Marching to the same drummer

No one would ever mistake Minnesota native and Alameda resident Joe Ernst for Professor Harold Hill, but that sure was an impressive parade he led in Council chambers last Tuesday in support of Alameda Point Partners’ development proposal for Site A at Alameda Point.

The politicians – former Mayors Bill Withrow, Beverly Johnson and Marie Gilmore; and State Assemblyman Rob Bonta – were there.

The business community, led by Chamber of Commerce president Michael McDonough, was there.

The unions, including the personable president of the Planning Board, Mike Henneberry, were there.

The Inner Ring, in the person of Planning Board member and all-around expert, John Knox White, was there.

Even the Alameda Citizens’ Task Force, represented by Janet Gibson, was there.

Can anyone be surprised that, when it came time to vote, every member of Council picked up a trombone and voted to approve the proposal?

Maybe not.

Still, in the back of our minds, we couldn’t help going back to the November election and remembering the campaign rhetoric.  Wasn’t it Trish Spencer who ran on a platform of slowing down residential development?  And wasn’t it Frank Mataresse who expressly stated that he opposed construction of any new housing at Alameda Point?

Yet both Ms. Spencer and Mr. Matarrese voted for the A.P.P. proposal, which provides for 800 new housing units, 600 of which (362 apartments, 166 townhomes, and 72 condos) will be sold or rented at market rates.

It reminded us of the old joke that went something like this:

“They told me if I voted for Goldwater, we’d get a war in Vietnam.  So I voted for Johnson – and we got a war in Vietnam.”

For Alameda, the updated version goes:

“They told me if I voted for Gilmore, we’d get 800 new housing units at Alameda Point.  So I voted for Spencer and Matarrese – and we got 800 new housing units at Alameda Point.”

What went on here?

A cynic might answer that, like all officeholders, Ms. Spencer and Mr. Matarrese are prone to put politics above principles.  An idealist might answer that, like all statesmen, Ms. Spencer and Mr. Matarrese are prepared to put the public interest ahead of personal preference.

Joe Ernst & maps

Joe Ernst

At the Merry-Go-Round, we think neither answer is satisfactory.  Instead, we give credit to City staff, and to Mr. Ernst and his development partners, for paying attention to the concerns expressed by the Mayor and Vice Mayor about the A.P.P. project – and then taking action to ameliorate, if not eliminate, those concerns.  Ms. Spencer and Mr. Matarrese didn’t join the band simply because the developer was playing a catchy tune.

Start with the Vice Mayor.

From the beginning of his term, Mr. Matarrese has focused on the development issue.  By his calculations, if all of the 18 parcels listed in the 2015-23 Housing Element qualified for a 35% density bonus, the City was looking at the potential for 3,637 new housing units, most of them along the northern waterfront.  This, he believed, would create “gridlock on the West End.”

The simplest solution, the Vice Mayor decided, was to place a “moratorium” on granting density bonuses.  Unfortunately, as staff later informed Council, this wouldn’t work, since state density bonus law requires a city to grant a density bonus to any developer whose project includes the percentage of very low, low, or moderate-income housing specified by the statute.  (Should Mr. Matarrese, a non-lawyer, have known this?  Maybe not – but someone should have told him).

So Mr. Matarrese dropped the moratorium idea and went to Plan B.

The total “realistic capacity” of the 18 parcels listed in the Housing Element, he noted, was 2,245 units.  Why not treat this number as the maximum number of new housing units that could be built in the City?  “As long as we’re working within the envelope of what the state has certified [i.e., the Housing Element],” the Vice Mayor argued, “we do have latitude to put reasonable limits on growth to reflect the constraints we’re under as an island.”

He had a test case in mind:  the two parcels totaling 37.36 acres known as North Housing.

These parcels are owned by the U.S. Navy and contain 282 vacant units.  A 2009 amendment to the Community Reuse Plan for Alameda Point designated the site for 435 new housing units, including 90 for the formerly homeless and 30 to be built by Habitat for Humanity.

Despite the amendment, the City zoned the parcels for multi-family housing in 2012.  Under that zoning, a total of 1,121 housing units – 1,513 with a maximum 35% density bonus – could be built on the site.  The City should “take a look,” the Vice Mayor suggested, at re-zoning the parcels to reduce this total.

We imagine that, at this point, the light bulb went on (if it hadn’t already) in the fertile brain of City Planner Andrew Thomas.

No development proposals were in the works for the North Housing site, and, indeed, the Navy hadn’t yet issued the “Finding of Suitability for Transfer” required to permit the land to be sold to a private developer.  Moreover, although the North Housing parcels had been included in the 2015-23 Housing Element at a total “realistic capacity” of 806 units, the City didn’t need all 806 units to be able to meet its regional housing quota.

So re-zoning wouldn’t interfere either with existing development plans or Housing Element compliance.  And here’s the best part:  Maybe re-zoning the North Housing parcels to reduce the maximum number of units could be leveraged to gain Mr. Matarrese’s support for building 800 new housing units at Site A.

