Encinal Terminals: winners and losers

Now that Council has approved the agreements for the long-stalled Encinal Terminals development along the northern waterfront, it’s time to sort out the winners from the losers.

Generally, we hate the term “win‑win.”  But in this case, we can find – with a couple of exceptions – only winners.

So here they are:

One big winner is the property owner, Roseville‑based Tim Lewis Communities, which finally has gotten a fully entitled project that it can sell to a developer who might actually be willing and able to build it.

What – you thought TLC was going to do the project itself?

We suppose that’s possible – but that’s not the nature of TLC’s business.

The company specializes in cranking out “communities” of luxury single‑family homes, and it has never built a mixed‑use project with multi‑family housing like Encinal Terminals.  Take a look at the TLC website:  if you’re in the market for an opulent single‑family residence in East Sacramento, this is your “last chance” to buy one.  Or if Elk Grove, Galt, or Plymouth are more to your taste, single‑family homes are “now selling” there, too.  (Be forewarned, however:  If you’ve got your heart set on Elk Grove, you’d better act fast, because three of the four “communities” are “sold out.”)

No, it’s far more likely that TLC intends to do with Encinal Terminals what it did with the Del Monte warehouse.

TLC acquired the Del Monte site in a bankruptcy sale in 2013 and got Council to approve a master plan and development agreement for a mixed-use project with 380 housing units in November 2017.  Thereafter, TLC periodically reported that it was on the verge of pulling permits to begin construction.  In fact, it was searching for a multi‑family residential developer to flip the property to.  Ultimately, it found a national development and property management firm called Wood Partners to take over the project – but only if changes were made to the original plans.  TLC obligingly brought those changes to the Planning Board, which approved them in July 2019.

The sale closed in December 2019 (or at least that’s when the County Recorder shows the deed was recorded).

In the meantime, TLC’s efforts to get the entitlements needed to make the Encinal Terminals site enticing to a multi‑family residential developer had hit a snag.

TLC acquired that property at the same time as the Del Monte warehouse.  In February 2016, it submitted a master plan for a mixed‑use project with 589 housing units.  Key to the plan was a so-called “Tidelands exchange,” in which 6.4 acres of land owned by the City in trust for the state and located in the middle of the peninsula would be swapped for 8.5 acres of dry land (and 9.5 acres of submerged land) owned by TLC and located around the periphery.

The Planning Board tinkered with the master plan, and the final set of documents, including a Tidelands exchange agreement, was presented to Council in December 2017.  Unfortunately for TLC, two Council members – Frank Matarrese and Trish Spencer – voiced objections to various aspects of the plan, and, since four votes were required to approve the exchange agreement, the deal cratered.

But TLC was persistent.  It went back and redesigned the project so that all 589 housing units could be built around the existing Tidelands parcel.  As a result, no exchange agreement was required, and, though it took two meetings, Council approved the new master plan in September 2018.

The revised plan was good enough to attract a Council majority, but it apparently got a lukewarm reception from potential site buyers.  (“Efforts to implement the 2018 approved plan have stalled because the current configuration has proved to be unfeasible” is how TLC described the situation in a letter to Council.)  So TLC returned to the original concept – a project that included, and depended on, a Tidelands exchange.  Like the initial plan, this, too, would require a supermajority vote.

The documents embodying the latest plan were ready for presentation to Council earlier this month.  Two events favorable to TLC had occurred since September 2018.  Mr. Matarrese was no longer on Council, having been replaced by John Knox White.  And the regional planning authorities had handed the City a 5,353‑unit RHNA quota, which sent City Planner Andrew Thomas scrambling to find (and preserve) as many “opportunity sites” around town as he could.

When the item came to a vote last Tuesday, it got the four yeas needed for approval, with only Councilman Tony Daysog dissenting.  (To the surprise of some, Ms. Spencer delivered the crucial fourth vote.  We’ll discuss her role later.)  TLC’s representative, Mike O’Hara, smiled only slightly when the result was announced, but we’ll bet that, inwardly, he was chortling like Santa Claus.

The next big winners are the construction trade unions.

