Midway crisis

Three years after Council proudly adopted a plan to replace 200 dilapidated units of housing for the homeless at Alameda Point with a complex containing 267 new housing units and a community center, the fate of the endeavor remains very much up in the air.

The plan was premised on finding a private, for-profit developer who would be willing to build the backbone infrastructure needed for the new facilities in exchange for the right to develop market-rate housing on the adjacent land.

But since March 2017, both private developers vetted by staff and approved by Council have withdrawn from the project.

And the non-profit developer responsible for building the new facilities recently determined that the project wouldn’t qualify for a state grant to fund the infrastructure, so it didn’t even apply for one.

Is there a Plan C?  Come to Council next Tuesday and find out.

Here’s the story so far:

The Conceptual Planning Guide for Alameda Point divided the land to be acquired from the Navy into four sub-areas, one of which was a 108-acre chunk on the northeast corner of the former Naval Air Station that was given the name, “Main Street Neighborhood.”

This sub-area contained former Navy housing, including the 18 two-story single-family homes known as the “Big Whites” that the Navy had used as married officers’ quarters.  In addition, three non-profit organizations had converted other vacant residential buildings into 200 “supportive” housing units for the homeless:  Building Futures for Women and Children provided 52 units for survivors of domestic violence; Operation Dignity provided 28 units for veterans; and the Alameda Point Collaborative provided 120 units for families and individuals.  These units were scattered throughout the sub-area.

From the beginning, the City’s “vision” for the Main Street Neighborhood was to re-locate the three providers of housing for the homeless to a discrete site in the southeast corner where they could build new housing for their clients.  According to the Specific Plan approved by Council in March 2017, this “affordable housing replacement project will benefit the Collaborating Partners [i.e., BFWC, Operation Dignity, and APC] by replacing existing aging housing stock to further the goal of consolidating their campus.”

The Development Plan ultimately approved by the Planning Board – which staff called the “RESHAP” plan – called for construction of 267 new housing units on a 9.7-acre site located just south of West Midway Avenue.  The complex would consist of three
three-story apartment buildings, six two-story townhomes, and two mixed-use buildings with “community-serving” uses on the ground floor and residences on the two floors above.  It would also include a “barn/community center.”

This is how the Main Street Neighborhood looks in the Specific Plan:

Main Street Neighborhood Land Use Map

And this is how it fits into the overall Alameda Point development scheme:

West Midway Development Parcels

To implement its “vision,” the City intended to look to a private, for-profit developer to build the backbone infrastructure for the RESHAP project.  According to the Specific Plan, the City first would determine how many market-rate units would be needed to cover the cost of infrastructure for the entire area south of West Midway.  Then, the City would seek a private firm that would be willing to build no more than the designated number of market-rate units on the land not reserved for the RESHAP project and to take on all of the necessary infrastructure costs for the whole area.

After the adoption of the Specific Plan, staff focused on negotiating agreements with the Collaborating Partners for the RESHAP project, and more than a year passed before it sought approval to issue a Request for Qualifications for a private, for-profit developer for the rest of the site.  The RFQ issued in August 2018 advised potentially interested parties that the City would allow a maximum of 291 units on the 22.8 acres south of West Midway not reserved for the RESHAP project.  Of the total, 31 units were required to be affordable by moderate-income households (i.e., those earning 80-120 percent of area median income).  In addition, 10 percent of the market-rate units had to be affordable by households with incomes in the range of 120-180 percent of AMI (so-called “workforce housing.”)

Attached as an exhibit to the RFQ was an estimate of the total cost of the backbone infrastructure the developer would be obligated to build:  $56.92 million.

Seven developers responded to the RFQ, and staff selected four finalists:  Alameda Point Partners (the developer of Site A), Brookfield Residential, Catellus, and a partnership between Jamestown (the developer of South Shore Center) and Cypress Equity Investments (one of the APP partners and the developer of the seven-story apartment building at Site A).  After hearing presentations from each of the finalists in February 2019, Council directed staff to begin negotiations with two of them – APP and Jamestown/CEI.  Shortly thereafter, the two firms told staff that they were forming a partnership to develop the property jointly.

And then things started falling apart.

In May, Jamestown informed the City that it was withdrawing from the project.  According to a later staff report, the stated reason was “uncertainty regarding the viability of commercial development, given the project phasing and increased costs of infrastructure.”  (Apparently, Jamestown was concerned that the proposed phasing would require it to wait too long to begin the commercial and market-rate residential development upon which its profits depended.)

But APP told the City that it was willing to go it alone.  APP’s original submission contained a proposal to build the 291 units with a mix consisting of a “limited number” of single-family homes, townhomes, and “higher density product,” for both rental and sale.  In addition, it promised to design 16 percent – rather than the minimum 10 percent – of the market-rate units as “workforce housing.”  After Jamestown/CEI withdrew, Council voted to direct staff to execute an Exclusive Right to Negotiate Agreement with APP.

And then APP, too, pulled out.

