Efforts are afoot at City Hall to see if the 18-story, $150 million mixed-use housing complex planned on Harold Way in downtown Berkeley may still, in fact, be viable — even though the developer told the city on Dec. 31 that he had scrapped the plans.
Councilwoman Lori Droste has been talking with members of the development team this week to see if there’s anything that can be done to save the project.
“As far as I’m concerned, it’s not over yet,” she told Berkeleyside on Wednesday. “We’re in a housing crisis. We want to see a project go through there. It’ll be a challenge though.”
After submitting its building permit application in December, Harold Way developer Hill Street Realty abruptly said it was pulling the plug on the 302-unit project on the west side of Shattuck Avenue. The clock doesn’t officially run out for the building permit until Jan. 20, however.
Hill Street hasn’t said much about its change of plans, other than to cite project finances as the reason Harold Way would not move forward.
“Apparently the deal was too constrained cost-wise with the mitigation and theater requirements,” wrote project representative Mark Rhoades in a Dec. 31, 2019, email to the city. The city gave Berkeleyside the email string upon request.
When the Berkeley City Council approved the project in 2015, rebuilding Shattuck Cinemas was an integral part of the agreement. Rhoades told Berkeleyside that current project estimates put the theater rebuild costs at $15 million to $20 million.
Berkeleyside has been attempting to learn what may have happened between Dec. 19 — when Rhoades said the city should expect the $1 million permit application fee by “midday on the 30th” — and Dec. 31 at 12:31 p.m. when he wrote that the deal would not move forward. Hill Street Realty has not replied to numerous phone and email inquiries from Berkeleyside dating back to mid-December.
Describing himself as a “terrible optimist sometimes,” Rhoades told Berkeleyside on Tuesday that discussions about what might happen now are underway.
“We still have just under two weeks to try to figure something out,” he said. “We’ll be having some conversations with staff along those lines.”
Rhoades said the project is more complicated than anything Berkeley has seen before, between the height of the building and plans for underground parking, the movie theater rebuild and the historic structures nearby, including the Shattuck Hotel at 2086 Allston Way.
“Excavation in and around the Shattuck Hotel has to be done very carefully so as not to create any impacts on that building,” he said. “The construction on this project is going to be really difficult.”
Rhoades said the movie theater was likely to pose the biggest challenge, however. Community members and city officials alike were adamant as the project worked its way through the city’s entitlement permit process that losing the theaters was not an option.
“It really is the albatross that seems to be weighing the project down,” Rhoades said this week. “The city has to decide what the priority is. Do you want housing or do you want theaters? We need the housing in the downtown more than we need theaters that probably have seen their heyday.”
He said Hill Street had not formally asked the city to consider dropping the cinemas from the project. That decision would have to come before the City Council because it would be a substantial change to the deal. Shattuck Cinemas has not responded to multiple requests from Berkeleyside for comment.
Officially, Hill Street had told the city it would like to reduce the unit count by about 10 and drop one level of underground parking from the plans. Those discussions were still in the works when Hill Street submitted the building permit application last month. Rhoades said — had the city agreed to reduce the units — Hill Street had committed to paying the full fees for a 302-unit building.
Droste told Berkeleyside she would like the city to review the costs and revenues for Harold Way, including the community benefits package the project agreed to provide, to see if, in fact, the city might need to ask for less. When the project was approved in 2015, construction costs were substantially lower than they are now.
“At that time it worked, but it’s changed,” she said. “I think it makes perfect sense to revisit it.”
Droste said she is open to ideas and will do whatever she can — if Hill Street is amenable — to getting the project before council for a discussion and possible vote.
The Harold Way deal includes a full-union project labor agreement, the reconstruction of the movie theaters at Shattuck Cinemas, $1 million for the arts and $10.5 million for affordable housing. Rhoades told Berkeleyside in 2015 that the project labor agreement would have a value of at least $11 million. With current costs what they are, that could now be worth closer to $35 million, according to one estimate.
Andreas Cluver, the secretary-treasurer for the Building & Construction Trades Council of Alameda County, said losing the Harold Way project “would be a real tragedy.”
“This was a win-win-win for us,” he said. “The developer had committed to working with all 28 crafts of the building trades and to using apprentices from programs that work with the local schools. It was exactly the kind of model labor agreement we would like to see on more projects. But that’s not all. The $10 million contribution to the affordable housing trust fund would have financed additional work with high labor standards. As icing on the cake, the building was planned to be a high-performance LEED Gold building. Our members specifically train to do high-quality work on green buildings like this.”
Hill Street told Berkeleyside in 2015 that, over 20 years, the project expected to provide more than $40 million in community benefits to the city under the various requirements of the Downtown Area Plan, including the labor agreement, rent subsidies, green features, transit-related provisions and employment opportunities.
Mayor Jesse Arreguín told Berkeleyside on Wednesday that city staffers had spent a huge amount of time in recent months reviewing project materials and doing what they could to help Harold Way proceed. He said the project team had brought in an architect and an attorney to work with the city on the plans “to find ways to redesign the project to pencil [out].”
