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How Oakland Is Beating Out San Francisco For Multifamily And Mixed-Use Development

While investing in new development becomes more of a question and a risk later in a development cycle, it is a risk those in the industry are willing to take when it comes to Oakland.

Polaris Pacific's Paul Zeger, City Ventures' Phil Kerr and First American Title's Tom Vargas

Long seen as San Francisco's cheaper cousin, the East Bay city has come into its own in the past few years, in ways surpassing San Francisco for cool edginess, speakers said at our Oakland Multifamily & Mixed-Use Rise and Expansion event Tuesday.

That attraction comes with challenges, as it does in any market, but also opportunities.

“The opportunity in Oakland is tremendous,” City Ventures CEO Phil Kerr said.

He said the city has historic buildings that lend it character, and Oakland proves a better bet than San Francisco when it comes to room for revenue growth. There is risk, but developers anticipate cost increases and revenue flattening as they gauge whether to begin projects.

“Development is crazy risky. It's insane. This is an insane business,” Kerr said.

Success can hinge on the vote of a single city council member or get thrown into doubt by a new impact fee, he said.

MBH Architects' David Delasantos, City Ventures' Phil Kerr, Gerding Edlen's Brent Gaulke, Lendlease's Anthony Bracks and Polaris Pacific's Paul Zeger

One thing that makes Oakland stand out is the ability to get project approval in the city's streamlined process, Gerding Edlen partner Brent Gaulke said. He said it was one of the best approval experiences his firm has had (one of the worst was LA).

The ease of the process, paired with a lack of supply and a need for housing, drew Gerding Edlen to Oakland, he said.

City requirements can cut both ways for the success of a project. Oakland's removal of minimum parking requirements downtown last fall eased the way for projects such as one in West Oakland from Panoramic Interests and Lowney Architecture, which does not have any parking at all.

Lowney Architecture founder and principal Ken Lowney said other requirements do not always serve the good of the project. Requiring ground-floor retail on certain projects makes sense for developments such as one at the corner of 40th and Broadway where the 2K SF of ground-floor retail positioned on a corner with outdoor seating will be ideal for a restaurant, he said. But in other cases, the ground-floor retail is likely to fail.

“It would be interesting if there was a small review for a retail study that could show retail use may not work at this time,” he said.

Lendlease's Bruce Berardi, Langan Engineering & Environmental Services' Lori Simpson and Lendlease's Anthony Bracks

Oakland has started to pencil for high-rise residential projects and fares better than San Francisco once again for the ease of those projects.

In San Francisco, a high-rise is required to have below-grade parking, which means the additional cost of digging and internal bracing — and the surprises that come with digging that can throw a project off-course, Lendlease senior estimator Anthony Bracks said.

In Oakland, parking can be above-grade. As Bracks put it, in one Transbay project, it could mean two years of digging and coming back up for a project, while an Oakland high-rise can start to go vertical almost immediately, reducing the schedule and the risk of cost increases.

Towers do present their own challenges. Kerr said rising costs are amplified on tower projects, which are much higher risk. He said building City Ventures' Station House West Oakland townhomes costs about one-fifth of the cost per square foot of building a tower — and lower costs result in homes at prices people can afford.

There are more apartments than for-sale properties in town, Polaris Pacific partner Paul Zeger said. There is about a one-month supply of for-sale units in Oakland, creating low inventory even as demand goes up.

Wendel Rosen's Todd Williams, BART's Robert Raburn, Alliance Residential Co.'s Doug Leventon, UrbanCore's Michael Johnson and Junction Properties' Charles Long

Bracks has lived in Oakland for 20 years and seen its transformation. It is now gaining critical mass and becoming a destination, he said.

With that critical mass comes more residents and commuters.

“BART is carrying crush loads every morning,” BART board vice president Robert Raburn said.

Ridership spikes by thousands around community events, such as First Friday or the Oakland Museum's Off The Grid.

Many Oakland residents find the commute is not that much different than for residents across the Bay. A study found commute times from a downtown Oakland project to spots in San Francisco would mean only a couple of minutes difference from commuting within San Francisco, said Alliance Residential Co. regional vice president Doug Leventon. At the same time, it could mean the difference of paying San Francisco rents or significantly cheaper rents in Oakland, he said.

Oakland draws three kinds of residents, Leventon said: the “priced-out poster child” making less than $75K a year that cannot live in San Francisco, but wants the access to restaurants, culture and transit; families with young children; and “East Bay lifers” — the hipster crowd that thinks San Francisco is cliché, he said.

UrbanCore Development's Michael Johnson and Junction Properties' Charles Long

Junction Properties owner Charles Long, who has two projects in Uptown, said the community surrounding multifamily and mixed-use projects is a huge part of the equation. In Uptown, tenants may work in town at some of the Oakland jobs that have grown in the past two years or commute to San Francisco, he said.

Uptown boasts lower density than farther downtown and more interesting things, including restaurants and art events, he said. Junction Properties is working with the community to create an arts district.

South of Lake Merritt, UrbanCore Development is moving forward on its project with East Bay Asian Local Development Corp., which will be 30% affordable and draw in tenants and the community through public spaces, UrbanCore CEO Michael Johnson said.

The project has been years in the making and the controversy surrounding it illustrates one of the challenges as Oakland develops — residents concerned about people being priced out of the community wanted the project, which relied on the purchase of city-owned land, to be 100% affordable.

In the end, UrbanCore's project was given the go-ahead by city council. Johnson said city leaders saw there was a need for both affordable and market-rate housing to help address displacement in the community, and the site was important to bolster the other mixed-use projects being developed at the south end of the lake.

Oakland Multifamily & Mixed-Use event

There is a definite concern that a backlash from the affordable housing and arts community could put a damper on development, said Long, who has lived in the city for more than 40 years. It is important to look at the city's downtown-specific plan and build in community benefits. Otherwise, projects could face roadblocks keeping Oakland from fulfilling its destiny as a great place to live and work, he said.