Investment Strategy-Mission

Longview Apartment Development Group, LLC was created for the sole purpose of acquiring, entitling, building and holding a high quality multifamily residential investment property in the City of Watsonville on a long-term basis. We will be raising $500,000 in the first phase of the project, and will raise an additional $500,000 in the second and third phases as needed. The selection of a “development” strategy was determined over a “direct purchase of an existing property” strategy for several reasons. First, the relative scarcity of available properties which fit our investment objective is a major obstacle. Secondly, the incremental equity increase (development profit) which a development scenario creates would not be taxed upon completion, because we are not proposing to sell the project for may years. Finally, by designing and developing our own project we are able to incorporate contemporary amenities, energy efficiency and fit the unit mix to the market. Ultimately, we will hold and rent the units as an apartment property. The key to being able to accomplish a project of this nature was in locating and obtaining a large enough parcel of land within the city that was already served by urban infrastructure and had the basic general plan designation to allow for high density residential development.

Regulatory & Land Use Overview

Historically, the economy in Watsonville has been dominated by the agricultural industry. Over the past 10 to 12 years, the city has made significant efforts to expand and diversify the economic base of the community to include light industrial and technology firms.  However, the city has been completely unsuccessful in expanding its boundaries to provide more land for new industrial and residential development. The city is surrounded on all sides by either “prime ag” land or wetlands. Additionally, the County of Santa Cruz and the Coastal Commission are notorious for their no growth positions. The county control of LAFCO has prevented the annexation of any new land by the city for many years. Hostile and litigious members of local and active environmental groups, “Wetlands Watch”, “Save our Shores” and the Loma Prieta chapter of the Sierra Club have all challenged major developments - even within the city limits.  Despite the opposition, the city has succeeded in approving and building several new major commercial centers, motels and office buildings as well as a number of single-family residential projects.  Recently, with a great deal of fanfare, the city announced that Home Depot would be locating the first new Home Depot store to be built in the county. Home Depot is now under construction with completion scheduled for March of 2005.

Demand and Price Equilibrium

Despite limited contributions to supply, the price of housing has risen dramatically, just like elsewhere in the County and all over the Bay Area. Here on the coast, supply is more restrictive and demand less elastic. The mountains form a very real barrier both physically and economically. While interest rates are a factor in determining the velocity of home sales, supply is the final arbiter which drives appreciations. Currently there is no rent control in Watsonville and it is not likely to occur.  Buyers and renters from all over the county are forced to look to Watsonville to meet their needs as they are priced out and displaced from northern and central Santa Cruz County. The State of California has asked the county to provide their fair share of housing in the region that is estimated to be 26,000 new housing units over the next ten years. The County of Santa Cruz estimates it will only be able to see about five thousand new units built in that time frame-including new units in Watsonville! All of this demand has intensified pressure for the development of land inside the city. Politically, there has never been a better time to seek entitlements. The climate is extremely supportive of new development that meets the needs of the existing community. The city has amended its affordable housing requirements to make it easier for developers to provide both market rate and affordable units.  The city has also amended its redevelopment agency policies to provide the RDA (City Council) with the ability to use funds in support of residential development (public investment in infrastructure). In short, the political and market curves are currently aligned to allow for the type of project we are seeking to develop and own. Several years ago, one locally knowledgeable developer recently asked: “In about four years Watsonville will be completely out of land left to develop, and with annexation not possible what do think will happen to prices then?” Then is now and supply has only gotten to be more problematic.

The Property

The 1 acre +/- parcel we have under contract is a true “infill” property. It is located between Auto Center Drive (commercial and office uses) Pennsylvania Avenue (residential), Alianza School and North Main Street (mixed use commercial). This area - known as the Longview Planning area – consists of about 15 acres of land.  The Longview parcel was left over land at the edge of town about 25 years ago.  When the city expanded north westerly along North Main and Pennsylvania Avenue, our parcel was ignored in favor of more easily accessible and developable property. The parcel is owned by the city of Watsonville ROA. It was purchased to provide rental housing. The city has now determined that the property is better developed privately and after extensive negotiations has entered info into a purchase contract with us.

The Process

We have obtained the right to purchase the site following the city’s inability to implement and manage the development process. Five years ago following adoption of the moratorium on new applications, the council directed staff to create a new plan for the area and work with existing owners to optimize housing and commercial opportunities. Because the area is within the city’s redevelopment zone, the city committed to hire an outside municipal consultant and site planner to assist in the process. In conjunction with staff and owners, we successfully resolved issues, agreed on a plan line, identified a new access road location and achieved consensus.   The specific plan was adopted by the City Council in February of 2001. Subsequently, Alianza Development Group, LLC and Longview Development Corporation, both entities we control, achieved approval for 102 condominium units on the adjacent 4.1 acre parcel. Now that the new access road and all utilities are committed, the city wants to see the 1 acre +/- site they own, adjacent to the access road, developed as rental housing. Due to the adoption of the specific plan in 2001 and our other project, additional new investments recently accrued with the sale of the old bowling alley, the Register Pajaronian building to Charles Canfield (owner of Santa Cruz Toyota and The Seaside Company/Boardwalk). In 5 to 8 years the area will be transformed with a new infrastructure, new buildings, parking and improvements.