It worked this way:  By Mr. Thomas’s calculations (which differed slightly from Mr. Matarrese’s), the current zoning, with a 35% density bonus, would allow 1,473 housing units to be built on the North Housing site.  But if the City re-zoned the parcels to “cap” residential development at 435 units – the figure agreed to in 2009 – the maximum number of units, even with a 35% density bonus, would be 587.

The difference – 885 units – just happened to approximate the number of new housing units planned for Site A.  By re-zoning the North Housing parcels, the City would “take away” 885 units on the northern waterfront, which would “free up” 800 units to be built at Alameda Point without any increase in overall residential development.

So Mr. Thomas went ahead and prepared a recommendation to the Planning Board for re-zoning the North Housing parcels with a 435-unit cap.  He couldn’t say out loud, of course, that the proposal was intended to induce Mr. Matarrese to go along on Site A.  Indeed, neither the staff report nor his oral presentation made the trade explicit.

But the Planning Board members understood what was going on – “I don’t want to call this a Faustian bargain,” Mr. Knox White said, and then proceeded to do so – and chose to couple their consent with a threat.  During his presentation, Mr. Thomas made clear that the City still would meet its regional housing quota after the re-zoning even if Council rejected the Site A proposal.   Nevertheless, both Mr. Knox White and Board member David Burton saw fit to warn that Council could not do one without the other.

The re-zoning “only makes sense in the context of approving Site A, because if City Council chooses not to do that, it definitely puts us out of compliance and at jeopardy,” Mr. Burton stated, inaccurately.  “Woe to that member or members who put the City in jeopardy in that way for not well-founded reasons.”

So now the stage was set.  Staff scheduled the vote on approval of the Site A proposal for June 16 – and it shrewdly put the item regarding re-zoning the North Housing parcels on the agenda after the approval vote had taken place.

When Mr. Matarrese announced his decision to vote for the A.P.P. proposal and then explained his reasoning, the significance of the trade-off became unmistakable.  He still didn’t like the idea of a “town center,” the Vice Mayor said.  And he still thought development at the Point should focus on commercial and industrial uses.  Nevertheless, since the A.P.P. proposal would pay for infrastructure the City otherwise couldn’t afford, “I swallowed my pride and looked for a compromise.”

And the “compromise” was re-zoning the North Housing parcel.  “I am very conscious,” Mr. Matarrese said, “of what thousands said out there, they’re afraid of runaway housing development in this City because of traffic.  So I had to look for a compromise and I think I found it there.”

We suppose some might quibble that approving an 800-unit project on which construction is scheduled to begin in January 2016 isn’t exactly equivalent to limiting future development on a site still owned by the Navy.  But the trade-off did the trick:  It secured Mr. Matarrese’s vote.

Now to the Mayor.

For Ms. Spencer, the sticking point always had been the extent to which the A.P.P. project provided housing affordable by middle-income families.  Sure, the plan included 200 units for very low, low, and moderate-income households.  But what about the 600 market-rate units?  Could the ordinary Alamedan afford to rent or buy one of them?

It was a legitimate question.

The A.P.P. project included 166 townhomes and 72 condos for sale at market rates.  According to the developer’s pro forma presented to Council, 139 of the townhomes were expected to sell for $888,502 and 27 others for $1,032,022.  Even Mr. Ernst didn’t claim that these units would be affordable by middle-income buyers.

Likewise, the pro forma showed that the 72 market-rate condos would sell for $698,961.  This, too, was outside the price range of a middle-income household.

But the project also included 362 apartments that would be rented at market rates.  So, for Ms. Spencer, the question became:  How many of these units would be affordable by middle-income tenants?

The answer, of course, depends on the mix of units – i.e., studios, one-bedroom apartments, etc. – and the rent charged in each category.  Ever since the first presentation by A.P.P. back in January, Ms. Spencer had been trying to get Mr. Ernst to commit to specific numbers, and each time he had declined to do so.  As he told the Mayor last Tuesday, the “product mix” was still to be determined.

But the pro forma did provide one useful clue:  the rent for the apartments would be $3.50 per square foot.  If you made assumptions about unit size, you could compute the rents for different sizes of apartments.  Then, if you made assumptions about income-to-rent ratios, you could determine how much income it would take to afford each size of apartment (although you still wouldn’t know how many units would fall into each category).

Alameda Point Chief Operating Officer Jennifer Ott took a stab at this analysis.  She included in the staff report a graph showing that a tenant would need to earn $70,000 a year to be able to afford even the smallest studio apartment.  Ms. Ott confirmed to us that she also prepared another graph for Ms. Spencer – a copy of which she provided to us – in which she made a different assumption about the size of a studio apartment (650 rather than 500 square feet).  This graph showed that the annual income necessary to afford a studio was $95,000.

