Some Projects Take Two Cycles To Build Because Of Long Entitlement Process In Oakland, Bay Area

More developers have been building housing and office than ever before in Oakland. The city offers a more affordable place for people to live while also being close to downtown San Francisco. Despite these opportunities and Oakland’s development-friendly environment, rising construction costs and the long entitlement process still make it exceedingly difficult to get projects approved.

“Things take longer than anticipated,” California Capital & Investment Group partner Mark McClure said during Bisnow's Alameda County Multifamily and Mixed-Use event in Oakland at the Scottish Rite Center. “You can’t get everything done in one cycle.”

McClure, who was on the Oakland Planning Commission from 2002 to 2006, said he saw some towers entitled during that time that are now just getting built, such as 1600 Broadway. Cities are understaffed and have a lot of turnover, making time frames of plan checks less predictable, he said.

Mission Bay Development managing principal Seth Hamalian said although the process is long and unpredictable, most of the time privately owned sites still get to the right conclusion: a project approved close to the original plan.

The process it just too long even if the outcome is positive, McClure said. About 40% of the cost of housing goes toward getting permission to build, he said.

“Let’s not sugarcoat that the process sucks,” McClure said. “We reach the right outcomes, but it comes at too high of a cost.”

McClure said a local developer worked on a project that checked every single box, including on-site affordable housing and $22M in community benefits, but still had to battle with the community to get the project through entitlements.

SRM Development principal for real estate, finance and operations Ryan Leong said the company's second multifamily project in Oakland is about to be completed, but the process started in 2012. He said it took two years to get the rights to build and another year to get funded.

In addition to ongoing entitlement challenges, panelists discussed additional challenges to building more housing in Oakland and the Bay Area, ways to build housing more cost-effectively and what housing challenges and opportunities still exist in Oakland and the East Bay.

Why Oakland?

Even with its challenges and long entitlement process, developers have built and delivered more housing in Oakland during this cycle than in any other recent cycle. Many of the latest projects are the first Oakland housing projects for some developers. Demand has been outstripping supply and projects have been leasing up quickly.

SRM Development first ventured into Oakland with a 130-unit senior housing project it developed in Rockridge. The area was ideal because there had not been any senior housing built in the area in over 25 years and there was a growing need. The project opened in April 2017 and leased up within six months. Leong said it usually takes a year and a half to lease up senior housing since it takes longer for seniors to decide to move.

Leong said when SRM Development was working on its second multifamily project, Baxter on Broadway, in Oakland, it was more difficult to get capital partners on board. In 2012, there had not been other multifamily projects of institutional quality and it was really difficult to show the potential rent growth.

Over six years later, Baxter on Broadway is expected to be completed during the second quarter. The 126-unit project at 4901 Broadway will have 171 parking stalls, over 7K SF of retail and four townhomes. The project was designed by architecture firm brick.

Mission Bay Development is working on a 28-story, 300-unit tower with 12K SF of retail at 19th and Broadway. Hamalian said he bought the site because he loved the location, but it has been difficult to get financing, especially since predicting future rents is difficult. He said he tells potential investors to look at rents in San Francisco and rents in Oakland and expect them to be somewhere in between, which is often a daunting ask.

He said what makes the site at 19th Street and Broadway ideal is the commute into and out of San Francisco, especially compared to commuting to Silicon Valley. He said he sees the BART station at Oakland's 19th Street as an extension of the stations along San Francisco's Market Street.

Leong said investors are becoming much more cautious in general with rising construction costs and the length of the current cycle. McClure said the shortages in subcontractors have made it more difficult to build projects.

“It has been extremely challenging in getting manpower when you need it and where you need it,” Leong said.

There has been a greater emphasis on modular construction and alternative construction tech to try to address what appears to be unstoppable rises to construction costs, Leong said.

He said there is never really a huge decline in construction costs. Even during the last recession, construction costs did not decline significantly.

“Just when you think it can’t go higher it does both on the construction side and the rent side,” Hamalian said.

Housing Crisis To Continue Even With New Units

About 6,000 units will be coming online in the next 24 to 36 months in Oakland, according to Wendell Rosen partner Todd Williams. But panelists said they don’t think it will be enough for long-term rent declines.  

While there may be short-term flattening of rents, in the long term, demand will eventually rise again, McClure said. What will happen will be similar to increasing highways by one lane where the traffic eventually fills in, he said.

 “As Oakland grows, more people will want to come to Oakland,” McClure said.

He said in San Francisco, which is denser than Oakland, more units were delivered in the last few years, but it really didn’t make it cheaper to live in San Francisco.

“There will be a critical mass of people living in downtown [Oakland] that will bring more opportunities for the next cycle, but maybe not this cycle,” Leong said.

Leong said solving the region’s housing crisis should not be the responsibility of one city.

“What we’re seeing now is not a city problem. It’s a regional problem,” Leong said. “It can’t be just solved by one city.”

He said some cities have turned away density altogether, forcing other cities to take the density.

“That’s not fair on a regional basis and does not solve the problem,” he said.