For every major construction project, the unions try to get a Project Labor Agreement (which they now euphemistically refer to as a “labor peace agreement”) under which the contractors working on a project must agree not only to pay union wages but also to hire workers exclusively through union hiring halls, adhere to union work rules, and contribute to union fringe benefit funds.  Typically, PLAs add around 5‑to‑15 percent to construction costs – this is the approximation used by former City Manager John Russo, and academic research bears him out – because non‑union contractors are reluctant to bid on the job, and the contractor who gets it will charge more in order to cover its union‑related expenses.

Neither the December 2017 master plan and development agreement nor the September 2018 master plan for Encinal Terminals required a PLA.  The absence of such a requirement prompted representatives of the carpenters’ and other construction trade unions to appear at Council to oppose the September 2018 deal.  It also led organized labor’s two best friends on that Council, Malia Vella and Jim Oddie, to propose inserting a PLA requirement into the master plan.  Council had no authority, however, to force TLC to consent to such a costly change – the project would be built entirely on privately owned land – and no PLA mandate made it into the documents ultimately approved by Council.

The unions, and Ms. Vella – Mr. Oddie had lost his bid for re-election – weren’t about to let this happen again.  The development agreement negotiated by staff with TLC at Council’s direction thus contained a provision stating that, “Developer shall execute an agreement to provide for labor peace, which will apply to all or a portion of the property. . . .  No construction work may commence until such a labor peace agreement has been executed or an exemption has been granted by the City.”  The disposition and development agreement likewise made execution of a PLA a condition precedent to the City’s obligation to consummate the transaction.

The staff report presented last Tuesday suggested that the PLA requirement had been made part of the documents in order to comply with a prior Council resolution.  It’s true that, in February 2021, Council passed a resolution requiring a PLA on certain construction projects with which the City was involved.  But it’s by no means clear that Encinal Terminals fit the definition of a covered project.  The resolution applied to, among others, a project for which land is being “sold or conveyed” by the City, but the state Public Lands Commission, not the City, is the party exchanging the Tidelands parcel with TLC.  (When we asked City Attorney Yibin Shen about this issue, he declined to comment.)

In any event, legal niceties aside, Ms. Vella and the unions made it clear that they wouldn’t allow the Encinal Terminals project to move forward without a PLA.  Indeed, the hearing on the agenda item was delayed for two weeks after the unions insisted that the PLA be signed before the Council vote (even though neither the DDA nor the development agreement imposed such a timing constraint).  We don’t know what happened, but apparently it was enough to placate the unions, who didn’t show up to oppose the project, and Ms. Vella, who voted for it.

By now, our readers may be wondering:  What about the City of Alameda?  Didn’t it come out a winner, too?

In the short run, the answer is clearly yes:  With the Encinal Terminals deal approved, Mr. Thomas gets his 589 units to count against the RHNA, and the City thus will avoid what he and others have portrayed as a potentially drastic blow to its ability to meet the quota.

Indeed, the argument for approval at times seemed to revolve more around the dire harm that would ensue if the deal was not authorized than the copious benefits that would follow if got the green light.

In his staff report, Mr. Thomas was fairly matter‑of‑fact about the effect of turning down the plan. “Failure to approve the recommended ordinances and approvals will prevent the City from including the Encinal Terminal site on the site inventory for the Housing Element update,” he wrote.  “To compensate for the loss of the 589 units at Encinal Terminals, the burden on other sites and in other existing residential and mixed‑use neighborhoods to accommodate the RHNA will be increased by 589 units.”

But when he got to Council, the City Planner ramped up the rhetoric – and brought out the bogeyman.  The current draft of the Housing Element called for re‑zoning residential neighborhoods to produce 450 new housing units.  “We’ve been trying to keep that number as low as possible,” Mr. Thomas said.  But if the Encinal Terminals project wasn’t approved, he warned, “we’re going to have to move 589 [units from Encinal Terminals] to the residential districts.  So that’s more than doubling the amount of units that we will have to accommodate in residential districts.  And they will have to be distributed throughout the residential districts through that up-zoning.”

