Housing forum: Climate right for development in Berkeley
The development climate in Berkeley has improved so much in the past six years that there are now approximately 2,500 apartment units in the pipeline — a dramatic change from the two decades between 1970 and 1990 when only 600 units were built, according to experts who spoke at a forum on multi-family development held in Berkeley on Jan. 21 .
The city is no longer looked upon as a place just to build student housing. With its foodie culture, rich history, music and art scenes, as well as the ability it affords developers to charge higher rents than in Oakland and other East Bay cities, Berkeley is now a popular place to build.
“Berkeley is no longer this campus college market,” said Stephen Lawton, volunteer program leader for the non-profit Urban Land Institute which hosted the event at the David Brower Center in downtown Berkeley. “The hot San Francisco market is finally reaching across the bay in this cycle.”
The size and makeup of the crowd at the forum appeared to confirm that a strong economy and a favorable political climate on the city council has made Berkeley a hot market. The group of around 60 ranged from developers who have projects in the pipeline, to developers who are on the cusp of submitting plans to the city. There were architects, engineers, economists, affordable-housing advocates, and people on the finance side of investing. About 48% of the attendees were from San Francisco and the Peninsula, with 27% coming from Berkeley or Oakland, said Lawton. who is a retail consultant at Main Street Property Services.
Denise Pinkston, a principal at the development group TMG Partners, and the vice-chair of Berkeley’s Zoning Adjustments Board, gave an overview of the regional housing crisis, one that she put together with the Terner Center for Housing Innovation at UC Berkeley. Californians pay more for their housing than in any other state and currently there are ten times as many jobs in the Bay Area as housing units, she said. This is not an issue for the affluent because they can afford to pay $4,000 a month or more for rent, or more than $1 million for a home, she said. But families without high incomes are being forced to move to places like Stockton or Turlock (the Bay Area’s new suburbs, said Pinkston) where they can find a home for around $300,000.
“Coastal California has been producing less housing than any other region in the country for decades,” said Pinkston.
There is a huge need for more multifamily, infill housing but numerous obstacles stand in the way, she said. There are not enough “development-ready” sites available, she said. Lots have to be big enough to make building large mid-rises financially viable and attractive to financiers. Some infill sites are polluted, too far away from transit, or are in neighborhoods where rents are too low to cover the cost of construction, she said. Cities also have a financial bias against housing; they prefer retail and office buildings that generate taxes, rather than housing that demands schools and services, she said.
One of the biggest issues are the legal challenges to large projects, said Pinkston. Environmental reviews are used to delay development rather than to actually consider the impact of a project on a community, she said. Extra litigation adds to the cost of building housing, which pushes up rents, she said. A unit in a mid-rise building can cost $500,000 to build; litigation can add $200,000 to that cost, she said.
Every time a housing project is delayed because of litigation, it contributes to climate change, said Pinkston. The lack of housing is pushing people so far away they have to drive two hours each way to work.
“Every structure built on the BART line is a green structure,” she said.
Pinkston and others in the room called on the California Legislature to change California Environmental Quality Act (CEQA) laws to make it more difficult to file lawsuits they characterized as unnecessary.
“It’s a travesty to see a project get sued when they have gone through all the hearings and meetings, and have met all the requirements,” said Brad Griggs, managing partner at BHV CenterStreet Properties, based in Danville.
Mark Rhoades of the Rhoades Planning Group, who moderated the panel, pointed out that it only cost the two people who filed “pro per” lawsuits challenging the adequacy of the EIR for the 302-unit project at 2211 Harold Way $42 each to file a suit. That could hold up the construction of Berkeley’s first tall building in 50 years for a year and a half, delaying money going into the Housing Trust Fund, he said. And that means the project runs the risk of being “out-of-cycle,” meaning the economy is no longer favorable for construction. [Eds: The court clerk told Berkeleyside the fees for lawsuit filing range from $225 to $435. ]
“If that deal doesn’t move in the next two years it will miss the cycle… and it may be another ten years before it happens,” said Pinkston.
But Rhoades said that the 2211 Harold Way project would eventually be built because the economics of development in Berkeley have improved so much in recent years, a view that other developers on the panel agreed with. Shorenstein Residential is developing its first project in Berkeley at 1500 San Pablo Ave. because the city has now become an attractive place for young adults and baby boomers who want to move out of their houses, said Meg Spriggs, the managing director of Shorenstein’s Multifamily Investments Group. She called it the “barbell effect.”
