Westminster City Council
SUBJECT
Title
Mixed Use Analysis Related to the Following Strategic Plan Goals and Objectives:
Strategic Plan Goal #1 - Achieve Financial Stability.
Strategic Plan Objective: Begin development of an economic development strategy and report to the City Council; and
Strategic Plan Goal #2 - Develop and Implement Specific Plans for Little Saigon, the Downtown District, and the West Side.
Strategic Plan Objective: Deliver a scope of work for the recommended District 2 Mixed-Use Downtown Specific Plan that includes an economic impact assessment and other strategies for already identified goals of the General Plan.
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From: Adolfo Ozaeta, Assistant City Manager
Requested by: Administration
Prepared by: Ryan Salz, Senior Management Analyst
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RECOMMENDED ACTION
Recommendation
Adopt a Resolution entitled, “A RESOLUTION OF THE MAYOR AND CITY COUNCIL OF THE CITY OF WESTMINSTER, CALIFORNIA, TO DIRECT STAFF TO IMPLEMENT RECOMMENDATIONS MADE IN THE FEASIBILITY STUDY PREPARED BY CONSULTANT TEAM LED BY ECONOMIC & PLANNING SYSTEMS FOR UPZONING THE MIXED-USE ZONE FOR RESIDENTIAL DEVELOPMENT, EXPANDING THE AREA OF THE MIXED-USE DISTRICT AND INCENTIVIZING STRATEGIES FOR LOT ASSIMILATION AND FINDING THAT THIS DIRECTION TO IMPLEMENT THE FEASIBILITY STUDY IS EXEMPT FROM THE CALIFORNIA ENVIRONMENTAL QUALITY ACT.”
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BACKGROUND
On January 24, 2024, the City Council approved an agreement with Economic & Planning Systems (“EPS”) to conduct an economic analysis to support redevelopment in Westminster’s Mixed-Use (“MU”) Districts (Attachment 1). The analysis aimed to further the goals and objectives described in the City’s three-year strategic plan. Strategic Plan Goal #1 is “Achieve Financial Stability,” and the associated objective is “Begin development of an economic development strategy and report to the City Council.” Strategic Plan Goal #2 is “Develop and Implement Specific Plans for Little Saigon” and the associated objective is “Deliver a scope of work for the recommended District 2 Mixed-Use Downtown Specific Plan that includes an economic impact assessment and other strategies for already identified goals of the General Plan.”
The study effort has been funded through a State of California Local Early Action Planning (“LEAP”) Grant in the amount of $89,500. The California Department of Housing and Community Development (“HCD”) awarded the City $300,000 through the LEAP Grant Program in March 2021 to be used for the preparation and adoption of City planning documents. Preceding this project, the City spent approximately $210,500 of the $300,000 in LEAP funds for completion and work done on the certified 2021-2029 Housing Element and Westminster Mall Specific Plan Environmental Impact Report (WMSP EIR). Upon completion of the subject report, the LEAP funding will be fully exhausted.
The Mixed-Use Zoning Analysis Report (“Report”) (Attachment 2) was completed by EPS, in collaboration with John Kaliski Architects (“JKA”); and De Novo Planning Group (“De Novo”). The Report evaluates opportunities and policies to expand residential mixed-use development opportunities in the City of Westminster’s MU Districts. The analysis focuses on economic considerations affecting development feasibility and identifies potential changes to the City’s MU regulatory framework to incentivize investment in these commercial corridors. A key goal of the analysis is to understand the appropriate residential density and other regulatory considerations that are needed to foster timely housing development within the City’s MU Districts, as well as additional commercial investment. The recommendations of the study are designed to enable City staff to actively approach developers and attract vertical and horizontal mixed-use developments. The findings will also help the City meet its Regional Housing Needs Allocation (“RHNA”) targets, a total of 9,759 additional units for the 2021-2029 planning period. The current MU Districts encompass approximately 70 percent of the sites identified in City’s Housing Element as available to meet these targets.
The City approved its MU Districts in 2016 as part of the General Plan Update. As shown in Figure 1 of Attachment 2, the MU Districts are spread throughout the City and located along major commercial corridors. The primary areas include Westminster Boulevard, Little Saigon, Westminster Mall, and the Northwest District. In addition to the current MU Districts, the study considered opportunities to expand the MU District boundaries to facilitate more development.
To accomplish the goals of this study the EPS Team conducted the following inter-related tasks:
• Evaluated local and regional market context, with focus on higher density residential and retail
• Tested and illustrated redevelopment scenarios at representative sites within and near the MU Districts
• Evaluated key factors affecting the financial feasibility of a variety of development types
• Considered land use planning and zoning changes that could spur investment and redevelopment within MU District and adjacent areas
After the meticulous evaluation of Westminster and neighboring cities’ socio-economic and real estate market conditions, EPS studied and illustrated six (6) hypothetical development scenarios at three (3) opportunity sites within or adjacent to the MU Districts. The sites and scenarios were identified in close consultation with City staff and are designed to be representative of the type of residential development opportunities that exist within the MU Districts. None of the development scenarios described in the Report are being proposed by a property owner or developer of the opportunity sites considered. The scenarios are meant to serve as a theoretical example of the type of development and the specific characteristics that would be allowed under both current zoning regulations and recommended zoning regulations.
