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1,000 New Apartments Planned for Downtown Berkeley

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A rendering of the Acheson Commons project at University Avenue and Shattuck Avenue.

The view from the L-shaped deck off the penthouse apartment at 2055 Center St. is spectacular. One side looks west toward San Francisco Bay and the Golden Gate Bridge. Another side offers a sweeping vista of Berkeley’s downtown and hills.

For $6,300 a month, the amenities ought to be top-of-the-line, and at the recently opened Berkeley Central — formerly known as the Arpeggio Building — they are. From Bosch appliances and stainless steel designer lights to the wood floor (dark or light, depending on the unit), the six penthouse units on the ninth floor promise an urbane, urban lifestyle.

The building, which the developer CityView acquired in a fire sale in July 2012 for $60 million, has been open for about seven weeks, and about 35% of its 143 units have been leased, according to Natasha Moses, a property manager for Riverstone Residential Group, the leasing agent.

With the rent for a one-bedroom starting at $2,500 and a two-bedroom at $3,900, the apartments at Berkeley Central are being marketed mostly to empty-nesters and well-paid professionals. Advertising materials for the complex highlight the building’s walkability score (a perfect 100), its proximity to trendy restaurants such as Comal and Gather, performance spaces like Berkeley Rep, Aurora and Freight & Salvage, and the fact it is 226 steps to BART.

“All of that is desirable,” said Moses.

Five years after Lehman Brothers collapsed, triggering a global economic meltdown that made banks wary to lend and developers wary to build, the apartment market is heating up. Nowhere is that easier to see than in Berkeley, where developers are proposing to build more than 1,000 units over the next few years in the downtown core and surrounding neighborhoods. If the city allows the projects to go forward, it could bring thousands of new residents and dozens of new retail spaces downtown, potentially transforming the area.

“It’s transformational for a number of reasons,” said John Caner, the director of the Downtown Berkeley Association, a business group that represents 187 property owners and 850 merchant and business tenants. “One is the sheer number of residents it will bring downtown, but also for the mix of residents it will bring. For the first time, we are seeing projects that are not just serving the student market. I think that’s really important.”

City Councilman Jesse Arreguín, whose district includes downtown, said the influx of new housing is a positive step, although he thinks the developments need to be closely monitored to make sure they fit into the scale of surrounding neighborhoods.

“I think it’s very exciting there is so much development happening in the downtown,” he said. “It’s been so many years in which the real estate market has been in decline, and there really haven’t been a lot of new projects happening.”

One reason for the explosion in building permit applications is the spillover effect from San Francisco’s surging tech economy. Companies like Twitter, Yammer, Salesforce.com, Autodesk and others are growing rapidly and their workforces need places to live. Competition for apartments in San Francisco is intense, so many workers are looking across the bay for a place to live.

“The #1 investment region of the country … is the San Francisco Bay Area because of the incredibly robust job market fueled by the tech sector on the Peninsula,” said Mark Rhoades, whose Rhoades Planning Group is advocating for two of the biggest projects proposed for Berkeley: Acheson Commons and The Residences at Berkeley Plaza. “And when the tech sector pushes into San Francisco and starts creating an enormous amount of demand, the bleed-off effect of that is a push into Oakland and Berkeley, which are just a few BART stops away. That changes the economics with regard to apartment financing. With the commensurate increase in rents, the lending institutions and equity investors have more confidence in the market and are willing to spend their money on new development.”

Another factor contributing to the increased interest in building new housing is Berkeley’s Downtown Plan, which was adopted by the City Council in March 2012. It sets out guidelines for areas that can take increased density, specifically along a stretch of Shattuck Avenue, and it will allow for the construction of up to three 180-foot buildings and four 120-foot buildings. (Two of those are reserved for the University of California)

“Things are improving a little bit in the economy and the new Downtown Plan has sent a signal to people that the city is really interested in providing more housing downtown,” said Arreguín.

Officials from Hill Street Realty, the Los Angeles-based developer that purchased the former Hinks Department store building for $20 million in November and plans to build a 17-story, 180-foot tall residential tower called The Residences at Berkeley Plaza, cited the Downtown Plan as one reason the group made an investment in Berkeley. The plan provides some certainty in a town long known for its difficult development climate.

Mike Towber and his wife Natalie Richardson are typical of the types of professionals who are moving into downtown Berkeley apartments. When the couple moved from London in late 2012, they stayed with friends in North Berkeley. Both of them have jobs in San Francisco — Towber is in high tech and Richardson is a fashion designer — so they considered moving there. But they eventually decided against it.

“For someone who is not familiar with San Francisco, it is such an intimidating prospect to look in the city and try to find something that feels affordable,” said Towber. “It is hard to stomach the amount of rent people are asking for. Berkeley was a lot more palatable and we felt we would get a lot more and be a lot more comfortable.”

The couple, who are in their early 30s, also wanted an easy commute and ended up renting a two-bedroom apartment on the eighth floor of the existing Berkeley Plaza, just a block from BART. The view of the Golden Gate Bridge, Oakland harbor and downtown Oakland, is “gorgeous,” said Towber. A number of other couples on their floor are just like them — transplants from London, New York City and other cities in San Francisco, he said.

“We have certainly been enjoying all the culture downtown, including Berkeley Rep,” said Towber. ”That has been very appealing.”

Housing Needs

But the bubbling tech economy and its spillover effects have meant that rents are going up, making it more difficult for students to afford an education at UC Berkeley. One Cal student complained at a recent Chamber of Commerce meeting that she had been priced out of downtown because her rent at Library Gardens on Kittredge Street had increased by $500.