Young people who can’t afford housing in San Francisco look at Berkeley as a “soft landing” from the city, meaning it has a good share of urban amenities and doesn’t feel like a typical suburb, she said. Spriggs added that the exodus from San Francisco had created the demand for an extra 700 apartments annually in Berkeley.
One reason Shorenstein selected the site at 1500 San Pablo is because it is kitty-corner from Bartavelle Café, Acme Bread and Kermit Lynch wines, and a short walk to the Whole Foods on Gilman Street.
The economics have also improved, she said. Rents away from campus are finally high enough that it makes it financially feasible to build large, multifamily projects, she said. Rents went up 12% in 2013-2104, went up another 8% in 2105, and are expected to climb 5% this year, she said.
The Shorenstein project will have 170 apartments and townhouses and will offer studios, one-bedroom, and two-bedroom apartments. Shorenstein is building the townhouses with young families in mind, she said. The side of the project facing San Pablo Avenue will be five-stories high but the western edge with the townhouses is lower.
Early in the meeting, Rhoades had described the history of development in Berkeley. In the 1970s and 1980s, the city changed the zoning in transit corridors to encourage density, and downzoned in neighborhoods to help them maintain a residential character. The city also vastly increased public participation in the development process, he said. Concern about the impact of growth is why only 600 units were built in that period.
In the late 1990s, Berkeley leveraged the state density bonus program to get more density along transit corridors, he said. In 2005, the city set out to develop the Downtown Area Plan, which had a citizens’ group of about 23 people involved. The plan, which led the city to identify sites suitable for infill development, as well as the construction of three 180-foot high buildings and two 120-foot high buildings, was passed by the city council in 2012. Berkeley went from a city that was not interested in the creation of housing to one that is — although it took more than a decade and numerous fights at the ballot box, Rhoades said. The last ballot measure that was aimed at stopping the construction of high-rises was defeated by 72% to 28%, he said.
“There are still very high barriers to entry here — very high,” said Rhoades. “Two to three years isn’t uncommon for a project of scale to get through the process… Decision-making in Berkeley is difficult. There is a vast population that understands the need for infill housing, but the twenty or so who come to those meetings who are opposed make it difficult.”
The group behind the construction of 135 apartments on the old Spenger’s parking lot at 1900 Fourth St.recognized this barrier, which is why it conducted extensive archeological research on whether the site was part of an Indian shellmound before it proposed a project, according to Griggs. (The Rhoades Planning Group is overseeing the entitlement process.). The excavation determined that there weren’t any historically significant remnants of the shellmound within the boundaries of the parking lot.
“We found there was an opportunity to dispel fact from fiction,” said Griggs.
Griggs said that the parcel which will eventually hold the 1900 Fourth St. complex was one of the best development parcels he had seen in a long time. It’s near the freeway and ample bus lines. The project, which has been modified after considerable neighborhood input, will serve as a bridge between the busy Fourth Street retail corridor and the more moribund street scene in the area immediately south of the freeway, he said. The Fourth & U project is south of the freeway, as are two new apartment complexes and another in the pipeline.
At first, they intended to build 200 units with limited retail but the project was scaled back after the developer took a closer look at the neighborhood. It will now be 135 units, parking for residents, 237 retail parking spaces, 236 bike spaces, and 33,000 square feet of retail clustered around an outdoor “paseo.”
“Now you are seeing confidence in investment in Berkeley knowing that entitlements are still going to take years for approval, but will be approved,” said Griggs.
There is no firm number on how many housing units are under construction or on the drawing board in Berkeley. Two years ago, Berkeleyside calculated there were 1,400 units in the pipeline around downtown. Since then, developers have proposed a number of new projects. Rhoades said that he thinks the number is now around 2,500.
The forum was aimed at highlighting how certain projects got built in Berkeley and the current development environment. There was a brief discussion about affordable housing, but it was not the focus of the meeting although it is a huge issue in Berkeley. Currently, all multifamily housing projects must make 10% of the units affordable, or pay a $20,000 a unit fee into the Housing Trust Fund. But rents are so high in Berkeley that UC students are crowding into apartments and families are leaving the city because they cannot find housing that fits their budgets.