yeah because yeah because of because
the office income and the value on the
office asset is lower than the land
value. the land value is higher, right?
So, it's just it's simple economics at
the end of the day, but if the policy is
not there to allow the construction to
occur, that land value remains low.
>> And I also want to point out what I'm
hearing is that there's no one silver
bullet.
>> That's right.
>> Right. There's there's a lot of policy
on the table here to take to look at and
there's not one solution that's going to
unlock the floodgates is what I'm what
I'm hearing. And I and on that note, I
think you know our charge as commissions
and policy makers is to figure out how
to calibrate that those policy changes
so that they're effective in achieving
these housing outcomes that we have been
charged with, right? And I think Title
18
was a huge undertaking and PBC in
particular did a lot of work on Title
18. And I and I think that there are
perhaps some lessons to learn about
calibration uh and collaboration. And I
think this is awesome. I think it's so
great that we can collaborate and start
Kristen said trust, right? figure out,
you know, we're building that trust and
and I guess my hopes and dreams are that
this is not just a one-off conversation
and that that calibration can happen
together, you know, between commissions
with the private market. And I don't
know if you guys have any thoughts about
how you see that ongoing collaboration
going.
>> Yeah, I'm I'm I live locally. As long as
I don't miss a softball game, I'll I'll
I'll be here. Um, I mean, I'll just I'll
I'll answer it a little bit, but just
one more important thing here that the
policy needs to be out in front, right?
Because I mean, right now, our the
multifamily housing industry is
effectively been in a recession for
almost four years now, right? So,
positioning the policy so that you can
kind of catch the next upcycle
because if the policy is not there in
the next upcycle, you missed it last
cycle, right? you missed last cycle
where you know only a handful of
buildings got built here and only a
couple hundred units were built. So
getting the policy squared away so that
you catch that next economic upcycle and
that could be three or four or five more
years away but the pol but but once
again it takes two or three years to
entitle and design these buildings. So
making sure the policy is square to
catch the next economic cycle is the
only shot you have to meet those goals.
I would say, you know, Hobby Lobby is a
great example just because we're all
talking about it and we all know what it
is and none of us own it. Um, but the
even if you got rid of all the critical
area restrictions, that site today under
title 18 is still probably not
buildable. I mean, a economically I
don't think it's buildable with where we
are in the world today. But just with
title 18 and the complexity of the code,
there's a lot of work to do in the code
itself as as Mark was saying to free up
when the time comes that development
does make sense for you to be able to
go. It's an economic issue at a macro
level, but at a local level, there's a
lot of policy work that needs to be done
in my opinion.
>> Share something. Um, you mentioned the
Redmond project in Over Lake. So, the
city was involved as a partner as well.
They built the stormwater regional
facility on the far east side. That was
the first thing that got constructed to
allow the rest of that to develop. So
I'm not sure if the city's public works
department has looked at, you know, the
central misqua basin to see if there is
some type of possibility of building a
regional facility because that would
help. Besides the policy, you know, if a
regional facility was there and
developers just had to pay a fee in lie
of to, you know, connect to it, that's
something predictable versus engineering
something that, you know, could take
years. So, I'm not sure if that's, you
know, Carl would like look at.
>> Yeah. Centralistic is a little unique. I
know in storm water considerations, but
I mean that those type of ideas where
there's there's, you know, public
private partnership at some level. I
mean, anything to eliminate uncertainty
and anything to eliminate time are are
the biggest levers that you all have,
right? Cost, you can't you can't control
how much it costs for me to go buy
lumber and steel, but you can control
how long it takes for me to get through
the process and how hard it is.
>> Okay, we could do this for a long lot
longer.
>> Feel free to email us, call us,
whatever. We're the goal is to be
accessible to you all.
>> Yeah. No. And I definitely want to uh
tell Carl and Mark and Michael, I
believe,
>> how much we appreciate you guys missing
softball games coming in here um
providing an education. And to Kim's
point, I hope this truly is the
beginning of something because I learned
a lot. You know, we sit in a silo often.
We get fantastic information, but
sometimes we don't have all the partners
at the table to make these big
decisions. And um yeah, so I I truly
hope that we see more of you guys
because again, I I know John and I were
scribbling back and forth. There were
some great ideas that we'd like to bring
to staff and see what they have to say.
Um so again, the first hopefully of many
conversations.
We are going to need to wrap up. Usually
I would say round table, let's all talk
about this for a few more minutes, but
uh we do have one other meeting this
evening. So, I also want to say thank
you to our fantastic staff, Minnie,
Kristen, Amanda. I know I'm going to
miss some people here.
>> Alexis, thank you, Alexis. Um, everybody
for putting this together. And I
definitely want to thank the EVC for
coming in on one of their nights off to
come in and uh join this time with us.
Um, like I said, I hope we do this more
often. I think the last time we did this
was two years ago and we were talking
about the MF MTFE. it went out of our
hands at some point. But again, this is
good work that we try to do together.
And hopefully, yeah, there's more
synergy between the commissions because
I think it's fruitful. I think it's
helpful. I think we all learn from your
guys's expertise. Hopefully
also for from our expertise. So again,
just want to thank everybody. We're
going to adjourn and then what do you
think Kristen? about a fivem minute
break to reset. Okay. So we will adjourn
this meeting of our joint meeting of the
EVC and PPC at 7:02. Thank you for
coming.