The self-destructing cap

This is the story of how the one successful effort to limit residential development on the northern waterfront – the 435-unit housing cap on the North Housing site – blew up in its proponents’ faces.

Tempting as it is to attribute the result to politics – and politics surely played a role – the real credit (or blame) rests with the person(s) who devised the means by which Council restricted housing on the site in the first place.

Six months after two slow-growth candidates, Trish Spencer and Frank Matarrese, took office in 2015, Council unanimously passed an ordinance intended to ensure that no more than 435 housing units could be built on the 37.36-acre site, which then was owed by the federal government.  But the new law contained a built-in self-destruct mechanism:  As soon as title to the land passed from the feds to a private owner, the restriction could be made to disappear.  All Council would need to do was to remove the “government overlay” designation from the parcel – which would be necessary anyway to reflect the change in ownership.

The Merry-Go-Round is pretty sure that those who hailed the passage of the ordinance back in June 2015 thought Council had struck a lasting blow against what Mr. Matarrese at the time called “runaway housing development.”  Hadn’t newly elected Councilman Jim Oddie described it as the “next best thing” to a moratorium – or even an outright ban – on residential development on the North Housing site?  (He had.)

Little did they expect that, thanks to a 3-to-2 vote by the current Council less than three years later, no fewer than 1,121 new housing units, and as many as 1,513 new units, now will be permitted on the site.

There is probably no one at City Hall with greater reason to be chagrined than Councilman Matarrese.

When Mr. Matarrese ran for Council in 2014, the Planning Board and Council were finalizing development plans for Alameda Point.  The City had entered into an exclusive negotiating agreement with Alameda Point Partners to develop what was known as
“Site A,” the 68 acres at the heart of the Point, and APP was proposing to put 800 new housing units there.

Mr. Matarrese was not a fan of this proposal.  He told Michele Ellson of The Alamedan that he could not support building 800 units at Site A because the City already had zoned enough land outside the Point to accommodate 2,245 new units.  This was more than sufficient to satisfy its obligations under the state Housing Element law, and there was no reason to approve so many more.  There was, however, one condition under which he would go along with APP’s plan, Mr. Matarrese told Ms. Ellson:  “If city leaders . . . took 800 units of potential housing on other sites” out of the Housing Element.

And Mr. Matarrese had one particular target in mind:  North Housing.

For years, the site, located between Singleton Avenue and the Estuary, had been used for Navy housing.  In 2007, the federal government decided to “surplus” the property, which led, in 2009, to amendment of the 1996 Community Reuse Plan between the Navy and the City.  Under the amendment, the feds would convey two acres to Habitat for Humanity for “self-help” housing and nine acres to the Alameda Housing Authority for housing for the formerly homeless; 10 acres would go to the City for a park, and the remaining 14.87 acres would be sold at auction to a private developer.

The amendment included a “development summary table” setting forth the number of units assigned to each residential use:  30 for Habitat, 90 for AHA, and 315 for “market-rate housing.”

Then, in 2012, the Council led by former Mayor Marie Gilmore amended the zoning ordinance to create a so-called “multi-family overlay” permitting residential densities in excess of the 21-unit-per-acre limit established by the City Charter.  Council approved placing this overlay on 16 parcels, two of which comprised the North Housing site.  As a result, the site was listed in the Housing Element with a “realistic capacity” totaling 806 units.  (In fact, based on the total acreage of 37.36 acres multiplied by 30 units per acre, 1,121 new units would be permitted on the site, but staff applied a discount to compute the figure used in the land inventory.)

Soon after he was elected with the highest vote total among Council candidates (and thus was chosen Vice Mayor), Mr. Matarrese suggested that Council “take a look” at the zoning for North Housing.  “We have an agreement with the Navy from 2009 that says we can take 435 units there, with 90 of those units being for . . . the homeless, . . . and 30 units of very low income potential ownership housing,” he said.  “That contributes 120 units in one fell swoop without taking a density bonus approach. . . .”