Barely two months after getting the nod from Council, APP sent a letter informing the City that it “would not be pursuing” the private development project “at this time.”  APP “firmly believes in the vision” for the site staff was now calling “West Midway,” the letter stated.  Nevertheless, it went on,

Through our first-hand experience of developing at Alameda Point, we have an appreciation for the complexity of the West Midway Development.  Given the City’s and community’s laudable goals for West Midway, at this time we are focusing on the Site A execution and providing not only adjacent critical infrastructure and quality community necessary to support West Midway, but also creating context and momentum for this future development.

Our best translation:  We’ve got our hands too full with Site A to take on another major development project like West Midway.

Which, of course, raises the question:  Who would be?

We don’t mean to be discouraging, but we have to point out that any private developer for the West Midway site will confront at least three challenges that it would not have to face elsewhere.

First, the premise of the plan for the area south of West Midway always has been that the developer will be obligated to bear the costs of building the backbone infrastructure not just for the land it will own but for the land on which the RESHAP project is located as well.  According to the City’s Base Reuse Manager, Michelle Giles, the infrastructure cost estimate for the entire area has been updated from $56.92 million to $58.76 million.  That works out to more than $200,000 per unit (and more than $250,000 per full-price market-rate unit) that the developer will need to recoup from rents or sales proceeds.

Second, it is virtually certain that the developer will be required to enter into a union-friendly Project Labor Agreement with the construction trades unions for any West Midway project.  (According to the RFQ, “City Council may require a Project Labor Agreement as a condition of approval and interested parties should be aware of and consider this possibility.”  If the current Council membership stays the same, it’s far more than just a “possibility.”)  Multiple studies prove (as Vice Mayor John Knox White would put it) that PLAs increase construction costs by 13-to-20 percent.  And this isn’t just what the academic research shows:  check out the ongoing contretemps over the re-development of the Concord Naval Weapons Station, where the unions are insisting on a PLA and the developer, Lennar Homes, has warned that such an agreement would add $542 million to the job costs, thereby killing the project.

Finally, the developer will need to devote at least 10 percent of the market-rate units to “workforce housing”; indeed, that is a requirement imposed by the Specific Plan itself.   But the fewer full-price units there are, the lower the total revenue will be.  When Council approved the Specific Plan in March 2017, the City’s financial consultant, Willdan Financial Services, analyzed whether various hypothetical housing mixes would generate enough cash to pay the backbone infrastructure costs for the entire area south of West Midway.  Notably, a project consisting exclusively of market-rate townhomes would do the trick.  So would a project with 10 percent workforce units, 156 market-rate townhomes, and 24 single-family homes.  But take away the single-family homes and replace them with townhomes, and the latter scenario would fall short by $2.4 million.

If Willdan’s analysis is still valid three years later, the City may have to adjust its preferred housing mix in order to attract a private developer for West Midway.  And that may involve requiring or permitting less of what the Council that approved the Specific Plan wanted:  “workforce housing,” and more of what Mr. Knox White and his acolytes abhor:  single-family homes.

We suppose we could stop here and beat our usual drum about the folly of relying on private, for-profit developers to meet the City’s need for affordable housing (or, in this case, housing for the homeless).  But the staff report for Tuesday’s meeting shows that going the public-sector route hasn’t proved any more successful (at least not yet).

The most recent state budget signed by Governor Newsom appropriated $500 million for the “Infill Infrastructure Grant Program,” whose stated purpose is to provide “gap funding for infrastructure improvements critical to residential and mixed-use infill development.”  The Collaborating Partners considered applying for an IIG program grant to pay for the backbone infrastructure for the RESHAP project, but its affordable-housing development partner, MidPen Housing, scored the application based on the state’s published criteria and determined that the project either didn’t get full points or any points at all in four main scoring categories.  So much for money from Sacramento.

(APC’s executive director, Doug Biggs, forwarded to us MidPen’s analysis, which showed that the four categories in which the RESHAP project scored poorly were density, access to transit, funding commitments, and “pro‑housing policies.”  The last is especially puzzling for a community with an avowedly pro-housing council like Alameda’s.)

Neither City staff nor the providers of housing for the homeless have given up hope.  The staff report recommends that the City “re-start the developer selection process” by issuing a new RFQ to private, for-profit developers.  (Except for updating the cost estimate, the draft doesn’t differ much from the RFQ issued in August 2018.)  Alternatively, the City could go back to the two finalists, Catellus and Brookfield, whom Council passed over in February 2019 – or even contact the three developers who didn’t make staff’s short list (City Ventures, Fairfield Residential, and Lincoln Properties).  In addition, the report discloses that the City recently received an “unsolicited proposal” from CEI – Jamestown’s former partner – about “doing [a] 500,000 square feet life-sciences project in addition to the residential at West Midway.”

