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Under Berkeley’s Measure R, developers were given an “entitlement”, not a right, to build three tall buildings in Berkeley up to 180 feet in height if they provided significant “community benefits.” On September 30^th, Berkeley’s Zoning Adjustment Board (ZAB) approved a claimed $14.5 million “community benefits” package as a condition of approving construction of the 302 unit, 18-story Harold Way Project, located at the site of the current Shattuck Cinemas. The level of “community benefits” was based on the developer’s claim, never verified by ZAB, that total profits from the building would only be $26 million. Instead, based on more accurate numbers, profits are more likely to be in the range of $89 to $145 million, over three to five times the amount relied on by ZAB. These profits occur AFTER the costs of both keeping the Shattuck Cinemas and ensuring that the project uses union labor are included, two of ZAB’s major claimed community benefits. These are “walk-away” profits, one-time profits received by the developer selling the property soon after it is completed, not profits collected over the life of the building.

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

ZAB’s decision will be appealed to the Berkeley City Council for reconsideration in the next two months. The amount of community benefits could likely be increased by at least $10 to $20 million to promote affordable housing, encourage arts and culture, and assist in the relocation of the Habitot Children’s Museum being displaced by the project, while still guaranteeing ample profits (in the 5% range) that the developer believes necessary to construct the project. One hopes the Berkeley City Council will set the correct level.

The profit levels of $89 to $145 million are based on a revised economic analysis of the Project, using more accurate numbers provided to the Berkeley City Council itself in 2015, as well as the developer’s own numbers from other filings. Differences in the level of profit include significantly overstated land costs, omission of revenue sources, and overstated costs.

Incorporating these more accurate and realistic numbers it is concluded that;

• Profits would be at least $89 million, over three times the amount of profit estimated by the developer;
• This profit could be realized immediately upon the sale of the building once constructed or soon after occupancy;
• Profits from the Harold Way Project could be as high as $145 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 using union labor and keeping the existing theaters on-site; These two items comprise $9 of the $13.5 million of ZAB’s claimed “community benefits”
• The developer benefits from the use of union labor due to their superior skill-set, 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 to Berkeley.

Although the Berkeley City Council requested ZAB to “independently evaluate” the level of community benefits (even for projects already in the planning pipeline) to ensure “a reasonable relationship to the value generated by the project” ZAB never conducted this analysis. Throughout the process, numerous parties requested it to do so. 

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