Busted

For years, the Merry-Go-Round has been speculating about whether the City of Alameda would try to convince the federal government to “bust the cap” that restricted residential development at Alameda Point to 1,425 new housing units.

Well, it turns out that, unbeknownst until now to the public, that is exactly what the City, under the guise of “clarifying” its no-cost conveyance agreement with the Navy, has managed to do.  The upshot is that the total number of housing units that can, and will, be built at the Point is going to go up significantly.

Once the General Plan is amended, the “clarified” (“re-interpreted” would be a more accurate description) cap will be 1,506 market-rate units rather than 1,425 total units.  There will be no cap on the number of affordable units.  Depending on the assumptions one makes about the extent of affordable development, the total number of units likely to be built at the Point now may range from 1,883 to 2,221 units (or possibly even higher).

This result will make at least two parties happy:  Andrew Thomas, the City’s Planning, Building and Transportation Director, who is seeking – desperately – to find additional housing units to satisfy the RHNA quota issued to the City by the Association of Bay Area Governments, and Alameda Point Partners, which is asking for yet another amendment to its Disposition and Development Agreement with the City that it says is necessary to salvage the Site A project.

And who will it make unhappy?  Did we hear someone whisper, “traffic congestion”?  But if the whisperers are the same folks who object to the other locations being considered to meet the RHNA quota, they might think twice about opposing a way to get more units out of Alameda Point.

Here’s the story as we have been able to piece it together from staff reports and communications with staff:

The transfer of the former Alameda Naval Air Station from the Navy to the City was a convoluted process.  Originally, the Navy agreed to convey the property to the City at no cost.  Later, citing “concerns” about the mix between residential and commercial development being planned for the site, the Navy decided it wanted to be paid for the land, and the parties negotiated a $108.5 million price.  But no term sheet was ever executed.  In the meantime, a series of master developers came and went.

Then, in June 2011, the City approached the Navy about getting a no‑cost conveyance for a portion of the property to be used as a campus for the Lawrence Berkeley National Lab.  The Navy responded by proposing a no‑cost conveyance agreement for the entire site.  And that’s what the parties ended up signing.

But the Navy remained concerned about the residential/commercial mix.  Accordingly, it insisted on including a provision imposing a cap on the total number of housing units and providing a penalty for exceeding it.

As then City Manager John Russo explained in the staff report seeking Council approval, the no-cost conveyance agreement “would allow 1,425 units of housing at Alameda Point.”  For every market-rate unit built above the cap, a penalty of $50,000 (to be adjusted for inflation) would be imposed.

Thereafter, at staff’s recommendation, Council amended the General Plan to conform to the no-cost conveyance agreement.  “The Navy’s documents,” the staff report stated, “anticipate 1,425 housing units at Alameda Point.”  Accordingly, the amendment specified that the “maximum build-out for Alameda Point” was 1,425 units.

All along, the City has treated the cap as applying to the total number of units, including both market-rate and affordable, rather than just the number of market-rate units.  The staff reports and presentations invariably refer to a cap of 1,425 total residential units.  And whenever Jennifer Ott, the City staffer then in charge of development at Alameda Point, provided status updates or presented new plans, she made clear that residential development was subject to a 1,425-unit cap.  (She did the same in her emails with us.)

As development planning proceeded, the cap quickly got gobbled up.  Site A was approved for 800 units (600 market-rate and 200 affordable).  The “RESHAP” project intended to replace the former Navy housing leased to the Alameda Point Collaborative (and others) was slated for 267 affordable units, and the associated “West Midway” project added another 291 units (260 market-rate and 31 affordable).  As a result, only 67 units remained on the 1,425-unit cap.

This created two problems.

One was for the City and Mr. Thomas.  The state Housing Element law requires cities, every eight years, to identify sites available for residential development during the next planning cycle and to calculate the “realistic capacity” for new housing units at each site.

