Client: County of Santa Cruz

Santa Cruz County owns properties on which it has administrative offices and from which it provides services. Portions of these properties could be potentially used to develop workforce housing for county employees or other workers employed by public sector entities such as local schools, municipalities, or fire districts. Santa Cruz County commissioned Gruen Gruen + Associates (GG+A) to conduct a real estate economic analysis is to identify whether it is financially feasible to develop and operate new workforce housing units for the “missing middle” – that is, workforce households who earn too much to qualify for traditional affordable housing assisted by Low Income Housing Tax Credits or Housing Choice Vouchers, but too little to afford market-rate housing prices in Santa Cruz County. A related purpose is to identify the amount and type of subsidies, incentives, or financing mechanisms that may be required (in addition to county-owned land dedication) to feasibly build and operate this type of missing middle workforce housing on county-owned properties.

GG+A prepared illustrative diagrams identifying the approximate boundaries of the potentially surplus properties and a prototypical development layout for representative sites. GG+A prepared development costs estimates based upon: (1) our interviews with real estate developers active in the Santa Cruz market; (2) a review of actual cost estimates for proposed affordable housing developments in the market; and (3) a general contractor long operating in the Santa Cruz market.

GG+A prepared estimates of obtainable rents based on interviews and review of secondary multi-family market data. GG+A identified affordable rents based on varying percentages of county Area Median Income (“AMI”) and different unit sizes. Affordable monthly rents are presented for studio units and one-bedroom, two-bedroom and three-bedroom units. Operating expenses were estimated based on review of proformas and interviews with developers and property managers. GG+A also estimated applicable investment and financing parameters based on interviews and review of secondary data sources.

The real estate investment results of constructing, marketing, and operating each of the prototypical development alternatives was simulated on GG+A’s real estate cash flow model REALISM™. Sensitivity analysis of changing key assumptions was completed. Findings and conclusions were presented in a comprehensive report which also included case study reviews of workforce housing projects.

A presentation of the report and extensive question and answer session was held with county and municipal staff with communities in the county.