Extra

I am writing in opposition to approving the above project at the ZAB meeting of September 30, 2015 as critical and Council-mandated work associated with assessing the community benefits of the project has not been completed. If a more complete independent analysis not available at the time of ZAB’s meeting, I urge that consideration of the project be delayed. 

Context of significant community benefits  

The Downtown Plan calls for and the citizens of Berkeley expect city staff and consultants and the Zoning Adjustment Board to carefully consider each project that exceeds by-right approval in the Downtown and to assess significant benefits for each one in proportion to its added value. In support of the Downtown Plan, the City Council resolution from June, 2015 reiterates that “applicants shall provide an estimate of the cost of the proposed benefits or fee package” in order for the City to independently evaluate whether the benefits package “is adequate in proportion to the value of the additional height “ Under the Council resolution, each project’s financial information is to be reviewed by an independent consultant. 

Consultant analysis 

The analysis submitted by the consultant retained for this project focuses almost entirely on mathematical calculation of the benefits offered by the applicant with only a very cursory assessment of overall project costs and revenues. Before ZAB considers approving the project, additional questions should be addressed by an independent analysis to evaluate whether the benefits package is adequate in proportion to the value of the additional height (section B of Council resolution 67.172). These areas of required inquiry are focused in three areas: 

• Calculation of value of rents for floors above 75 feet. The figures provided by the applicant appear to include only the units themselves, and not common areas to be used by tenants.
  • Costs as submitted by the applicant are overstated by an estimated $30 million:
  • Land costs for the project are vastly overstated. The applicant paid $20 million for the property, even including the landmarked portions of the Shattuck Hotel, which are not part of this project. The applicant indicates that the $40 million figure in its submission represents the value of the land once the project is complete, not the cost to it of the land. This figure needs to be closely examined.
  • The theater costs assume that the applicant would not otherwise build anything in that part of the property. What is needed is an assessment of the net difference between the cost (less revenues) of the theater versus the cost (less revenues) of general retail. This is the maximum portion of the theater costs that can be reasonably claimed as either a mitigation or community benefit.
  • The figure for rents of $4.13 per square foot for the theaters differs from the $3.50/square foot used by Rhodes Group in its October, 2014 submission. Also, the applicant has agreed that the City will pay only half of the rent if the theaters revert to City management, implying that they have included the lower figure in their calculations and continue to find the project to be viable. An independent analysis should assess the profit margin of the project assuming the lower rents.
  • The applicant’s submission indicates that it is providing a benefit to Habitot of $350,000 but it’s expense figures show $1,250,000 as an expense for Habitot, overstating the project’s costs by $900,000.
  • A 36% operating costs has been used for all tenant types, even though retail and parking typically incur few costs per square foot of operation.

• On the other hand, revenues are set by the applicant understate or are missing some significant revenue streams and in some instances contradict each other, leading to underestimation of a minimum of $1.5 million in revenues:
  • Assumed revenues from non-theater retail use a figure of only $2.65 per square foot while the rent subsidy for theaters is based on the applicant’s claim that the theater space could otherwise bring in $4.13 per square foot.
  • Revenues from parking are not included.

Guidance from the Council on use of funds  

As pointed out by the City Manager in an email on July 11, 2015 in response to a letter from Ellen Widess (followed by a letter from Anna de Leon), the Council’s resolution is advisory and ZAB retains authority to set benefits. At the same time, while not directed to include housing, as seen in Option A, affordable housing “that exceeds the existing requirements” and PLAs were set as Council’s highest priority and conform to community values expressed at many meetings. While this project’s was exempted from the higher nexus fee for affordable housing adopted by the Council last month, the nexus study further supports that more in affordable housing is justified by the impact that market rate housing has on the need for affordable housing.