Title
Study Session to Discuss Incentives to Increase Housing at Alameda Point. (Base Reuse and Economic Development)
Body
To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
This study session is to provide baseline information about the housing activity and opportunities at Alameda Point, and to explore approaches to catalyze additional future housing at Alameda Point. Topics covered include a summary of development and planning activity to date that supports housing, the current policy and economic context guiding development of Alameda Point housing, economic realities of housing construction in 2024, and next steps.
BACKGROUND
Current Status of Housing Development
Since the Navy conveyance of the former Naval Air Station to the City of Alameda (City), Alameda has built and approved 2,251 housing units, of which 25 percent are affordable to lower income households (these numbers exclude existing units at Alameda Point). Construction of two major master-planned developments - Site A and West Midway/RESHAP - are underway, with RESHAP’s horizontal improvement breaking ground in July 2024.
There is room for more housing development in Alameda Point, with an estimated 129 acres of land zoned for residential development, mixed-use with residential, or adaptive reuse with residential (Exhibit 1). Moreover, the City has indicated its support for playing its part in addressing the regional housing crisis, committing to 10,000 new homes in its 2040 General Plan, and being the first local jurisdiction in the State to complete a certified housing element in the 2023-2031 cycle, identifying future locations for over 5,300 new homes.
Local Planning and Policy Context
A number of local planning documents specifically guide development at Alameda Point and have set forth design and land use regulations for future housing development. These include:
• The Main Street Neighborhood Specific Plan (2014)
• The Waterfront/Town Center Precise Plan (2014)
• Alameda Point zoning district AMC 30-4.24 (2014)
• Alameda Point Environmental Impact Report (2013)
In addition, the Master Infrastructure Plan (2014, updated 2020) and the Alameda Point Public Services District (2017) play a critical role in the implementation of these plans, providing a path forward for necessary replacement of infrastructure, and establishing a fiscally neutral approach to development of Alameda Point through collection of funds in a Community Facilities District, respectively. These are necessary costs that are unique to Alameda Point and impact the market feasibility of development, as discussed below.
Alameda Point will also play an important role in providing affordable housing in the City. In addition to the 200 units provided for formerly unhoused individuals by the Alameda Point Collaborative and its partners, the Renewed Hope Settlement Agreement (2001) established that a minimum of 25 percent of new housing units in Alameda Point will be affordable to moderate- and lower-income households.
Navy Conveyance
In the negotiations for conveyance of the former Naval Air Station to the City, the Navy and the City agreed that if the City were to build more than the originally planned number of housing units, the Navy would be compensated with a per unit fee (Conveyance Agreement). The intent of this agreement was to help the Navy recoup some of the costs associated with conveyance, while recognizing that the main goal of conveyance was to offset the economic impact of base closure by enabling the City to seek new job generating uses for the base.
The Navy conveyed 268 housing units to the City. The Alameda Point Collaborative and its partners manage 201 of these units to support formerly unhoused individuals per the terms of the HUD Standards of Reasonableness, while the City manages the other 67 market rate units. When the total number of market rate units exceeds the originally planned count of 2,011, the Conveyance Agreement states that the Navy will be compensated with an “Excess Housing Unit Fee” set at a base amount of $50,000 per unit with adjustments based on the Case Shiller home price index. Currently, staff estimate that this fee is $104,000 per unit with those adjustments, due to the aggressive increase in Bay Area housing prices since the Conveyance Agreement was executed. Neither the Navy nor the City had anticipated an increase of this magnitude at the time the agreement was finalized.
State and Federal Policies Affecting Development of Alameda Point
The State’s Surplus Land Act, which sets forth requirements for disposition of land owned by local jurisdictions, has played a role in development at Alameda Point as well. In 2019, Governor Jerry Brown signed Assembly Bill 1486, which set forth requirements for surplus land to be offered for disposition for affordable housing. The City at the time was in negotiations for disposition of a portion of the Enterprise District for a job generating use, and this process was placed on hold due to the change in State law. In 2022, Governor Newsom signed Assembly Bill 2319 (Bonta), which established an exemption from the default disposition procedures of the Surplus Land Act for land located on Alameda Point provided that, among other factors, the City satisfies specific affordable housing and project labor requirements. This legislation provided clarity in the Alameda Point development process and reinforced the importance of these equity commitments to the City’s overall development plan for Alameda Point.
