The city-financed rehabilitation of a 40-unit affordable apartment complex is projected to run about $2.4 million over budget, city officials told the City Council on Tuesday, prompting pointed questions about why extensive mold and termite damage in a building constructed in 1947-48 was not anticipated.
The Virginia Avenue Apartments, at 2033-2101 Virginia Avenue, are being renovated by Community Corporation of Santa Monica, or CCSM, a nonprofit affordable housing developer, using a Housing Trust Fund loan of up to $35,650,000 that the council approved in August 2025. The total development budget at loan closing was $35,874,999. CCSM now forecasts a final cost of $38,307,795.
To date, the project has drawn down $26,633,843, or 77%, of the loan. Construction began in November 2025 and is targeted for completion in June 2027.
CCSM attributed the overrun to two main drivers: construction, or "hard," costs projected to exceed the budget by $2.7 million, and relocation costs $1.6 million higher than planned, partly offset by savings in soft costs such as insurance and furnishings.
Andrew Yick, who became the project's manager two months ago, said the construction overruns stemmed largely from reframing, plumbing repairs and remediation of mold and termite damage that proved worse than a pre-acquisition inspection had found. "You just don't know what's behind the walls," he said, noting the property condition report was based on a visual inspection of an occupied building with only two or three vacant units available to examine.
That explanation drew resistance from Councilmember Lana Negrete, who brought the oversight item forward and said residents had long flagged the building's condition. "This idea that the mold and the termites was a surprise is, I think, the most frustrating part for the residents and everyone involved because the building was built in 1947," she said. Negrete also noted that another contractor had once bid millions of dollars lower before the current builder matched the figure, "and yet now there's these unforeseen costs."
Negrete pressed CCSM to tap its developer fee — up to $1.5 million of which remains undisbursed — before seeking more public money. "It's 40 families, and I think they've waited a long time to hear this," she said.
Mayor Caroline Torosis was blunt about the presentation. "This has been an extremely frustrating presentation for me," she said. "We've sat here for an hour, and I don't know that we've had the good information." She noted the project's hard cost contingency was exhausted and its soft cost contingency was down to about $3,000 with construction only 70% complete, and asked what the plan was. "There isn't a plan right now," she said. "We need to raise additional money if there are any cost overruns. We don't have money for that."
The relocation increase resulted from a decision to move all tenants out at once rather than renovate in phases, which CCSM said was necessary because the property has a single utility connection point and because mold and asbestos work could not be done safely with residents on site. The relocation budget was not updated to reflect the change.
Yick outlined possible ways to close the gap, including federal congressional funds, a state BUILD grant now expected to yield about $200,000 rather than the roughly $1 million once hoped, up to 20 project-based housing vouchers and the developer fee. "CCSM is committed to completing the project successfully," he said.
Mayor Pro Tem Jesse Zwick struck a more measured tone, calling the roughly 7% overrun modest. "The relocation cost not being adjusted to meet the new construction plan seems like a big boo-boo, but the hard cost overruns seemed totally reasonable for a construction project like this," he said. "If we didn't want to spend $40 million, we shouldn't have decided to do that. But we did."
In written comments, resident Stephanie Inouye urged the city to publish a full accounting, noting the projected cost approached $958,000 per unit "in a building that was never demolished." The Pico Neighborhood Association board submitted a letter supporting the tenants and urging that the project stay on track.
Councilmember Barry Snell said his priority was returning the displaced tenants. "I want them back in their homes," he said.
The council received and filed the report, which required no action.