The three opportunity sites identified for this study include one large, one shallow, and one conventional size parcel. This selection is designed to cover the range of existing property configurations that are relatively common within the MU Districts. For each site the EPS Team, led by JKA, formulated development scenarios that account for specific attributes (e.g., size and configuration), architectural considerations, and existing versus potential zoning requirements. Specifically, the EPS Team created one development scenario consistent with existing MU District zoning, and another that that was higher density and thus would require a General Plan amendment for each site. For the three scenarios that deviate from existing zoning, JKA prepared illustrative renderings to provide the City Council and community members with a better understanding of how they will “fit” into the broader urban landscape. The primary building types assessed across the opportunity sites included townhomes, wraps, and podiums. The renderings, building type definitions, and specific characteristics of each development scenario are shown in Chapter 3 of Attachment 2.
Once the development scenarios were finalized, EPS evaluated the financial feasibility of each, as explained in Chapter 4 of Attachment 2. This analysis is intended to determine if, and under what circumstances, the hypothetical projects are likely to be viewed as attractive from a real estate investment perspective. To evaluate development feasibility, EPS prepared project and site-level pro forma financial models designed to simulate the costs and revenues that are likely to be generated for each development scenario. The results reflect financial assumptions related to construction costs, rents, capitalization rates and other factors, as informed by the market research and professional expertise of the EPS Team. Actual outcomes for a specific project can differ significantly depending on design considerations, unique site attributes, evolving market trends, project execution, and other factors.
To test financial feasibility, EPS solved for the Residual Land Value (RLV) likely to be achieved under each scenario. RLV is defined as the economic value of a real estate project after deducting all costs needed to finance, design, and construct it, but excluding the purchase of the property itself. A project is generally considered feasible if the RLV is equal to or greater than the cost of acquiring the site. Table 8 of Attachment 2 provides a summary of development feasibility results by scenario.
The relative financial performance of various product types on a per-acre basis depends on design and other project-specific factors including level of parking provided, density, and inclusion of retail, among others. However, even more important than project design factors, evolving market trends will likely have the most significant effect on both the relative and absolute financial performance of each scenario. Available market data suggests that land in the Westminster Trade Area (Westminster, Santa Ana, Garden Grove, Fountain Valley, Stanton, and Huntington Beach) currently sells for about $3.25 to $4.25 million per acre, an amount that exceeds the positive RLVs calculated for the townhome and wrap projects. However, relatively small increases in market rents or sale prices can materially improve the likely RLV of each scenario, as depicted in Figure 17 of Attachment 2. For example, a five to ten percent real increase in the rent or sales price of the townhome or wrap could likely make both project’s RLV exceed prevailing market land prices. In addition to rent or sales price increases, improved market outcomes can be achieved in a variety of ways, including reduced development costs, capitalization rates, and interest rates, among others.
Equipped with the research and findings highlighted in the Report, the EPS Team reviewed the existing MU District zoning and related land use designations and provided initial options that could facilitate and incentivize investment along the MU District’s commercial corridors. Most of the recommendations reflect those that would be needed to accommodate the higher density development scenarios described in Chapter 3 and Chapter 4 of Attachment 2.
The overarching recommendations for updating the MU Districts are as follows:
• Expand the existing boundaries of the MU Districts to include adjacent areas that would benefit from the additional development opportunities.
• Raise allowable residential density and reduce parking ratios to accommodate housing prototypes that are increasingly being delivered in the regional market.
• A transitional height standard should be incorporated into the Zoning Code (and/or Objective Design Standards) to ensure a more amenable transition between mixed-use projects and adjoining lower-scale, particularly single-family zoned, areas.
The land use and design standards matrix, Appendix C of Attachment 2, includes more detailed information and other specific options recommended based on the Report’s findings.
The options presented above will be subject to further analysis and refinement, and any final changes must be approved by the City Council. With this understanding, staff recommends that the City Council approve the Resolution (Attachment 3) and direct staff to implement the recommendations made in the Mixed-Use Zoning Analysis Report. However, no changes to the Zoning Code would be immediately effective following this approval. The City would need to approve a General Plan Land Use Amendment to expand the MU boundaries, modify the MU land use designations, and modify existing zoning and development standards to accommodate higher density. These actions can be accomplished as part of the City’s ongoing phased Zoning Code Update. Expanding the MU Districts and increasing allowable residential density, per the recommendations provided, will also trigger environmental review under the California Environmental Quality Act (CEQA).
The timeframe for completing the above tasks can vary depending on a variety of factors, including availability of staff resources, the nature of community input, and the relationship between this effort and other Council priorities. Assuming the process is conducted in a relatively efficient manner, De Novo anticipates it can be completed within 18 to 24 months, as illustrated in Figure 18 of Attachment 2.
FISCAL IMPACT
There is no fiscal impact associated with this item.
LEGAL REVIEW
The City Attorney’s Office has reviewed as to form.
CONCLUSION
By enacting the recommended changes, the City would be more attractive to prospective developers and encourage investment in the community. Redevelopment of the City’s Mixed-Use Districts would likely have a positive impact on fiscal revenues, resulting in additional funding for City services and projects that benefit the community. Approval of the Resolution is the first step towards implementation of the recommendations described in the Mixed-Use Zoning Analysis Report.
ATTACHMENTS
1. City Council January 24, 2024 Staff Report
2. Mixed-Use Zoning Analysis Report
3. Resolution
REVIEWED BY
Erin Backs, Finance Director
Christian Bettenhausen, City Attorney
Christine Cordon, City Manager