If the assumptions in the latter graph are correct, none of the 362 market-rate apartments will be affordable by a household earning what the 2013 American Community Survey prepared by the U.S. Census Bureau reported is the median household income in Alameda:  $74,606.  Even under the assumptions in the former graph, the number of apartments affordable by “median” households is likely to be very few.

Small wonder that Ms. Spencer was concerned.

Unfortunately, when she tried to press the point last Tuesday, her colleagues and others sought to throw her off track.  It began when Mr. Knox White, responding to the Mayor’s invitation to public speakers to address the affordability issue, confidently declared that only 20% of the market-rate units had been “set aside” for “over-median” households – a statement that, as Ms. Ott’s analysis shows, is demonstrably false.

Later, during the Council discussion, Councilman Tony Daysog interrupted Ms. Spencer to assert that the A.P.P. project included studio apartments for $1,750 a month, which, by his computations, were affordable by a household earning $75,000 a year.  But Mr. Ernst told us the developer had never given the $1,750 figure to Mr. Daysog.  And when Ms. Spencer asked Mr. Daysog how many studios were available at that rate, he waved his hands toward Mr. Ernst and said, “However many he has.”

Finally, as Ms. Spencer was wrapping up by reiterating her distress at families being “pushed out of town because they can’t afford to live here,” it was Councilwoman Marilyn Ezzy Ashcraft’s turn to interrupt.  Both Renewed Hope and the Alameda Renters’ Coalition supported the A.P.P. proposal, she told the Mayor (as if Ms. Spencer hadn’t heard the speakers from those groups).  “We won’t solve all of society’s ills [at once].”

Yet Ms. Spencer ended up voting to approve the project.  How come?

One reason may have been a last-minute amendment to the disposition and development agreement negotiated by staff with A.P.P.  Originally, the agreement provided for profit-sharing by the City if the project achieved more than a stated rate of return.  Under the amendment, if the City was otherwise entitled to profit-sharing at the end of Phase One, rather than pay the City, A.P.P. instead would convert 10 of the 72 market-rate condos into “moderate-income” units.

There was no guarantee, Ms. Ott emphasized, but under the amendment the number of “moderate-income” condos could increase from 32 to 42.  This responded directly to Ms. Spencer’s stated desire to make more for-sale units available to middle-income families.

But we suspect the real reason Ms. Spencer went along with the A.P.P. proposal was that, to put it bluntly, she trusted Mr. Ernst.  Would he promise, the Mayor asked, to do his best to “accommodate” Alamedans in all income groups?  “The simple answer,” Mr. Ernst replied, “is, yes, we can, and yes, we will.”  He went on:

We have a large enough project here to do that. . . .   We can do a diversified product mix to try to target all different parts of that [income] range. . . .   We want this project to serve Alamedans, not just the people who don’t live here but the people who do live here.

Ms. Spencer returned to this commitment in her closing remarks.  Looking Mr. Ernst in the eyes, she said:

I am very hopeful that you will continue to work with our community and continue to address these needs moving forward.  . . .   I know you and your family are significant parts of our community.  You do a lot of give-back, you do a lot of support, and I’m really looking forward to working with you and our community as this unfolds and make sure we’re meeting the needs, as best we can, and as best you can and your team can, to support the needs of Alamedans.

And then she voted, Yes.

We suppose that some would characterize Ms. Spencer as being naïve in putting her trust in a real-estate developer.  But even her detractors will have to admit that, for whatever reason, Ms. Spencer ended up bringing the development process for Site A begun under Mayor Gilmore to a positive conclusion.  Which leads to our parting question:  Do you think any of those detractors – or even Ms. Gilmore herself – will call Ms. Spencer to praise her for having done the “right thing”?

Sources:

June 16, 2015 staff report: 2015-06-16 staff report re Site A

June 16, 2015 staff presentation: 2015-06-16 staff presentation – REVISED

Graph prepared by Jennifer Ott for Mayor Spencer: J. Ott housing chart

A.P.P. pro forma: 2015-05-19 Ex. 8 to staff report – Annual Cash Flow Analysis

2015-23 Housing Element: 2014-07-15 Ex. 1 to staff report- 2015-2023 Housing Element

May 11, 2015 staff report to Planning Board: 2015-05-11 staff report to PB re North Housing

Slide from May 11, 2015 presentation: Slide from 5-11-15 presentation

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in Alameda Point, City Council, Development, Housing and tagged , , , , , , , , , , , , , , , , , . Bookmark the permalink.

One Response to Marching to the same drummer

  1. Steve Gerstle says:

    In my Queens neighborhood, almost everyone voted for Johnson, but I still know how the joke goes:
    “They told me that if I voted for Goldwater that we would be bogged down in an endless war in Vietnam. I voted for Goldwater and they were right!”
    http://americanradioworks.publicradio.org/features/vietnam/scrapbook/entries/421_108.html

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