The staff report also suggests that Council consider three steps to “support and facilitate the advancement” of the RESHAP project:  demolishing the Navy Commissary building (at a cost of $1.5 million); funding other site preparation work (at a cost of $1.75 million); and paying for construction documents for the backbone infrastructure work (at a cost of $350,000).  These amounts would come from the General Fund, and the staff report discloses that they “may be inconsistent with” the so-called “fiscal neutrality” rule governing developments at the Point (i.e., no net impact on the General Fund).

For his part, Mr. Biggs noted that another round of IIG program grants will be available in October.  By that time, he told us, “new bus and ferry service will be in place that would increase the transit scores.”  In addition, he said, “I believe the adoption of the Objective Standards recently (even though I didn’t agree with the standards they did adopt) will also result in some increased scoring, so we should fare better.”

We certainly wish Ms. Giles and Mr. Biggs well.  But, at the risk of sounding like Pete Buttigieg or Amy Klobuchar, we wonder whether the RESHAP project is like Medicare-for-all:  it’s a noble goal, but the government is going to have a dickens of a time finding a way to pay for it.

Sources:

Main Street Neighborhood Specific Plan: 2017-03-21 Ex. 1 to staff report – Draft Main Street Neighborhood Specific Plan; 2017-03-21 Ex. 5 to staff report – Wildan Financial Analysis

RESHAP project: 2018-03-26 staff report to PB re RESHAP project; 2018-05-15 staff report re DDA for APC project

West Midway project: 2018-07-10 staff report re RFQ; 2019-02-05 staff report; 2019-07-16 staff report re Jamestown withdrawal; 2019-09-17 APP letter to City re West Midway; 2020-03-03 staff report re RFQ

RFQ’s: 2018-07-10 Ex. 2 to staff report – Draft RFQ; 2020-03-03 Ex. 1 to staff report – Draft 2020 RFQ

About Robert Sullwold

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

6 Responses to Midway crisis

  1. mrsmoppy says:

    Make it into a Redwood forest! This island has no breathing room.

    • mrsmoppy says:

      It would help to get rid of that toxic earth! Alameda is not thought out well, it’s overwhelmed and overcrowded.

  2. To restate the obvious, the huge infrastructure costs being imposed on the private for-profit developer are what is keeping this project from materializing. The state legislature is not doing their job in providing adequate funding.

    The City of Alameda and Alameda Point Collaborative and its partners, after more than 20 years of tireless and creative efforts to repurpose an abandoned military base, should be having money thrown at them from the State for their exemplary work to date. Yet we have here a situation in which a project whose sole purpose is housing those in need and providing supportive services is being denied assistance because of lack of funding.

    If the State of California, its legislature and governor, would put their money where their photo op soundbite mouths are, this project would be under construction by now.

    In early January, the City’s Community Development Director Debbie Potter responded to an inquiry about why, among other things, a pro-housing project like RESHAP was being docked points because the City as a whole did not have a sufficiently robust set of “pro-housing policies.”

    Her answer stated in part: “It is our understanding from HCD [Housing and Community Development] Staff that the State expects the current round of funding to be over-subscribed. Therefore HCD chose to set a point threshold in order to limit the number of applications. HCD believes there are more than enough Infill Infrastructure needs throughout the State in areas that can achieve at least 210 points. HCD does not typically set a minimum point threshold for every round of funding, but chose to do so in this case.”

    “Over-subscribed” is another way of saying underfunded.

    So, good luck to the City in trying again to perform magic to get this project to pencil out for a developer. The real magic will be when and if the State a) provides more funding for projects like West Midway and RESHAP, and b) includes bonus points in their scoring criteria for projects like RESHAP and bonus points for military base reuse. We would be closer to seeing that happen if cities like Alameda with projects like RESHAP would shed their timidity and directly confront the soundbite machine in Sacramento.

  3. carol says:

    Instead of a futile run for POTUS, too bad Tom Steyer didn’t use the money he spent on his campaign to fund this project. Would have been a better legacy for him. Assemblyman Rob Bonta sent me an email saying he is backing Tom Steyer for POTUS. Again, our assemblyman Bonta should be urging Steyer to fund projects like this one. Bonta is such an expert at raising money for his causes and candidates–why not this one?

  4. Paul S Foreman says:

    Folks should read https://embarcaderoinstitute.com/wp-content/uploads/2019/07/Californias-3.5M-Housing-Shortage-Number-Faces-Questions.pdf This document posits the conclusion that there is no general housing shortage in the State, but a very acute affordable housing shortage. Added to this is my recent participation in a tele-conference sponsored by livablecalifornia.org in which a former Mayor of Santa Monica, which has been one of the leading producers of affordable housing, stated that their experience was that building market rate housing actually increases housing prices because it attracts higher income people to the community.

    Add to all of the above to your Midway article and it is as clear as clear can be that the affordable housing gap can only be closed by public funding of affordable housing. Legislators who propose and pass laws that simply pass the buck to local government to utilize the private market rate density bonus funding formula are committing the double sin of shirking their responsibility and placing the blame on local government.

  5. Dave says:

    There is no housing shortage. There is a population surfeit.

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