Nearly 60,000 people experience homelessness on a given night in Los Angeles County, a 23% increase from last year.
Developers like Aedis Real Estate Group are devising innovative solutions to house the homeless. Aedis has teamed up with the Los Angeles County Department of Health Services to create Hope on Alvarado in Los Angeles’ Westlake District.
Hope on Alvarado, a four-story apartment complex with 84 studios and one-bedrooms, is the first of a series of Hope projects that uses shipping containers as the main building material.
Los Angeles has been spending too much money on ambulances, emergency care and temporary housing, said Aedis President Scott Baldridge. “These are all inefficient ways to solve this problem.”
Aedis, along with several sponsors, is working with the Foundation for Affordable Housing to provide housing for the chronically homeless (individuals who have been without a home for at least a year).
“The chronically homeless experience a lot of mental health and addiction problems. It’s better for everyone to provide a permanent solution with more support,” said Baldridge.
Aedis will break ground on Hope on Alvarado in early 2018, and construction is expected to last six months. While the industrial aesthetic may be in vogue, reusing locally-sourced shipping containers is also smart economically.
Why shipping containers?
Each of the residential apartments at Hope on Alvarado will use two or three shipping containers. They are modified by removing the doors and portions of the exterior metal and adding floor-to-ceiling windows and other fixtures. Trucks transport the containers to the site, while cranes fit and stack them together into a single building.
“One major advantage of using shipping containers is the dramatic reduction in construction time,” said Mark Oberholzer, associate principal with KTGY Architecture, the firm executing the project.
“We can work on the units while we’re getting all of our permits, entitlements and planning that we need to do,” added Baldridge.
The main cost drivers of construction are land, labor and materials, but this project has more restrictions than the average residential project. There isn’t much flexibility when it came to land, as the county mandates that the building be within half-a-mile from mass transit.
“With these projects, the margin of error is tighter because of limited resources. After exploring a few pre-fabricated options, we decided containers would work well,” he said.
The shift toward pre-fabricated materials
Todd Tomalak, vice president at John Burns Real Estate Consulting, told Yahoo Finance he’s witnessing a shift toward ‘manufactured’ or ‘pre-fabricated’ materials.
“Shipping containers are not widely adopted so far, but it makes economic sense that standard manufacturing processes could be a key driver to lowering costs for housing in general,” he said.
Tomalak shared a few historical examples of how manufactured components speed up the construction process. Doors and windows were not always pre-hung, but most are now because it saves on-site labor costs. Drywall wasn’t popular until after World War II, when labor costs made it too expensive to plaster.
“Time is money, so this makes sense. In many cities, the time horizon to deliver a new multi-family apartment has lengthened substantially,” said Stockton Williams, EVP at the Urban Land Institute.
Processes that once took six to nine months can take up to three years — or even longer. “This imposes substantial costs on the developer that then burdens the renters. Cutting the time to market by up to 50% can shave significant costs,” said Williams.
Blending high-end trends into affordable housing
Trends first emerge among high-income households, followed by the rest of the U.S., according to Tomalak.
Interest in ‘container homes’ has jumped substantially over the past four years, though it has recently leveled off, according to Google searches.
In other words, trends like shipping containers tend to gain traction with high earners first then trickle down to the mass market. Aedis is infusing other trends sprouting up in the high-end market — open spaces, outdoor gardens, yoga rooms — into Hope on Alvarado.
“Class A apartments have really emphasized communal spaces. I suspect this will continue to be an important trend. Whatever constitutes a vibrant community for upper income folks should and does apply to lower income folks,” said Williams.
How much is rent?
Because units at the Alvarado are for the homeless, the majority of whom don’t have jobs, residents won’t have to pay more than 30% of their income. This includes Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI). Residents will also have to pay their own electric bills.
“Tenants will have to pay something, but it will be limited to whatever they make. We want people to see the correlation between use and cost. And take some of the responsibility,” Baldridge explained.
Nonprofit Brilliant Corners screens and evaluates potential tenants to determine whether they would be a good fit for the Alvarado.
After all, it’s a space that intends to offer a lot more than rooms for lodging, said Baldridge, who has worked on affordable housing projects for 20 years.
At Alvarado, there will be four full-time case managers who will assist the residents 24-7. Typically, social workers have to visit different properties, but this helps the homeless transition to permanent housing much more efficiently.
Making money from doing good
One hundred percent of Aedis’ projects are affordable, said Baldridge.
While Baldridge has a philanthropic philosophy, he believes that adhering to a strict budget has a positive impact for both society and the company’s bottom line.
“We can have it as a profitable venture. It’s nice to do well at doing good,” he said.
Baldridge said he would be happy if the annual turnover is under 10%.
“That means that people are staying,” he said. “Of course, part of me wants them to get a house, get married and fully integrate into society. But I want folks to be happy living at Hope on Alvarado.”
Aedis hopes to build four to five of these Hope projects this year. And depending on the success of this inaugural project, the model can be scalable beyond Los Angeles.
Melody Hahm is a writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Follow her on Twitter @melodyhahm.