The 2015-23 Housing Element prepared by Mr. Thomas did not include any units at Alameda Point.  (The purported reason – which we’ve never totally bought – is that, at the time the City submitted its Housing Element, it didn’t own the land at Alameda Point nor had it approved any development plans for the site.)  But Mr. Thomas intended to make full use of the Point during the 2023-30 cycle.  And that’s where the cap comes into play.

Of the 1,425 units allowed by the cap, Mr. Thomas expects that 454 units at Site A will have been built or received building permits by the end of 2022.  As a result, none of these units will be eligible for inclusion in the 2023‑30 Housing Element – but they do count against the cap.  The result is that the maximum “contribution” Alameda Point could make in the next planning cycle is 971 units (1,425 minus 454).

Not long ago this may have seemed like a significant amount.  In mid-2020, Mr. Thomas forecast that the City’s “RHNA number” – i.e., the quota imposed by ABAG for new housing units on the island – for the 2023-30 cycle would be double the number (1,723) for the 2015-22 cycle.  In that event, the 971 new units at Alameda Point would give the City a good head start toward meeting the quota.

But when ABAG released its first set of RHNA numbers, the quota assigned to Alameda (4,896 units) was far higher than Mr. Thomas thought it would be.  And the situation has gotten worse.  In the latest ABAG draft, the City is down for 5,406 new units.

The 971 new units at Alameda Point no longer looked so meaningful – but unless the cap was changed, no more would be permitted.

The 1,425-unit cap also is causing problems for APP.

The Site A development apparently is in financial trouble again.  Having completed the backbone infrastructure for the first phase and begun vertical construction, APP now has informed the City that finishing the project in accordance with the existing development plan “is not feasible.”

If that sounds familiar, it’s because this isn’t the first time we’ve heard it from APP.  As approved by Council in June 2015, the Site A project was to be constructed in three phases, with 654 of the 800 new housing units to be built in the first phase and 146 in the second.  But in April 2017, APP told the City that “dramatically increasing construction costs” had prevented APP from “achieving the margins necessary” to enable it to implement the original development plan.  It sought an amendment to move the 146 housing units planned for Phase 2 to Phase 1 (and to shift their location.)  This meant that all of the residential development would occur in the first phase.  Commercial development would be left for Phase 2.

Council approved the amendment, ground was broken in May 2018, and vertical construction began.  One of the two affordable-housing buildings was completed this July, and building permits have been issued (or are expected to be issued by the end of 2022) for the other affordable-housing building as well as for a 200-unit market-rate residential complex and 124 market-rate townhomes.  What is left is all of the rest of the market-rate housing – 276 units – and 70 of the affordable units.

Now APP wants to amend the DDA again.  Under its proposal, block 10 would be converted from commercial and open space to residential, with 496 new market-rate units, and block 15 would be changed from a combination of market-rate and affordable housing into an all-affordable project, with 217 new affordable units.  Together, these changes would increase residential development at Site A by a net 587 units.

But that can’t happen with the 1,425-unit cap still in place:  as discussed above, only 67 units are left under the cap.  Unless the cap is changed and APP is allowed to build the additional market-rate units it seeks, APP says, the Site A project will crater.  And that fate will cause collateral damage as well:  the infrastructure for the Main Street Neighborhood projects is supposed to tie into the infrastructure for Site A.  If Site A isn’t completed, there may be no RESHAP or West Midway projects, either.

We don’t know if these nightmare scenarios are what led City staff to contact the Navy about the cap last May.  But that is what it did – in a very clever way:  Staff didn’t ask the Navy to remove or increase the cap; it merely asked the Navy to agree with staff’s interpretation – really, a re-interpretation – of the provision establishing the cap.  It just so happened that the re-interpretation would have the effect of increasing the total number of units that could be built without penalty at Alameda Point.