The Vice Mayor’s comments started the wheels turning in the City Planner’s office (and maybe elsewhere).  Sure enough, within two months, staff presented the Planning Board with a proposed amendment to the zoning ordinance to “cap the maximum residential capacity of the [North Housing] property at 435 units.”  The proposed amendment, the staff report stated, would “reduce the housing capacity” of the North Housing site – and the entire northern waterfront – by between 656 and 885 units.  A reduction of this size, of course, was just what Mr. Matarrese was looking for.

The Planning Board adopted the resolution unanimously.  Staff then – shrewdly – scheduled the hearing on the North Housing zoning amendment for the same Council meeting as the final consideration of the Site A plan.  Adept, as always, at playing to the predilections of the politicians, City Planner Andrew Thomas laid it on thick when he described the zoning change:

We think this is a good move.  It’s consistent with our Housing Element.  It creates consistency between zoning and the [Community] Reuse Plan, and that’s always good.  It sends a very clear message to any future buyer of this property [about] what is the City expecting.

No one explicitly acknowledged that capping housing on the North Housing site at 435 units was a quid pro quo for getting 800 units for Site A, but Mr. Matarrese made the connection clear when he announced that he would vote for the APP proposal.  “I swallowed my pride and looked for a compromise,” he said, “and the compromise is that in 2009 we made an agreement with the Navy . . . that North Housing would have 435 units, which included a 10-acre park.  I think we honor that, that’s where our 800 units [at Site A] come [from]. . . .”

After the APP plan had been approved, the discussion about the North Housing zoning amendment was anti-climactic.  Only two Councilmen spoke:  Mr. Matarrese – and Mr. Oddie.  “I really appreciate the leadership displayed by the Vice Mayor,” Mr. Oddie said.  “From you I listen and I learn and then try to lead, so thank you very much for doing this.”  All five Council members then voted in favor of the motion.

No one on the dais paid any attention to how the goal of restricting residential development on the North Housing site was going to be accomplished.  But it turned out to matter – very much.

One might have thought that the most straightforward way to cap the number of units permitted at the North Housing site would be to amend the section of the zoning ordinance establishing the multi-family overlay with its 30 units-per-acre density.  Simply adding the italicized words to the end of section 30-4.23(e)(1) would do the trick:  “Within the MF Combining District, the maximum permitted residential density shall be thirty (30) units per acre, except for parcel nos. 74090501002 and 74090501202, where it shall be 15 units per acre.”  That way, multi-family housing still could be built on the North Housing property – just not as much of it.

But staff went in a different direction.  The ordinance presented to Council consisted of an amendment to an entirely different section of the zoning ordinance, the one establishing the so-called “government overlay.”  On its face, this section applied only to land owned by the federal or state government.  Into it was inserted a new paragraph referring to the “U.S. Government property” comprising the North Housing parcels and stating that “any use of the property by a private or public entity shall limit the number of housing units on the property to a maximum of 435 units” unless a density bonus was granted.

Staff didn’t explain why it had chosen this route (and no one asked).  But the upshot was that two sections of the zoning ordinance now applied to the North Housing property:  the government overlay, which limited the total number of units on the site to 435, and the multi-family overlay, which permitted 30 units per acre for a total of 1,121 units.

Perhaps this inconsistency didn’t matter as long as the federal government continued to own the land.  After all, the feds weren’t planning to build any new housing there.  But the property wasn’t going to remain undeveloped forever, and the time bomb had been planted.  All it would take to trigger it was a transaction transferring the parcels out of government ownership – like a sale to a private developer.  In that case, the “government overlay” no longer made any sense.  It would have to go – and, because of the way the zoning ordinance had been amended, the 435-unit cap would go with it.

This came to pass soon enough.  Last April, the federal General Services Administration put 14.87 acres of the North Housing site – the portion not dedicated to the park or reserved for Habitat and the AHA – up for auction.  The winning bidder was an affiliate of a real-estate investment firm known as Carmel Partners, which offered $38 million for the property.

With the land headed into private ownership, Carmel Partners applied to remove the government overlay.  (Habitat and AHA submitted separate applications.)  At the same time, it disavowed any interest in removing the 435-unit cap.  Instead, it insisted that all it wanted to do was to rehabilitate 146 existing three- and four-bedroom units.

