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Development Wanes in Wake Of Economic Woes

By Riya Bhattacharjee
Thursday October 09, 2008 - 09:16:00 AM

Berkeley is feeling the pinch of the current economic slump, with the demand for new housing decreasing, real estate sales declining and developers adopting more of a “wait and watch” policy when it comes to breaking ground on new projects. 

Business is down for the city’s Land Use Planning division with the number of use permit applications falling by 10 percent this year, according to the city’s Principal Planner Steve Ross, who oversees new projects. 

City officials said the decline was a matter of concern for the city’s Planning & Development department, the overwhelming bulk of whose $13 million budget comes from development fees. 

“Our revenue is related to developer fees,” the city’s Planning Director Dan Marks said. “We haven’t seen this level of problem since the 1920s. It’s quite unprecedented. I am afraid to think about what might happen. All I can do is hope for this to settle down and return to normalcy.” 

The Land Use Planning division, which has a total of 10 planners, recently cut one of its assistant planner positions after the city manager’s office decided that there just weren’t enough new projects coming in. The department has 75 employees spread across five divisions, which include Land Use Planning, Building & Safety, the Permit Service Center, Toxics Management and Redevelopment. 

No new layoffs are planned at the moment, Marks said. 

“It takes a long time to get projects approved in Berkeley, and, given the current economic climate, it could take even longer for a developer to finish a project, especially if you can’t get a loan to cover construction costs,” Ross said. 

“There’s a big pressure to get projects approved against funding deadlines.” 

Ross said early 2007 had been a fairly busy time for the department, with at least four or five mixed-use projects along San Pablo Avenue getting approved. 

Although the city’s Zoning Adjustment Board approved use permits last summer for at least three mixed-use housing projects in the 2700 block of San Pablo, none of them has been built yet, Ross said. 

“People are going to have a problem getting financing for their development,” said Marks, adding that it was still too early to gauge the exact impact of the plunging stock market and the credit crisis on Berkeley. “The problems in the financial markets are relatively new. We will need to wait for a few more weeks to see what this financial craziness will bring.” 

Greg Powell, a senior planner in the city’s Land Use Planning division, agreed. 

“It takes a while for the economy to hit but yes, a slowdown sort of happened this year,” said Powell, who has been with the city for eight years. “There are fewer projects but it’s not like we are out of work. I haven’t worked as a planner through a recession before so I can’t really say what will happen.” 

If some developers are having problems obtaining financing, others are electing not to proceed because of uncertainty in the markets, said Berkeley councilmember and realtor Laurie Capitelli. 

A recent case of development being abandoned midway was a proposed 22-unit three-story mixed-use project at 1819 5th St., next to the East Bay Vivarium, which was approved by the zoning board in May but now has a “for sale” sign up on the property. 

“I think what happened here was when they acquired the property they were concerned about financing and when the project went through, they didn’t have the necessary financing,” Ross said. 

Condominiums developed by local developer Patrick Kennedy’s Panoramic Interests at 2700 San Pablo Ave. have had a difficult time finding potential buyers, Ross said, simply because they were put on the market at a time when the economy was poor. 

Calls to Kennedy for comment were not returned. 

Ross said that the Planning & Land Use Department was still receiving applications for smaller housing projects, adding that building permit fees from several big projects had brought in a substantial amount of revenue. 

“The rate of applications is definitely down but we continue to see remodels and additions to residences,” he said. “But there are still fewer of those than we had last year.” 

According to data collected from the U.S. Census Bureau by Hanley Wood Market Intelligence, a research firm, Berkeley did not record a lot of activity for residential building permits in 2008. The data reveals that the number of residential building permits issued for the first eight months in 2008 (145) was still in pace with 2006 (183) but well below the numbers for 2004 (332). 

Construction is going on for a large mixed-use project at 700 University Ave.—on the site of what was Brennan’s Restaurant—as well as downtown for the Arpeggio and Trader Joe’s projects, Ross said, which had brought in a big chunk of building permit fees for the city. 

“If a project is $40 million, our building fees is a percentage of that evaluation,” Ross said. “We are currently working with a number of developers and property owners who want to go ahead with their projects in two to five years despite the economy. They are looking at the future. There’s a lot of demand for housing near transit hubs. In places like Antioch and Redding the market has stopped because the demand is different there. But we are close to San Francisco, close to the BART, so there will always be demand.” 

Some city officials and developers agreed that Berkeley continues to be in a more advantageous position than some of its neighbors because of a thriving restaurant and office scene, the overwhelming majority of which caters to UC Berkeley. 

“Berkeley is still a very attractive place for developers,” Marks said. “No place is recession-proof. However, the university provides a strong economic base.” 

Ito Ripsteen of Gordon Commercial said the general mantra for developers right now was to “sit back and wait.” 

“People want to own properties rather than invest in them right now,” said Ripsteen, who said he had sold four owner-user type properties last month. “Despite the ups and downs in the stock market, Berkeley is still a wonderful place to buy property and own property.”