Real Estate News

Could ‘micro-apartments’ be downtown Sacramento’s answer to high rents?

This apartment complex built on state-owned land near 16th and O streets is one of the upscale projects CADA has recently completed in Sacramento’s central city.
This apartment complex built on state-owned land near 16th and O streets is one of the upscale projects CADA has recently completed in Sacramento’s central city.

When Sacramento’s largest downtown apartment management company posts new rentals each Monday morning, the line of applicants stretches out the door and onto the sidewalk.

It typically includes entry-level state employees, restaurant workers and others in the service industry with fingers crossed that they can score a rare treasure downtown – an apartment near work that they can afford. Many leave disappointed. Ninety-eight percent of central city apartments are occupied – an all-time high – and rents are soaring.

Wendy Saunders, head of the Capitol Area Development Authority, has decided it’s time that her agency focused on shortening that line outside her door. CADA, a joint city-state agency, manages apartments on state-owned land and redevelops vacant state parcels, mostly with residential projects.

The agency launched a survey this month to get what Saunders says is the first serious look at how many people really want to live downtown, how much they can afford, and what type of housing they would be willing to rent or perhaps buy.

Are people willing, for instance, to rent a 350-square-foot or smaller “micro-unit” apartment with no amenities and possibly no space for a car?

“How much demand is out there for that?” she said. “We want to know.”

CADA will hold a workshop this summer to discuss what steps it can take to increase housing at affordable rents in the central city. Saunders said CADA will cooperate with the City Council, which will hold a housing workshop of its own at City Hall on Tuesday.

The city of Sacramento has set a goal of 10,000 new housing units downtown in the next 10 years, 60 percent of them for middle-income earners. City Councilman Steve Hansen said he envisions a return to the boom years downtown in the 1940s and 1950s, when tens of thousands of people lived close to jobs, shopping and theaters.

The city’s housing push has produced only modest progress in its first two years. Officials report 835 new units have been built citywide.

In the meantime, rents in the central city continue to rise at one of the highest rates in the nation – 26 percent in the past five years. The average rent in the central city now is $1,409 a month for a 760-square-foot apartment, according to an analysis by Colliers International, a real estate brokerage and market analyst.

Government subsidy programs are helping to get a small amount of housing built for the very poor. Some advocates are pushing for a bond measure, similar to one recently passed in Los Angeles, to provide more subsidies for more housing for the poor and homeless.

Several new projects also are being built or planned for people with higher incomes as well, including $600,000 town homes under construction at 20th and Q streets and an upcoming condominium project by the Sacramento Kings and partners whose penthouse units are expected to cost several million dollars.

In the central city, however, almost nothing has been built in the last decade for people with modest paychecks.

“The place we are missing the mark is in the middle,” Saunders said. “We have never really focused on that worker level housing, in the middle.”

Downtown developer Ali Youssefi of CFY Development says the problem has hit a “crisis” point. And Aaron Frederick, a broker and analyst at Colliers International in Sacramento, said the need is growing sharply, driven by the population boom known as the millennial generation, young people who tend to rent apartments rather than buy homes.

“They want to rent in vibrant neighborhoods,” Frederick said. The central city “is the hotspot now, where everyone wants to be.” The question, he said, is, “How do we make it more conducive for developers to get out there and build more housing?”

One answer may be a type of apartment called a micro-unit, now popular in tightly packed big cities such as New York. Packing more units into a construction project keeps costs down for developers, who then can charge lower rents.

Notably, though, at current rent-per-square-foot levels in downtown Sacramento, a 350-square-foot micro-unit renting for as low as $700 a month would still require a full-time minimum-wage worker to spend more than 40 percent of his or her take-home pay.

The Mohanna Development Co. plans to dip a toe into the micro-unit market with a planned apartment complex at 19th and J streets that would include 350-square-foot studios. The lowest rents there will be just below $1,000 a month. Developer Nikky Mohanna, who is 27, said she believes the units will be popular among single renters.

Ryan DeVore, the city’s community development director, said city codes allow units to be built as small as 220 square feet, and city officials have talked recently about lowering that minimum required size to 150 square feet.

For CADA, a focus on housing for workers of modest income represents a return to its roots. The agency was formed in 1978 to build and maintain affordable Capitol-area housing, mainly apartments, after the state decimated neighborhoods near state offices by tearing down homes in anticipation of a big state office project that never materialized.

CADA has continued to work on some low-income housing, but its project portfolio has edged in recent years toward higher-priced apartments. The agency provided financial help to developers at 16 Powerhouse apartments at 16th and P streets, and the Legado de Ravel and EVIVA apartments on 16th Street.

CADA currently is acting as broker for an upscale condominium project at 14th and N streets, where unit prices will be a half-million dollars and up. That project involves tearing down a small, older apartment building with 30 units where rents are below market at $1,000 a month. Those residents will be moved to other nearby CADA housing, Saunders said. She said the building is in bad shape and would require substantial investment to salvage.

Saunders said CADA hopes the high-end condominium project can show that this type of for-sale housing can work downtown. “We believe there is a pent-up demand,” she said.

But with that deal nearly finalized, Saunders it’s time for the agency to reassess its mission. CADA still manages 750 affordable apartments downtown, many without central heat and air, where rents average $800. Those are the apartments that prompt the Monday morning queues of hopeful applicants.

CADA and developer Youssefi already plan to team up next year on an apartment project at 17th and S streets in midtown where some apartments may be offered for as low as $400 a month.

The question is: Where to from there? The survey will help the agency get a feel, Saunders said.

“Who are we not serving? Who can live here if we offer the right opportunities?”

Tony Bizjak: 916-321-1059, @TonyBizjak

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