Hardy builders tackle infill projects with elevated risks. (Who's Who in Real Estate: The Ins and Outs of L.A. Homebuilders).

JEFF Lee is in the business of trying to turn decrepit commercial strips and industrial parks into houses, condos and apartments. And he has the war stories to prove it.

Like the time two years ago when he wanted to build 39 detached condos on the site of a fading, 5-acre shopping center in Rolling Hills Estates, a project that was the first such reuse development in the city. Lee got it approved all right -- after 18 hearings before the Planning Commission and City Council as he sought to assuage concerns over traffic and impaired ocean views.

"We did 60 different site plans. We would move a home from here to there," recalls Lee, 46, president of Lee Group Inc. "Doing these sites is very complex."

Lee is a new breed of developer: focusing on smaller residential projects in the urban core as opposed to outlying cookie-cutter tracts. In this world, the opposing forces are usually not determined environmentalists but nearby residents who fear that this new housing would clash with the community's character. Or it could be stodgy bureaucrats reluctant to adjust zoning regulations, or wary lenders not yet convinced the projects make good financial sense.

Yet as freeway traffic worsens and virgin land becomes harder to find, developers like Lee are playing a greater role in filling the region's high demand for housing.

"Everyone has to be in favor of smart growth now, in the same way that people want to be in favor of clean air," said Kaid Benfield, a Natural Resources Defense Council attorney whose 2001 book "Solving Sprawl" lauded a Lee development.

Started in suburbs

Lee Group wasn't always battling to reclaim faded infill parcels. In fact, the Marina del Rey company started out as a traditional suburban developer.

Originally based in the San Fernando Valley, the company was founded by Lee's father Harlan in the 1950s and built nothing but tract homes in communities like Westlake Village and Calabasas Park.

A few years after Lee was brought on upon graduating from USC in 1979, the company began building individual, high-end beach homes in Marina del Rey -- not exactly what would be considered urban infill these days, but a decided switch from those suburban tracts.

The Marina work whetted the developer's appetite.

Lee recalls noticing a newspaper ad in which the city of Inglewood sought developers to bid on a $24 million urban renewal project. The project was to include townhomes, rather than apartments, which was standard at the time. "We wanted to do home ownership, because we thought it was important to bring home ownership to Inglewood," he said.

In 1984, Lee was selected for the project, its biggest development yet. The 176-unit, 4.5-acre development included 35 affordable units.

The job wound up winning national home building awards. Meanwhile, Lee, who was made president by his father as a 40th birthday present six years ago, had become uninterested in driving out to distant suburbs to develop scores of identical tract homes.

The company has adopted the "one-hour rule," in which it rarely develops properties that take much longer than one hour to reach by car from its offices. "We didn't want to go to Palmdale," said Lee.

Today, the work covers everything from subsidized low-income apartments to affordable detached houses to ultra-high end lofts, with and without city or redevelopment agency participation. Lee is also building some infill estate homes in the Hollywood Hills and Woodland Hills.

All told, the company has developed 700 homes in partnership with public agencies, from Bell Garden to Pasadena, and currently has about 500 homes under construction.

Cumbersome process

Infill development is easier said than done, especially in places that have little experience with such projects.

Rolling Hills Estates had worked with another residential developer on the 34-acre site of a former Northrop Corp. research and development facility. That project, which was largely completed in 2000, involved single-family half-acre estates that fit in with existing stock.

What Lee had in mind the following year was altogether different: 39 units on a five-acre former site of a shopping center -- and zoned for mixed use. The target market was the "empty nester" that wanted to trade down to a simpler lifestyle and out of their estates.

"It went to the City Council and the City Council was a little confused on how to interpret this," said Planning Director David Wahba.

Despite concerted opposition from some nearby residents, Lee ultimately got his approval, though he had to pare down the number of condos and add a token commercial building to meet zoning codes. The 34 units ultimately sold out at prices from the mid-$700,000s to nearly $1 million.