Prior to the meeting, two of the citizens’ organizations that often view new development projects skeptically had gotten the message.  The Alameda Architectural Preservation Society submitted a letter urging Council to approve the Encinal Terminals deal because failure to do so would “put further pressure on up‑zoning existing residential neighborhoods and historic portions of commercial districts, which could promote architecturally intrusive new development in historic areas.”  Likewise, the Alameda Citizens Task Force sent a letter stating that, since the 5,353‑unit RHNA quota “requires that we make every reasonable effort” to include Encinal Terminals in the Housing Element, it was “not opposing” the project.  And no one from either organization Zoom-ed into the Council meeting to register dissent.

Now, we hardly can fault Mr. Thomas for emphasizing an argument that even his customary critics found compelling.  Nor do we doubt his premise:  It would indeed be a nightmare to find somewhere else to put the 589 units he was counting on from Encinal Terminals.

Yet we confess to feeling just a little bit uncomfortable about a decision made under what seems like duress.  So at the risk of sounding churlish, we’ll throw out this question:  Take the RHNA quota out of the picture.  Is the Encinal Terminals project still a winner for the City?

Mr. Thomas clearly thinks so.  When we posed the question to him, he stressed two benefits in particular:  the 80 units of affordable housing and 10 units of “workforce” housing the project includes, and the waterfront amenities – like a promenade with “amazing” views, a slew of public parks, and docking and launch facilities for boats and kayaks – to be built by the developer, and, according to Mr. Thomas, maintained “in perpetuity, at no cost to the City.”  (He gilded the lily for us by noting that the plan called for extending the Bay Trail for bicyclists and pedestrians around the perimeter within 36 months.)

Based on comments submitted before the Council meeting, however, not everyone thought the plan was an unalloyed blessing.  Long‑time housing advocate William Smith noted that the ratio of market-rate units to affordable units in the project was six‑to‑one.  But the “target” set by the draft Housing Element, he said, was one‑to‑one.  “To reach the affordable housing target,” he argued, the Encinal Terminals project “would have to be offset by the construction at other sites in the City of 366 affordable homes in addition to the 80 proposed for the Encinal Terminals site.”  No one on Council bothered to respond to Mr. Smith’s analysis.

Similarly, the Sierra Club pointed out that, compared to the December 2017 plan approved by Council, the current master plan reduced the size of the concrete wharf that would need to be retrofitted and therefore saved the developer money.  At the same time, the Club contended, “the developer is providing nothing more than the waterfront access community benefits that are mandated by law, regardless of whether those benefits are on state Tidelands.”  This resulted in a “net benefit” to the developer – which it should repay by contributing funds to the City’s Tidelands Fund “to be earmarked for Tidelands restoration elsewhere in Alameda.”  And the Club had a specific amount and specific location in mind: $2 million to the DePave Park located at Alameda Point.

Council paid no more attention to the Sierra Club than it did to Mr. Smith – which, we guess, makes the two of them the principal losers in this story.

We should note that Paul Foreman of A.C.T. also submitted a typically thoughtful comment letter focused on environmental issues.  The plan calls for raising the level of the land enough to protect against only three feet of sea level rise, far less than the NOAA projects will occur by the end of the century.  In addition, the plan contemplates that an assessment district funded by future homeowners will bear the cost of maintaining the public parks and, when necessary, providing additional sea‑level‑rise protection, but it was frustratingly vague about how this mechanism would work.  When we talked to Mr. Thomas about these objections, he pooh-poohed them – and no Council member appeared troubled by them, either.

Council may have given short shrift to Mr. Smith, the Sierra Club, and Mr. Foreman, but they deserve to be taken seriously, since they back up their views with reason rather than rhetoric (which is more than we can say for many of the usual coterie of commenters).  Nevertheless, on balance we end up agreeing with Mayor Marilyn Ezzy Ashcraft.  If the choice is between leaving 23 acres of prime waterfront real estate vacant and “blighted” or moving forward with a project that, however flawed, bestows some benefits on the community, we’re inclined to pick the latter.

And so now we come to our last winner.  Her identity may surprise you:  it’s Councilwoman Spencer.