Achieving the City’s affordable housing goals will require significant subsidy from local, regional, state and federal sources. However, in recent years the funding available for affordable housing development has decreased, as has Alameda Point’s competitiveness for these subsidies. The 2025 State budget eliminated annual funding for the State’s Multifamily Housing Program (MHP), which is one of the two largest sources of State loans. Additionally, Alameda Point has become less competitive for Low Income Housing Tax Credits (LIHTC) because it lost its designation as a “Difficult to Develop Area” and as a “Qualified Census Tract,” both of which provided critical points. Lastly, the State has focused on allocating LIHTC and tax exempt bonds to “High Resource Areas,” which is also not a designation found in the Alameda Point census tracts.
City staff have been working hard to increase the competitiveness of Alameda for affordable housing funds and have applied to the State to secure a “pro housing designation” which - if awarded - will increase local competitiveness for State funds.
Actions the City has Taken to Incentivize Housing
In addition to the activities described above, the City has taken a number of actions to incentivize housing at Alameda Point, including:
• Adoption of the modified Subdivision Ordinance in 2024 which creates a Citywide path for streamlined project approvals;
• Advancing development of 96 acres of land for Site A and West Midway/RESHAP;
• Eliminating minimum parking requirements which reduces costs and encourages sustainable transportation;
• Providing a $9.5 million loan to Catellus for construction of the RESHAP infrastructure, to ensure earlier delivery of the affordable housing;
• Proactive support of RESHAP funding applications, resulting in an award of County Measure AA funds as well as federal funding; and
• Waiving some impact fees.
DISCUSSION
The purpose of this Study Session is to provide a shared understanding of the political, physical and economic factors that are shaping the potential to build new housing at Alameda Point, and discuss next steps in advancing new housing.
While lack of housing supply continues to be a regional crisis, the current cost of building is challenging new construction. We are in a uniquely difficult situation in the housing market as post-COVID inflation rates, high interest rates and limited capital, associated increases in labor costs, and rapidly rising insurance costs have almost entirely halted new multifamily housing construction. For this reason, the focus of this study session is on two issues: reducing cost, and increasing housing starts.
Reducing Costs
Exhibit 2 provides an illustrative example of the per unit housing construction cost in Alameda Point compared with the anticipated sales price or revenues available in the current market to support this cost. Figure A shows that the cost of housing construction and revenues varies by the type of housing being built, and that for sale, lower density housing may cost more per unit to build, but the gap between costs and revenues is much smaller than for a three-story rental building. The cost per unit to build a townhome is estimated as $1.32 million, with an expected sales price of $1.15 million. The cost per unit to build a multifamily rental unit is estimated as $920,000, but the revenues available from rents to support this cost over the useful life of the unit are only an estimated $480,000. This, in part, explains why the townhomes in the West Midway development will be more likely to be built sooner than the apartments in the Site A development.
Most factors affecting construction costs are regional in nature, but a few costs are specific to Alameda Point, including the added cost of replacing infrastructure, project labor agreements, a 25% affordable housing requirement, the fiscal neutrality policy, and the Excess Housing Unit Fee (Fee) described above.
This Fee was established with agreement between the City and Navy as a way for the Navy to recover a small portion of the expenses associated with remediation and conveyance, and because the 1996 Community Reuse Plan upon which it was based assumed that most development in Alameda Point would be nonresidential. However, both parties now understand that there will likely be more residential development than originally assumed, and staff estimates that the Case-Shiller Index has caused the Fee to exceed fair market land values - unless there is a change, there will be no additional units, and thus no fee revenue.
Staff and the Navy have been in active negotiations on modifying the Conveyance Agreement to reduce the Fee, and have reached a tentative agreement to make two modifications to the Fee structure:
• Retroactively apply the Consumer Price Index (CPI) instead of the Case-Shiller Index to escalate the $50,000 fee from 2013, which staff estimate would result in a fee of roughly $70,000 today; and
• Allow future developers the option to pay a lower Fee upon commencement of demolition or conveyance of the property instead of the standard Fee at the issuance of the certificate of occupancy.
Staff will return to City Council with an update and proposed action later this year.
Increasing Housing Starts
The second issue staff explored is increasing housing supply by offering additional property at Alameda Point for new residential development. As presented in Exhibit 1, the roughly 129 acres of land that is zoned to support future residential or mixed-use development include:
• The “Package K” area in the Main Street Specific Planning area, bounded by West Midway Avenue, Main Street, and Saratoga Street. This area would include new, lower density development, infill development, and preservation of the historically significant homes.
• Adaptive reuse of Buildings 2 and 4 (the original Bachelor Enlisted Quarters or BEQ) located between Monarch Street and Lexington Avenue between West Red Line and West Midway Avenues, and Building 17 (Bachelor Officer’s Quarters or BOQ, currently owned by the Alameda Unified School District) located at 700 West Essex Drive.