There was also a project called Emerald Villas in Cerritos, where the Lee Group received approval in 1997 to build 126 condos for low-to-moderate income older residents, the first residential redevelopment project in the city's history.

Concern over the plan drew 3,000 residents to a hearing at the city's performing art center. "There was a lot of negative connotation with it, but they were able to sell it as senior housing," said Luis Estevez, an analyst with the city's Community Development Department.

In poorer communities, Lee says infill developments are often welcomed with open arms from residents accustomed to neglect. He's even been invited into the finished homes. "We don't make as much money on those, but it is very gratifying," he said.

But problems often crop up, such as environmental contamination. Lee Group has overseen the cleanup of asbestos, lead, arsenic and DDT -- remediation costs that could run anywhere from $20,000 to well over $100,000.

There's also the challenge of attracting financing, including high-end projects such as the lofts that the Lee Group is now building on Flower Street in downtown Los Angeles. Even with the infill success stories, lenders are often more comfortable with a 1,000-home suburban tract on virgin land.

That's prompted the company to form a partnership with Fannie Mae, the giant federally backed mortgage buyer, which has invested $5 million in four separate Lee Group projects to help build equity and attract lenders who want to lessen their risk.

"One of our objectives is to signal to other institutional investors it's a good market to come into," said Ted Chandler, a Fannie Mae vice president. "It's not that easy for urban infill development to attract capital as it for suburban subdivisions on raw land."

Lee has plans for more infill work: lofts in Los Angeles, affordable senior apartments in the Crenshaw District and a mixed-use project in Pomona. He says the company can't afford to be choosy, though it seeks to limit annual development to no more than about 300 units.

"That's as much as we want to do," he said.

RELATED ARTICLE: Penciling Out

How costly is urban infill? Developers can count the ways.

While projects like Jerry Snyder's NoHo Commons have attracted developers to the profit potential of urban homebuilding, these projects can be very costly adventures.

Land use problems, community opposition, land conditions -- it's a long list.

"If building a house in suburbia is like a game of checkers, urban infill is like three-dimensional chess," said Kenneth Agid, a former Irvine Co. vice president who worked on the housing component of the controversial Playa Vista project.

The risks are enormous. While traditional homebuilders can control their costs by slowing or accelerating construction based on demand, urban infill developers often have to build out all their units even if sales are slow.

The projects are also difficult to market because a developer cannot show off a model home.

And the projects not only consume money, but time as well. According to Agid, it can take as long as two years to complete the typical infill project, which doesn't include site acquisition and zoning. Traditional homebuilders, many of which have transformed homebuilding into a manufacturing process, can sometimes complete a project in six months.

Land improvements can account for as much as 40 percent of the price of an infill residential unit, versus about 25 percent of the price on a typical single-family home in an outlying area such as Newhall Ranch.

Driving up the land cost is the time-consuming task of seeking proper entitlements and permits for a "use in transition" site. Traditional homebuilders, on the other hand, typically buy land that already has been entitled by the previous owner.

The developer may also face legal bills fending off neighbors, whose complaints may range from increased traffic to overcrowded schools.

The development division of Anastasi Cos. faced such complaints when it tried to build its Village Lane townhome-and-condominium project in Torrance. After some wrangling, the company relented, replacing the project with plans for a senior living center -- which residents supported.

When a project meets community resistance, it can take as long as two years to work out a deal, and if opponents go to court, that'll delay the project by another 18 months or so -- in some cases longer.

The financial expenses include a team of consultants -- including community relations specialists -- as well as a series of costly reports whipped up to defend the project. A traffic impact study, for example, costs as much as $15000 to complete.

Then there are environmental impact reviews, assessing the project's impact on the surrounding area, as well as soil and groundwater studies for hazardous waste. The developer must also look out for hazards that may not appear on previous surveys. If the developer finds an abandoned oil well -- atypical hazard on Westside parcels -- it can cost as much as $250,000 to clean up the site.

These realities are unlikely to change any time soon.

"You know there are problems going in and you know it's going to be costly to solve," said Anastasi project director John Mirassou.

RiShawn Biddle