Nearly 800 acres at the former Naval Air Station Alameda may languish another two years in wait for redevelopment. Irvine-based SunCal Cos. wants to extend a three-year exclusive negotiating agreement with the city of Alameda to allow time to complete an environmental impact report and multiple other mandatory milestones.
The question now is whether Alameda will continue to work with its second master developer seeking to remake the former base, which closed in 1997. The city plans a public hearing next month on SunCal’s most recent development application, which calls for building at least 3,700 homes and four million square feet of commercial space.
Alameda Point’s waterfront property is one of the largest remaining centrally located sites available for redevelopment in the Bay Area. It sits across an estuary from Oakland and within minutes of San Francisco by ferry or bridge.
SunCal has not yet formally requested the extension from the city. The exclusive negotiating agreement, which began in July 2007 and expires July 20, requires the master developer and the city of Alameda to create a disposition-and-development agreement for the property.
With about five weeks to go before the current exclusive negotiating period ends, three requirements are yet to be met: a complete entitlement application; a term sheet with the Navy, which owns the land; and the disposition-and-development agreement. Both city staff and a SunCal spokesman expressed doubt that all of the milestones will be met by the deadline.
City staff also say SunCal has failed to provide enough details for planners and council members to make an informed decision on its entitlement application and that the developer’s financial projections are overly optimistic, according to staff reports and a city-retained economic consultant.
SunCal contends it is working diligently with city staff members to meet its ENA obligations. Its projections are based on 70 years’ experience and “conservative estimates,” said David Soyka, SunCal’s senior vice president for public affairs.
The Navy wants $108.5 million for the Alameda Point land. The term sheet would determine terms and conditions for the amount and timing of payments to the Navy by Alameda, through its master developer, in exchange for the transfer of the land. The Navy, Alameda and SunCal must agree to all of the document’s terms.
The term sheet was one of the milestones in doubt from SunCal’s perspective, Soyka said. “I’m not saying it isn’t going to happen, but some things take longer, and we had a change of administration on the national level, and we had a new secretary of the Navy to [be] put in,” Soyka said. “That is one of the boxes we haven’t checked off.”
A key piece of supporting information for negotiating the Navy term sheet is the pro forma, an income statement for a real estate project that estimates capital costs, operating income, expenses and return on investment over a specific period.
A review of SunCal’s pro forma for Alameda Point by the city’s economic consultant, Economic & Planning Systems of Berkeley, calls into question several key assumptions, including expected appreciation in home values and the anticipated absorption rate, the speed at which a developer can sell housing units and gain revenue, said Jennifer Ott, deputy city manager and Alameda Point project manager. It affects the internal rate of return for a project.
SunCal wants an IRR of 20 percent to 25 percent for Alameda Point, according to city reports.
Home values in Alameda currently average about $583,000 a unit, with homes in Bayport, a newer master-planned community adjacent to Alameda Point, selling for around $750,000 a unit, according to EPS in its review of the SunCal pro forma. By 2014, SunCal forecasts that a single-family home on the island will sell for an average $1.04 million; EPS expects the average price to be around $860,000.
The review also found that the pro forma predicts an absorption rate significantly higher than that in Bayport, 233 single-family homes and town homes each year. But between 2000 and 2009, single-family residential growth in Alameda averaged less than 75 units a year, EPS found. Its market assessment predicted an average annual absorption rate between 150 and 200 single-family and town home units.
SunCal’s March 21 entitlement application calls for building 3,712 new homes along with 4.05 million square feet of commercial space and about 146 acres of parks and open space. The commercial development would include approximately 262,000 square feet of retail, according to documents.
But the developer has also told the city it may pursue a density bonus, which could push the residential development as high as 4,800 units.
SunCal contends the base plan contained in the March 21 application is a “first step” in the entitlement process toward achieving the density-bonus plan, which should be analyzed through CEQA’s Environmental Impact Report process, according to a May 18 letter from the company’s land-use counsel, Amy Freilich, to Andrew Thomas, the city’s planning services manager.
But city staff said the March 21 submission, known as the “modified optional entitlement application,” provides “little certainty about how the property will eventually be developed, especially given SunCal’s request to develop the density bonus,” according to a May 18 presentation to the city council.
The modified entitlement application “ensures maximum flexibility for future developers of Alameda Point to respond to future market conditions and avoids or delays commitments regarding specific land uses design requirements, services or operations,” the staff report said.
“While a certain amount of flexibility is reasonable to enable the Master Developer and vertical builders to respond to changing market conditions, the [application] does not provide the upfront commitments regarding the actual project SunCal intends to develop that the community and staff have expected.”
Voters earlier defeated a proposal to allow Alameda Point an exemption from city density limits.