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Times Are Tough for Bay Area Construction. Here's Why.

Cranes may be all over the city, but local construction vets say it's harder than ever to get projects to pencil out. That was the consensus of the pros at Bisnow's 2nd Annual Residential Real Estate Summit this week at the Intercontinental.

Suffolk Construction president Andy Ball told attendees his firm has a $1.5B Bay Area backlog, with close to 3,000 residential units under construction. But he says it's tough to make a lot of projects work—especially during these good times in the market, citing labor availability as the single greatest driving factor in price escalation.

TNDC director of housing development Katie Lamont says there's an underfunded system of developing and financing affordable housing, and middle income isn't well served. So in the past few years, TNDC has resorted to partnering with market rate developers to get more affordable units off the ground. It did just that at Related's Transbay 8 site.

HKS associate principal Tom Sprinkle says the logistics of getting to work every day are important when it comes to housing locations. He says getting projects off the ground today is hard; once zoning, land constraints and construction costs, political strategy and site capacity are factored in, not all these deals pencil.

Lend Lease SVP Bruce Berardi agrees projects are challenging to figure out today, especially with cost escalations. What helps is getting on board early to bring on the designers and developers. He suggests spending money as soon as you can on studies to figure out as much as you can about the project in order to be proactive.

Mayor's Office of Economic Workforce Development project director Sarah Dennis-Phillips thinks the only solution to alleviate the housing crisis is to build more of everything at every level.

Essel Environmental Engineering & Consulting president Nik Lahiri, who moderated, asked Sarah about the city's acquisition fund that will leverage private capital. Sarah says the accelerated fund could be used to quickly secure rent controlled buildings that are at risk of being flipped. She's targeting an initial seed fund of $30M starting next February and is actively fundraising.