Rents on one-bedroom apartments in Berkeley have been steadily rising since the end of 2010, going from an average of $1,789 in the fourth quarter of 2010 to $2,111 in the fourth quarter of 2012 — a 11.2% increase, according to RealFacts, a real estate data analysis group based in Mill Valley. Rents for two-bedroom, two-bath apartments went up 17.7% in that period, from an average of $2,591 to $2,917.

The construction of 1,000 new units should help with rents since it will put more units on the market and relieve some of the pressure, said Rhoades. Most of the proposed rentals are designed for students, although about at least 370 units will be relatively large and more suitable for professionals. RealFacts reported that Berkeley’s rental occupancy rate was around 97% until late 2012 when Berkeley Central came on the market with 143 available units. That skewed the numbers and dropped the city’s occupancy rate to 86%.

The Association of of Bay Area Governments (ABAG) determined in the late 2000s that Berkeley should set a goal of constructing 2,431 housing units to deliver its fair share of the region’s housing. Since 2007, Berkeley has issued permits for 860 building units, according to Jordan Harrison, an associate planner at the city of Berkeley. (The proposed projects are not included in this count.)

Many of the new developments will contain some affordable housing. Berkeley law mandates that 10% of all units be affordable, and some of the developers are asking to add an extra story to their structures in exchange for building more below-market rate units. As a alternative, developers can pay an in-lieu fee of $28,000 per affordable unit to Berkeley’s Housing Trust Fund. Developers have not been rushing to do that, and the City Council will consider in a few weeks whether to offer a discount for developers who contribute to the Housing Trust Fund over the next two years. That way, Berkeley could build up a reservoir of money to finance more affordable housing.

As the new projects move forward, city officials need to be aware of their impact on existing neighborhoods, said Arreguín. While high density is appropriate for Shattuck Avenue, for instance, it might not work everywhere, he said. He mentioned a proposed apartment complex, The Durant, which started out as a six-story structure on Durant connected to a four-story structure on Channing Way. Now the developers want to make it eight stories on Durant and neighbors fear that is too big, he said.

“We need to be more sensitive to the existing scale and character of the neighborhoods,” said Arreguín. “That is going to be a challenge, I think. How do we balance housing with the need to build projects that really fit into the urban environment?”

National developers set their sites on Berkeley

Very few new apartment buildings had been constructed in Berkeley for decades until the early 1990s when developers like Patrick Kennedy’s Panoramic Interests started construction on a number of projects. Kennedy eventually built or renovated around 400 units in the downtown area, including the Gaia building on Allston Way and the Fine Arts Building on Shattuck. In 2004, Kennedy sold seven apartment buildings to Equity Residential, a real estate investment trust controlled by Chicago developer Sam Zell. Since then, REITs have played an increasingly large role in Berkeley.

Equity’s presence in Berkeley is about to get larger: its 205-unit Acheson Commons project on University Avenue is scheduled to come before the City Council in March for final approval. And Equity is in the middle of acquiring Archstone, another REIT, for $6.5 billion. When that merger is finalized, Equity will likely gain possession of a 99-unit project currently under construction at 651 Addison Street in West Berkeley.

A regional REIT, Essex Properties, built the 171-unit 4th and U apartment complex on Fourth Street. Hill Street Properties, which hopes to build the tower, is not a REIT but has hundreds of millions in capital to spend.

REITs have the advantage of being able to better weather the ups and downs of the economy than small investors. When the market dropped in 2008, a number of small builders had to sell their entitled Berkeley projects for pennies on the dollar to so-called “vulture funds,” said Rhoades. In contrast, Equity, which is backed by many retirement funds, provides its own financing and can forge ahead with projects when banks are not lending, he said. They also can pay more for land than smaller developers, he said.

Chris Hudson, whose Hudson McDonald built the New Californian apartments on University and Martin Luther King, (commonly known as the Trader Joe’s apartments) lamented the rise of REITS because they are less involved with local communities, he said. REITs often use national architects and don’t necessarily hire local contractors. Hudson said 50% of the money spent on the New Californian apartments was spent on Berkeley architects and contractors and 75% was spent in the Bay Area. In addition, many local developers sit on the boards of non-profits like Berkeley Rep and the Berkeley Public Education Fund.

“I think when you have local folks you get a little bit better local involvement,” said Hudson. “The people I actually work with have first names and last names, not LLCs and Incs.”

One clue to the intense competition between REITS and local developers came at a Dec. 20 meeting of the Zoning Adjustments Board when it considered the application of Equity Residential’s Acheson Commons project. Rhoades, who is handling the entitlement process for the REIT, had been working with city staff for months on refining the design and application. Five hours before the ZAB meeting, Hudson sent a letter to planning officials bringing up some additional concerns. It was an attempt to “stall the project,” said Rhoades. While neighborhood groups opposed to a project often use that tactic, that was the first time Rhoades saw one developer use it against another developer. ZAB approved Acheson Commons project that night.

Avi Nevo, who has developed numerous projects in Berkeley the last 17 years, is amused that REITS are setting their sights on Berkeley. “I was working here before it became so fashionable,” he said. “Now everybody from all over the country is coming here.”

Nevo thinks there is still plenty of opportunity for the smaller developer. He is getting ready to rent out apartments at Telegraph Gardens, a complex across the street from Whole Foods, and has a project on Addison under review. The more that is built in Berkeley, the more demand there will be, he said.

“The 1,000 units are not going to saturate the market,” said Nevo. “There is a lot of demand,” from UC Berkeley students, professionals, and high tech workers.

“I think it will change the whole landscape of downtown Berkeley,” said Nevo. “Restaurants now close at 9:30. With all these new tenants, a lot of places will come along. The restaurants and pubs will stay open longer. A lot of good things will be happening.”

Source: Berkeleyside [http://feedproxy.google.com/~r/berkeleyside/XGaT/~3/fV4Cy9ewvdI/]

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