It’s fashionable among the cognoscenti (and – if we’re not being redundant – the acolytes of Mr. Knox White) to characterize Ms. Spencer as Alameda’s version of Mitch McConnell:  She’ll filibuster every proposal made by Those Who Know Best and then vote against it anyway.  But the Encinal Terminals saga shows that, when Ms. Spencer finds herself with political leverage, she knows how to use it to accomplish an objective she considers to be in the best interests of her constituents.

As we stated earlier, the key to the Encinal Terminals deal was the Tidelands exchange agreement, and four votes were required to approve it.  Mayor Ashcraft and Council members Knox White and Vella were sure yes votes.  From every indication Councilman Daysog was a no.  Ms. Spencer easily could have joined him in killing the deal.  Instead, she chose to try to get the developer to make changes that she believed would improve the project – and allow her to cast the fourth vote needed to approve it.

Throughout her political career, Ms. Spencer has advocated for enhancing opportunities for lower‑ and middle‑income Alamedans to buy, rather than rent, their homes.  Finding herself holding the decisive vote on Encinal Terminals, she sought to get TLC to increase the percentage of units in the project that would be offered for sale instead of for rent.

And she succeeded.  TLC agreed to amend the master plan so that all 200 townhomes, and 50 percent of the “non‑townhomes” – i.e., apartments – would be “mapped through the subdivision process to allow for home ownership.”  Whether this agreement actually will enable more lower‑ or middle‑income households to buy homes at Encinal Terminals depends, of course, on how TLC (or a successor developer) prices them.  Nevertheless, by Councilman Daysog’s math, the amendment will increase the number of for‑sale units in the project from 294 to 390.

Mr. Knox White quickly agreed to accommodate Ms. Spencer by amending his motion to approve the transaction, and, although there were other changes she wanted to make to the deal terms, this was sufficient to get her to vote yes.

We’ve never agreed with those who regard Ms. Spencer as a mini‑McConnell, but neither have we ever seen her as a local Lyndon Johnson.  But whenever a Council member uses whatever clout she has been given by the circumstances to achieve one of her public‑policy goals, she’s a winner in our book.

Sources:

December 2017 master plan: 2017-12-19 Ex. 2 to staff report – Master Plan

September 2018 master plan: 2018-09-04 Ex. 1 to staff report – Master Plan

January 2022 master plan: 2022-01-04 Ex. 2 to staff report – Tidelands Exchange Master Plan

Staff report & presentation: 2022-01-04 staff report re DDA & DA; 2022-01-18 Staff presentation

Correspondence:2022-01-18 Correspondence – Updated 118

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
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11 Responses to Encinal Terminals: winners and losers

  1. Allan Mann says:

    I’m not convinced that increasing the number of units for sale vs. rent without an agreement about setting aside those units as “affordable” is going to create more housing for the low- and middle-income retail and service workers who have to commute to the Island every workday.

    • Yes In My Backyard says:

      Increasing supply at any price point provides some liquidity in an otherwise tight housing market. Meaning, when higher-income buyers have more options to buy “luxury townhouses” etc, it lessens the competition for older and/or smaller units that are more affordable to low- and middle-income workers. Another scenario – established homeowners can move up into newer homes, selling their previous homes to first-time buyers.

      The housing market isn’t expensive because the new homes are expensive. The housing market is expensive because there’s almost no available supply. Adding only below-market units would be the best outcome – adding marketing rate units is still a good outcome – adding no housing at all is the worst possible outcome.

      • Allan Mann says:

        The same logic would apply to increasing the availability of rental units where limited supply is causing rents to skyrocket. In this scenario, however, those rentals are not available to families who can’t cobble together a down payment and thus perpetuates housing inequity.

      • John Swift says:

        I completely agree: trickle-down economics always works! The benefits of so much market rate housing will eventually trickle-down to those of lesser means! Just look at all those market rate homes built in downtown Oakland because of Jerry Brown — clearly the benefits of these have trickled-down to those of lesser means! No one is being priced out of the housing there because of all these new market rate homes!

      • Yes In My Backyard says:

        John Swift: You’re using “tricky-down” strawman to claim that Supply & Demand does not exist. This is basic Econ 101 that is taught to every economist student in the world, but somehow ceases to exist once you become a 50-year old Republican homeowner.