Penner’s email to the city saying the project was over “came as a surprise to a lot of people in City Hall,” Arreguín said. He said he definitely hadn’t seen it coming and didn’t know the reason for the sudden change. Rising construction costs likely “impacted the ability to finance” Harold Way, he said: “It had been hanging on by a thread for awhile.”
Arreguín would not say Wednesday whether he wanted to see Harold Way built or whether it would benefit the city. He did say it would be “unfortunate” for Berkeley to lose all the money and benefits the project had agreed to provide. His biggest concern this week, however, was closure.
“They need to make a decision,” he said. “One way or another there needs to be some finality.”
As part of the deal, Hill Street had agreed to help Habitot Children’s Museum move to another location with a payment of $250,000. Habitot founder Gina Moreland told Berkeleyside that Hill Street had sent Habitot letters in September or October saying the move would need to happen in early 2020. Habitot stopped booking events beyond January and did a big push on fundraising at the end of the year to help with the relocation. But Moreland didn’t hear from Hill Street again.
She only learned about Penner’s apparent decision to drop the deal by reading it on Berkeleyside, Moreland said.
“The good news for us is we aren’t going to be kicked out anytime soon,” she said. But fundraising efforts are still very much underway. The move will be expensive and now Habitot can’t count on the Harold Way money, she said. Most of the other tenants in the building have already moved out, she said, or are in the process of doing so. She’s concerned about a rent increase, she added, and Habitot is still hoping to get into its new building in the next few years.
“The pressure is off a little bit,” she said. “The reality is it is really darn hard to raise money.”
Not everyone was disappointed by the news that Harold Way was over.
Berkeley Daily Planet owner Becky O’Malley wrote in an editorial on her website that Harold Way had been a “bait-and-switch development” all along.
“Berkeley has seriously over-achieved on building such ‘cash-register multiples’ while under-achieving on low-income projects,” she wrote, adding that Penner should “sell the property to someone who specializes in adaptive reuse of existing buildings. The upper floors would be ideal for conversion into low-cost housing, and the ground-floor theaters would continue to draw paying customers to a downtown which continues to need the vitality they provide. This plan would utilize the embodied energy in the structure at a reasonable and environmentally sound cost to address Berkeley’s genuine needs.”
Community activist Kelly Hammargren — who has been a vocal critic of the project over the years — said Harold Way “should have been denied from the outset.”
She continued: “There are all kinds of problems with the site and the Harold Way project itself as evidenced by the developer’s inability to sell the entitled project in three years of trying. The public tried to tell [this to] the city … in their hundreds of letters, petition signatures (over 5,000 individual signatures) and in public testimony at meeting after meeting as documented in the administrative record of nearly 10,000 pages.”
But others have been excited about what the Harold Way project would bring to Berkeley. Sustainable transportation advocacy group TransForm came out in support of the project back in 2015 because of its proximity to BART and approach to parking and free transit passes, among other factors. Affordable housing advocates were also in support and said it would be a big loss if the project does not proceed.
Speaking generally, Brad Wiblin, executive vice president at affordable housing developer Bridge Housing, said it’s a very challenging time to build in the Bay Area.
“Building costs have outstripped the ability to make a lot of projects work these days,” he said. “Rents have flattened out and costs have continued to escalate.”
He said he had no inside knowledge of what may have happened with the Harold Way deal but was willing to make some educated guesses given his own experience.
“You get these buildings approved and it’s like a snapshot. And then the world continues to change around you,” he said. “The market’s different. Or costs are different. Your equity partner says, ‘I’m not getting the return I need: Pull something out of the project.’ I’ve got to think those are things the developer has been faced with.”
He also noted that Harold Way had been delayed by litigation for nearly a year, which could have played a role in its possible demise.
“Sometimes, just by delaying a project, opponents can kill it,” he told Berkeleyside. “That may be what happened here.”
Wiblin said, if Harold Way doesn’t proceed, it will be a big loss for the downtown and the city’s Housing Trust Fund. Even with Measure O and other sources, $10.5 million could have made a big difference, he said, particularly as the city is looking at how to develop the North Berkeley and Ashby BART stations with new homes. Some people have called for 100% affordable housing on those parcels.
“The demands are greater than we can fund right now, is my own internal math,” he said. “Having that $10 million would have been a huge boost.”
Tim Frank, executive director of the Center for Sustainable Neighborhoods, said the city should do what it can to revive Harold Way.
“Is there something we can do to get this back on track? Because the city deserves it,” he said. “It would be better for the downtown if the project proceeds.”
Harold Way, Frank said, “completely fits Berkeley’s values” with its LEED Gold building standards, robust project labor agreement, affordable housing money and more. He described Harold Way as “one of the most progressive projects in the East Bay” and said a number of downtown businesses, as well as the city overall, were counting on the increased foot traffic and tax revenue Harold Way would bring.
Consultant Rhoades, who is the closest person to the project that Berkeleyside has reached, said he still hasn’t given up.
“I’ll hold out hope until there’s no more hope to hold,” he said. “We’re trying to make the phoenix rise.”