Stating that “we are asked regularly by State and local officials and developers as to how many units of housing can be built at Alameda Point,” then Community Development Director Debbie Potter informed the Navy that “[o]ur reading of the operative language” of the no-cost conveyance agreement was that “we need to include only Market Rate Units in the Housing Count, and pay the Navy only for the number of Market Rate Units that exceed that Cap.”  Three months later, after a series of phone calls, the Navy wrote to “confirm” that “the Enforcement Mechanism” described in the no-cost conveyance agreement “applies only to market rate units constructed in excess of the Residential Base-Line amount of 2,011 units.”

Now, someone unskilled in bureaucratese may not know exactly what this exchange means.  But the City has construed it – not unreasonably – to reflect the Navy’s concurrence that the cap applies only to the number of market-rate units and that the number of affordable units is unrestricted.

In addition, Ms. Potter informed the Navy in her letter that the City had recalculated the number of units covered by the cap, and the correct number was 1,506 rather than 1,425.  The Navy did not object, so as far as the City is concerned, the housing cap at Alameda Point is 1,506 market-rate units, not the 1,425 total units that Mr. Russo, Ms. Ott, and others said it was for so many years.

This re-interpretation must be codified by amending the General Plan.  But once that happens, if Council also approves the amendment to the DDA proposed by APP, the challenge facing the City and Mr. Thomas in meeting the RHNA number will get easier.

Of the 454 units at Site A that Mr. Thomas expects will have been built or received building permits by the end of 2022, 324 are market-rate and 130 are affordable.  Under the re-interpreted cap, another 1,182 market-rate units (1,506 minus 324) will be permitted at the Point – and the number of new affordable units will be unlimited.

If the DDA amendment is approved, the re-interpreted cap will enable Mr. Thomas to count far more units at Alameda Point toward the 2023-30 RNHA quota than the total-unit cap does:

  • The existing development plan for Site A includes 220 market-rate units on block 11 for which building permits have not yet been issued.  If the DDA amendment is approved, APP intends to build 496 market-rate units on block 10.  In addition, the West Midway project contains 260 market-rate units.  Thomas thus will be able to count 976 new market-rate units from Alameda Point toward the 2023-30 RHNA quota and still stay within the re-interpreted cap.
  • Likewise, 298 affordable units already have been approved or planned for the RESHAP and West Midway projects.  If the DDA amendment is approved, APP intends to build 217 (rather than 70) affordable units on block 15.  Thomas thus will be able to count a total of 515 affordable units toward the 2023-30 RHNA.
  • Adding it up:  if the General Plan is amended to change the cap and the DDA amendment is approved, Alameda Point can contribute at least 1,491 units (976 market-rate and 515 affordable) toward meeting the City’s 2023-30 RHNA quota.

And bear in mind:  under the re-interpreted cap, in addition to these housing units in projects that already have been approved or proposed, the City still will have the ability to add a couple hundred more market-rate units and an unlimited number of affordable units to the Point’s “realistic capacity.”

Of course, APP will benefit as well from the changes to the cap and the DDA as well.

We haven’t seen any fiscal analysis demonstrating that, without a net increase of 587 new residential units, the Site A development will collapse, the loans furnished by APP’s lenders will go into default, and the equity put into the site by APP’s investors will be lost.  Nor do we know how much profit APP is projecting for its investors if it is allowed to build those additional units.  But City staff apparently has reviewed the numbers, since the staff report for Tuesday’s Council meeting states that, “using an independent financial consultant,” staff “confirmed” the bleak picture painted by APP.

At Tuesday’s meeting, staff (presumably, Mr. Thomas) is scheduled to brief Council on ideas for meeting the 2023-30 RHNA quota.  We expect the discussion will focus on
re-zoning.  But we hope he’ll spend a little time on re‑interpretation as well.  After all, why shouldn’t staff take credit for boosting the Alameda Point numbers simply by getting the Navy to sign off on a less restrictive reading of the original contract?

