The developer behind the tallest apartment building approved in downtown Berkeley has asked the city for one more year to meet the deadline to apply for permits needed before construction work can begin.
In a letter dated June 25, an attorney for Berkeley Plaza, at 2211 Harold Way, told the city progress has been made — but more time is needed to meet the conditions the Berkeley City Council set when it approved the project at the end of 2015.
The 18-story, 302-unit mixed-use complex on Shattuck Avenue at Kittredge Street would be one of seven tall buildings approved by voters under the Downtown Area Plan in 2010. In response to community interests, developer Joseph Penner of Hill Street Realty in Santa Monica agreed to replace Shattuck Cinemas with a new movie theater and use union labor for construction work. That didn’t stop critics from filing lawsuits to stop the project, but they ultimately lost the court battle in late 2016.
But there hasn’t been much visible progress since. Last year, Penner put Berkeley Plaza on the market and said he wanted to determine exactly how much the project was worth, given its unique position in the city. According to development team letters obtained this week by Berkeleyside, efforts have, in fact, been underway to move the project forward, but they are not expected to be complete within the city’s timeline.
The city generally allows two years between use permit approval and the issuance of a building permit before it decides whether to declare a project “lapsed” — which can render a use permit void. Berkeley Plaza has already sought and received two extensions — first, from June 2016 until June 2018, then more recently through January 2019. It is now seeking a third extension through January 2020.
According to the June 25 letter, “unanticipated hurdles” related to project financing have been the main driver of the delay. The financing has been challenging because of the “extraordinary community benefits” the developer agreed to provide as part of the project approval process, which the city valued at $17 million, on top of $13 million in fees and other payments to the city required under the city’s Downtown Area Plan.
The letter said several factors — the lengthy “meritless … lawsuit,” higher estimated costs for community benefits and construction, and rent stabilization (which has not kept up with construction price increases) — all created a difficult financial picture for a project deemed “only marginally profitable” once it made its way through a city approvals process that stretched over three years and 36 public meetings, according to the project team.
Despite the challenges, according to the letter, Hill Street Realty “very recently identified a potential capital partner” — and expects to be able to move ahead with the project. That “likely capital partner,” as yet unnamed, was in part interested, according to the letter, because the project is within what the state has identified as an “opportunity zone,” which “has made investments in multifamily real estate projects such as the project more attractive.”
Those opportunity zones, in nearly 900 census tracts across California, have been set by the state based on three key criteria: poverty level, business activity and geographic diversity. Investments in those tracts translate into tax benefits, either through deferments or write-offs altogether. Berkeley appears to have five of Alameda County’s 47 opportunity zones. They cover downtown Berkeley, part of central South Berkeley and a tract in West Berkeley.
The zones are meant to appeal to developers and financial backers because “Investments made … in these zones would be allowed to defer or eliminate federal taxes on capital gains,” according to a brief overview by the state.
According to the letter, the project team met in May for “an ‘all hands’ construction drawing/permitting meeting with its architects, contractor, engineers and other consultants in order to put together a timeline and cost estimate.” Building permit application drawings — expected to cost $5 million — should be done within 6-8 months, and “The project team expects to submit an application for permits to authorize project demolition and foundation work by January of 2019.”
In the letter, Kristina Lawson, a partner with San Francisco-based law firm Hanson Bridgett, assured the city that “the project’s potential capital partner will reach out to you and your staff in the very near future to arrange a meeting to discuss next steps.”
City of Berkeley Planning Director Timothy Burroughs said, as of Monday, the city has not heard from the potential capital partner, and has not made a decision about the extension. Berkeleyside has asked for further detail about how that process would unfold.
Project representative Mark Rhoades said Monday that it’s taken a significant effort to get the project this far along. He credited developer Penner with working hard to find a way to fulfill the city’s community benefits requirements — despite an increase in local construction costs of 20%-25% in recent years, and what Rhoades said was a significant undervaluation of the benefits package. Rhoades said the benefits the city valued at $17 million could actually cost the developer $35 million to provide, between the union labor deal and the theater replacement.
“It’s a very difficult project to do,” he said. “There are a lot of people in this community that would love to see it fail.”
Neither Lawson nor Penner was available Monday for comment.