• Various areas zoned for mixed-use infill development in the Waterfront Town Center Precise Plan, including Taxiway H (north side of Seaplane Lagoon), infill sites between Hangars 39, 40, and 41, and the area south of West Atlantic Avenue to the northeast corner of Seaplane Lagoon.
• A 100-foot wide area on Central Avenue between Pacific Avenue and Hancock Street.
• In addition, there has been some discussion about potentially considering a portion of the area south of West Hornet Avenue in the Enterprise District for future residential development due to its proximity to Enterprise Park and Encinal High School, but this site is not currently zoned for residential uses.
For a typical private housing development, now would be a challenging time to start new development. However, given that it will take several years to negotiate the next disposition and development agreement, and the market will be likely to adjust to again support widespread housing development, staff plan to take steps towards a developer solicitation in 2025 for the “Package K” area, due to its lower density zoning. This is consistent with the figures shown in Exhibit 2, in that townhomes are far more likely to be feasible in the short-term housing market.
It should be noted that development of Package K is contingent upon the successful financing and construction of the latter phases of RESHAP development, as the City, MidPen Housing, and the Collaborating Partners are working toward the goal of ensuring existing tenants are fully relocated into new housing before the older housing is demolished. It may be prudent to wait until summer 2025 to advance an RFP, when the City will know if RESHAP is able to secure state and federal funds for the first phase of development. This could function as an indicator of the project’s competitiveness for grants, and timely overall buildout.
Upcoming Alameda Point Residential Work Plan
Staff intends to continue negotiations with the Navy on the Excess Unit Fee to determine if a restructuring that reduces costs is possible.
Staff also intends to further advance work on a solicitation for Package K development in 2025. Staff activities will include identify the goals for the property, ongoing engagement with Alameda Point Collaborative and the collaborating partners, and market analysis and engagement with the development community to understand any interests and concerns.
Staff will continue proactive efforts to advocate for affordable housing subsidy supporting the construction of the RESHAP project, including pushing for policy changes that increase the competitiveness of Alameda Point for existing grant, loan, and tax credit programs. Part of this advocacy includes increasing the transparency of information on Alameda Point’s residential opportunities and the role that Alameda can play in sustainably addressing the region’s housing crisis.
Lastly, Staff will explore advancing development of the Central Avenue area with new housing.
While staff are open to considering proposals for the reuse of the BEQ, Package K is currently a higher priority in terms of development. Additionally, staff do not intend to advance development of the mixed-use areas in the Waterfront/Town Center areas until the economy for multifamily development recovers.
ALTERNATIVES
• Discuss incentives to housing development and provide comments on its proposed work plan to advance housing development at Alameda Point.
• Discuss incentives to housing development and provide alternative direction to staff on its work plan to advance housing development at Alameda Point.
FINANCIAL IMPACT
There is not fiscal impact from receiving this informational report.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
Key documents that established the guiding vision for Alameda Point include the following, most of which can be accessed on the Alameda Point website <https://www.alamedaca.gov/Departments/Alameda-Point>:
§ NAS Alameda Community Reuse Plan (1996)
§ Alameda Point General Plan Amendment Chapter 9 (2003)
§ Alameda Point Zoning and Municipal Code Amendments (2014)
§ Alameda Point EIR (2013)
§ Master Infrastructure Plan (MIP) (2014)
§ Town Center and Waterfront Specific Plan (2014)
§ Main Street Neighborhood Specific Plan (2017)
§ Transportation Demand Management Plan (2018)
§ Economic Development Strategic Plan (2018)
§ Climate Action and Resiliency Plan (2019)
§ MIP Amendment (2020)
ENVIRONMENTAL REVIEW
This presentation and discussion regarding a proposed disposition strategy to guide development at Alameda Point, which does not commit the City to any definite course of action, does not constitute a “project” as defined in California Environmental Quality Act (CEQA) Guidelines Section 15378 and therefore no further CEQA analysis is required.
CLIMATE IMPACT
There are no identifiable climate impacts or climate action opportunities associated with the subject of this work session. However, Alameda Point’s Climate and Action Resiliency Plan (CARP) does address sea-level rise and new infrastructure at Alameda Point will assist in the implementation of the CARP.
RECOMMENDATION
Recommendation to hold a study session to discuss incentives to increase housing development and provide feedback on staff’s proposed work plan for housing development at Alameda Point.
Respectfully submitted,
Abigail Thorne-Lyman, Director of Base Reuse & Economic Development
Financial Impact section reviewed,
Margaret O’Brien, Finance Director
Exhibits:
1. Map showing areas designed for future housing and mixed-use development
2. Typical per housing unit costs and revenues at Alameda Point