But staff made it clear, both to the Planning Board and later to Council, that removing the government overlay also would eliminate the restriction on residential development that Mr. Matarrese (and others) thought had been placed on the site.  The 435-unit cap was “embedded” in the government overlay section of the zoning ordinance, Mr. Thomas told Council.  “So when we remove the G overlay, we are also removing the cap.”  (Later in the meeting, Mr. Thomas’s boss, Community Development Director Debbie Potter, said exactly the same thing using exactly the same word.)

This conclusion shifted how the issue was framed:  no longer was the question whether Council wanted to retain the cap; now, it was whether Council wanted to reinstate it.  From a purely political perspective, the outcome was predictable.  If giving Mr. Matarrese the cap had been necessary to obtain his support for Site A, well, that was a done deal – and there was no need to give him anything to get his vote now.

But wait a minute:  the motion putting the cap into the zoning ordinance had passed unanimously – and Mr. Oddie, who had been so effusive in his praise for Mr. Matarrese at the time, was still on Council.  Surely, a paragon of consistency like Mr. Oddie wouldn’t pull an about-face, and he’d provide the third vote for keeping the cap in place.

Think again.  Mr. Oddie announced that, despite his prior vote, he now opposed any restriction on residential development at the North Housing site.  “Times were different then,” he stated.  “We didn’t have the housing crisis we have today.”  He went on to explain that, when he voted for the cap, he expected that the Del Monte warehouse project “was going to be up within next year,” Site A was “going to be up,” and “we’d have 1,500 units come on line this year.”  None of that had occurred, and he didn’t want, by voting for the cap, to “put roadblocks” in front of “somebody that’s coming in who’s willing to rehab and have housing up in a year.”

In fact, the limit on the total number of units created no “roadblocks” for Carmel Partners.  The firm expressly stated that it didn’t care about the cap – because all it intended to do was to rehab 146 units.  If so, retaining the cap wouldn’t interfere with its business plan – and eliminating the cap wouldn’t affect it, either.  Either way, the same number of units would be added to the City’s housing supply.

Yet as a result of Council’s decision, Carmel Partners may well decide to reevaluate its strategy.  (Thanks to our friend, Richard Bangert, for alerting his Twitter followers to this possibility.)  The firm bid $38 million for a parcel on which it understood no more than 315 market-rate units could be built.  Now, Carmel Partners will own land on which it – or another developer – will be able to build about 535 new units (14.87 acres at 30 units per acre plus a 20% density bonus).  If we were investors in CP VI Admirals Cove, LLC, we’d have one message for the managing member:

Sell – and send us the profits!

Cashing in so quickly, and so lucratively, might cause the feds to squawk that they got rooked in the sale of the property.  But we’re not sure that they would have any legal basis to sue Carmel Partners.  The real-estate investment firm didn’t create the windfall; the Alameda City Council majority did.  In any event, the Invitation for Bid specifically states that, “Any inaccuracies or changes in the zoning information shall NOT be cause for adjustment or rescission of any contract resulting from this IFB.”

If Carmel Partners does decide to harvest the gain created by the Council majority by selling the North Housing property to another developer, the ultimate irony will result:  none of the existing 146 units will get rehabbed next year – or maybe ever.  Instead of benefiting from an immediate boost to the housing supply, Alamedans will have to wait as a developer like Tim Lewis Communities cobbles together a “master plan” for putting 500 or so new units on the site – and then claims it can’t raise the money to build them.

We’ll be eager to hear how the Triumvirate who buried the cap explains to the pro-housing crowd why they made this possible.

Sources:

Community Reuse Plan amendment: 2018-01-02 Ex. 1 to staff report – 2009 Amended Community Reuse Plan

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

June 2015 zoning ordinance amendment: 2015-05-11 staff report to PB re North Housing; 2015-06-16 staff report re North Housing

Invitation for Bids: GSA Admirals Cove IFB 2.14.2017

January 2018 zoning ordinance amendment:  2017-11-13 staff report re rezoning; 2018-01-02 staff report