Extra

Developer profits from the Harold Way project will be $89-$145 million even after the cost of the project labor agreeement (PLA) and the rebuilt theaters are met. The only "out of pocket" cost imposed by the Zoning Adjustments Board on the developer is a proposed $350,000 payment to the displaced tenant Habitot. This does not meet the "significant community benefit" standard required in Berkeley's Downtown Plan.

To download a revised Pro Forma which accurately analyses this project, click here.

In order to determine that the amount of “significant community benefits” that the Harold Way Project should provide it is necessary to conduct a thorough independent analysis of its potential profits in order that such profits can be fairly shared with the community. The Berkeley City Council’s guidance in Resolution 67,172 was that all applicants, even those predating June 25, 2015, must show that “the total value of benefits must bear a reasonable relationship to the value generated by the project” and that ZAB “will independently evaluate ”whether the benefits package is adequate in proportion to the value in height.”

To date, despite repeated requests throughout the process, ZAB has not developed an independent pro forma of potential profits for the Harold Way Project. Compounding this problem has been the developer’s lack of clarity in the project’s financials which continually appear to overstate costs and understate revenues. This includes, for example, overstating land costs, using higher rental rates to calculate claimed benefits while providing lower rates to calculate profits, and completely omitting various project revenue sources (such as parking) from their analyses.

To remedy this shortfall, and to better inform both the public and ZAB, a revised Pro Forma for Harold Way has been developed. It takes as its starting point the same format used by the Rhoades Planning Group, representing the project developer, in its July 28, 2015 Pro Forma, but then revises it to more accurately reflect actual costs and revenues. These revisions use numbers provided by the Rhoades Group itself in previous submittals to the City of Berkeley, or from economic studies prepared for the Berkeley City Council, primarily by the City’s consultants, AECOM that are also part of ZAB’s September 30^th agenda package. 

Incorporating these more accurate and realistic numbers results in a revised Pro Forma that concludes; 

• Profits from the PROPOSED Harold Way Project would be at least $89 million;
• This profit would be realized immediately upon the sale of the building once constructed;
• The $89 million profit is 3 times the amount of profit estimated by the Rhoades Group;
• Profits from the Harold Way Project could be as high as $141 million if the Project were to charge rent at the high-end of the Berkeley market as it is likely to do;
• For an initial total investment of $173 million (most of which will be financed with short-term construction financing), the developer could sell Harold Way for somewhere between $263 million to $318 million, representing a return on investment of 50% to 83% within the next 2 to 3 years.

In exchange for this level of profits, ZAB’s current proposal does not seem adequate as; 

• All of these profits remain available to the developer even AFTER including the total cost of both the Project Labor Agreement (PLA) and claimed amount for theater construction/operation.
• The developer benefits from the PLA due to improved labor relations and a better built, higher-quality building; and
• Retention of the theaters is primarily mitigating a harm, rather than providing a new benefit.

The only “out of pocket” obligation proposed by ZAB on the developer appears to be a $350,000 payment to Habitot. Even this payment; 

• Is mitigating a problem caused by the project rather than providing an additional benefit; and
• May not be sufficient to ensure Habitot’s ability to relocate.

Based on the revised Pro Forma, the proposed level of community benefits could be significantly increased (perhaps by at least $10 to $20 million) while still ensuring an adequate return on investment to the project developer. 

As previously noted, it is the Zoning Adjustment Board which retains full discretion to develop and assign the level of community benefits the Harold Way project should provide. Nothing in Resolution 67,172 supersedes this authority. 

Therefore, it is requested that ZAB defer consideration of project approval until it can fully and independently determine the expected level of profits from the Harold Way Project and, if it decides to approve the project, significantly expand the amount of benefits to correspond to expected profit levels. 

To see the revised Pro Forma for this project, click here.