        Cuba is chock full of old junker cars that cost $50,000 to buy. The American trade restrictions against Cuba made it difficult to import new cars, causing car prices to go way up. So each new car that does make it onto the island costs 2x more than they would elsewhere.

        Now, substitute Alameda for Cuba. Old homes for old cars, trade embargos for Article 26. You’re the anti-capitalist arguing that because a few new cars (a few new homes) still fetch astronomically high costs, we shouldn’t do anything at all to address the supply vs demand issue, when the answer is so painfully obvious to everyone else.

      • frank says:

        My gut feeling agrees that adding no housing at all probably is the worst possible outcome.

        However, supply-demand theory explains how free markets work. Applying it to a market that, as you point out, is not a free market, supply-demand theory breaks down and can be maddeningly counterintuitive. In this case, more market rate homes might increase the value of the existing homes in the surrounding neighborhood, and even our broader city as part of the Bay Area market, the opposite of intuitive free market supply-demand theory. Our intuition stubbornly wants to believe supply-demand applies in constrained markets, but it often doesn’t.

        Even at the state level, interstate migration trends are consistent with this counterintuitive explanation. The so-called drain from California that states like Arizona and Texas brag about skews to lower educated and lower income people fleeing California to these states while we have a strong net inflow of higher educated and higher income interstate migrants from states like NY, Illinois and NJ.

      • Yes In My Backyard says:

        frank: Congratulations, you just explained why anti-free market constraints like Article 26 and Prop 13 need to go. Fix the constrained market.

    • Really says:

      Agree Alan. Can’t go along with the fiction that building any of the current projects in Alameda will relieve the housing crisis for low income or homeless populations. But what it does do is supply income for developers and work for Union members who contribute large amounts of cash to local politicians to get these projects built. See how that works?

      • Reality says:

        The housing crisis is affecting a lot of people, not just low income or homeless populations. There’s a big spectrum, and people from low income to upper-middle income are getting priced out entirely.

        The average household income in Alameda these days is $110,000. Do you agree that the average middle-class family making $110,000 should be able to afford a house in Alameda? Except that none of them would be able to qualify for anything on the market. Maybe a 1-bedroom condo. Best they can qualify for is $700K.

        95% of homeowners in Alameda today would not be able to afford the homes they currently live in at today’s prices.

        If you want to conjure up a conspiracy of financial kickbacks between developers, unions, and politicians, you go ahead and do that, but the rest of us can see this as libelous smoke and mirror to justify inaction.

  2. Denise Lai says:

    what will city council do about the infernal racket from Brooklyn Basin? All afternoon evening, when they have a live band, the noise makes walking at Wind River unpleasant…the outdoor space in the new development will have the same intense and day-long noise pollution…and I cannot imagine wanting to live there with that noise all weekend long.

  3. frank says:

    I must have attended that December 2017 TLC council meeting. Having lived here for several decades, it was the first time I had taken any interest in Alameda city government. It made an impression…

    My first takeaway was how poorly TLC presented. They didn’t clarify questions before answering or answer them well, and generally had poor communication skills. They felt like armatures. I wondered whether they really wanted approval. Maybe this is because of the “we will find the real developer later” issue.

    The second takeaway was regarding then mayor Trish. Her demeanor felt passive-aggressive. Her thought process was difficult to understand. My guess was she wanted to block approval but could only raise spurious questions. She focused a lot on whether the access road was wide enough to handle fire trucks. She wasn’t taking “yes” for an answer. In contrast, Matarrese impressed me, coming across as smart and coherent.

    A couple takeaways from this meeting…

    The discussion around negotiations with the Navy was fascinating. Clearly it had been approved in a closed session. It felt like Trish was asking for something that was unnecessary but would cause no harm. It felt like the three who voted her down did it for no reason other than to slap her down. Am I missing something, like some regulation that this sort of negotiation must not be public?

    Has Daysog reduced his role on this council to being a Trish acolyte? Has his council participation exhibited any actual work to be well prepared? The only example of preparation I can remember was when he introduced data that came come from somebody’s blog, perhaps this one, and then did a poor job dealing with responses from other council members. He liked the blogger’s data even though he apparently didn’t understand it.

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