Sources:

No-cost conveyance agreement: 2012-01-04 staff memo re no-cost conveyance

General Plan amendment: 2014-02-04 Resolution – Alameda Point GPA

2020 City-Navy correspondence: Alameda Housing Cap Clarification Letter & Attachment_signed; BPMOW-20-245

Proposed General Plan & DDA amendments: 2021-02-02 staff report; 2021-02-02 Ex. 1 to staff report – Information Sheet

About Robert Sullwold

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

12 Responses to Busted

  1. MJ Pritchett says:

    Nicely done, as usual.

    Why did the Navy care how many residential units were built when it transferred the land? Was it that they wanted to get a higher price for the land if it was to be used for (profitable) housing? Did the transfer legislation require the Navy to try to maximize its return or get a fair return when it sold the property? Or was there some other reason for the cap?

    Is the $50,000 per market rate unit above the cap a “penalty” to try to discourage more units? Or a mechanism to give a portion of the value of the unit to the Navy? $50,000 for a lot to build a unit doesn’t sound like a penalty (or something that would effectively prohibit development, even for low income units. It actually seems like kind of a low price.

    What was the purpose of amending the general plan when the land was acquired from the Navy? I assume the Navy didn’t require that, but rather Alamedans who didn’t want to see too much growth/traffic etc. on the former Navy land.

    It is a definitely windfall to the City to get more units without paying the $50,000 per unit to the Navy. Perhaps some of that value could find its way into the City’s pocket. Or be used to help subsidize the existing planned developments to the tune of $50,000 per unit.

    As to meeting its regional share of housing needs can’t the City simply do that by amending it’s General Plan to allow more units either on the former Navy land (at a price of $50,000 per unit/lot payable to the Navy by whoever buys the lots for development) or elsewhere in the City?

    • Thanks, Melrose.
      Good questions all – and ones I am reluctant to answer off the top of my head.
      I will say that, as I understand it, the purpose of a no-cost conveyance (technically, an “Economic Development Conveyance” under the Defense Base Closure and Realignment Act of 1990) was to allow the affected community to replace jobs lost as a result of a base closure. This purpose would be thwarted if the community got the land for free – and then used it solely (or primarily) for residential development. Hence the cap.

  2. Trish Herrera Spencer says:

    I believe the agreed upon cap on housing was to address the loss of jobs to the City of Alameda from the Base closing. We used to hear about jobs-housing imbalance and cost to the City.
    P. I-4 “The ARRA’s (Alameda Reuse and Redevelopment Authority) reuse planning efforts are occurring in a federal policy environment guided by President Clinton’s Five Point Plan for achieving successful conversion and reuse of closing military bases. The President’s plan includes: 1) Job centered property disposal that puts local economic development first;…”
    https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.alamedaca.gov/files/assets/public/departments/alameda/base-reuse/final-planning-documents/ap_planning_guide_final_9.12.13_red_0.pdf&ved=2ahUKEwiy4L7WlMjuAhXpJzQIHQqbBf4QFjACegQIIxAB&usg=AOvVaw1tWESxLq38Akilz9nvYQep
    “The retention and attraction of jobs and tax revenue will be crucial to Alameda creating and sustaining a strong local economy. Initially, compromises will need to be made to retain and attract businesses to Alameda Point in terms of financial, transportation, land use, urban design and parking priorities and expectations. As Alameda Point becomes a coveted site for business development, these priorities may change and evolve.”
    https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.alamedaca.gov/files/assets/public/departments/alameda/base-reuse/final-planning-documents/ap_planning_guide_final_9.12.13_red_0.pdf&ved=2ahUKEwiy4L7WlMjuAhXpJzQIHQqbBf4QFjACegQIIxAB&usg=AOvVaw1tWESxLq38Akilz9nvYQep
    “I’m grateful to everyone who made this day a reality,” said Mayor Marie Gilmore. “When the base closed in 1997, we lost 14,000 jobs. We hope to create an extraordinary new community, not just for the city, but for the region and the state. We expect 9,000 permanent jobs and countless construction jobs and to generate millions of dollars in state and local tax revenues.” https://www.google.com/amp/s/www.mercurynews.com/2013/06/26/alameda-takes-ownership-of-former-naval-air-station-property/amp/

  3. dave says:

    And who will it make unhappy? Did we hear someone whisper, “traffic congestion”?

    ========================

    Please stop with the fear-mongering. There will be no traffic congestion. We all know that fully developing the base is only going to add one more care to the commute. And if we develop even further, we’ll be adding negative cars.

  4. David says:

    The folly with this is the same folly that is always the folly – the notion that all those new residents at Alameda Point will either a) work at Alameda Point, b) take the ferry to work in San Francisco or c) ride bicycles through the tube.

    All of these are highly dubious claims which can be dispelled with simple mathematics, like employed resident counts applied against morning ferry capacity.

    But the for-profit developers – who also manage to increase the number of market-rate homes and compress the number of affordable homes and their local paid boosters keep touting the myths to get what they want.

  5. Really says:

    We lost 14,000 jobs when the base closed?! Don’t forget the devastation to the AUSD budget and enrollment from which they never recovered.

    Reminds me of the Biden/Harris job plan for unemployed coal miners-

    Kerry-they can make solar panels!

    Harris-they can remove land mines!

    • Reality says:

      Well, that’s a pretty bad analogy. Clean energy jobs boomed with nearly 4 million new positions, compared to only 200,000 currently working in the coal or fossil fuel industry. Plus, the nice benefits of having cleaner air and people generally living longer with fewer medical bills.

      Try being less facetious next time, so you won’t undercut the main point of your comment.

  6. Remix of the Meghan Trainor hit

    All About That Base
    ~ featuring Busta Cap

    Because you know we’re all about that base
    ‘Bout that base, no trouble
    We’re all ’bout that base, ’bout that base, no trouble
    We’re all ’bout that base, ’bout that base (base, base, base, base)

    Yeah it’s pretty clear, we ain’t no mega-city
    But we can shake it, fake it like we’re supposed to do
    ‘Cause we got that room room that all the boys chase
    All the right junk in all the right places
    We see them plans workin’ that photoshop
    We know that shit ain’t real
    Come on now, make it stop
    If you got buildings, buildings just raise ’em up
    ‘Cause every inch of you is perfect
    From the bottom to the top
    Yeah, my momma she told us don’t worry about your size
    She says, Sacto boys like a little more square-footy to hold at night
    And no we won’t be no NIMBY-figure, Barbie doll

    So, if that’s what’s you’re into
    Then go ahead and move along

    Because you know we’re all about that base
    ‘Bout that base, no trouble
    We’re all ’bout that base, ’bout that base, no trouble
    We’re all ’bout that base, ’bout that base, hey

    We are bringing square-footy back
    Go ahead and tell them skinny bitches that
    No, we’re just playing I know y’all think you’re fat
    But we’re here to tell you
    Every inch of you is perfect from the bottom to the top
    Yeah, my momma she told us don’t worry about your size
    She says, Sacto boys like a little more square-footy to hold at night
    You know we won’t be no NIMBY-figure, Barbie doll

    So, if that’s what’s you’re into
    Then go ahead and move along

  7. Fernside Neighbor says:

    Every day … more violent crime, more traffic, more leadership incompetence … getting my ducks in a row for our move. Two of my neighbors have moved out of Alameda and two friends across town are talking to realtors. It will be sad, it’s a sweet city and we had a good run but it’s just not what we signed up for anymore 😦

    • Anon so I don't shock the neighbors. who are probably thinking of leaving themselves says:

      We are thinking same, for same reasons. Gun crime has exploded while the city does nothing to address it except defund the police.

      Crossing fingers for two more years until youngest kid has graduated

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s