Today, the City of Cupertino released a new economic analysis report related to the revised zoning recently adopted by the City Council for the Vallco Shopping Special District Area. The analysis, conducted by independent consultant Hausrath Economics Group, establishes the economic feasibility for a developer to build at least 459 housing units on 13.1 acres of the Vallco site. The City’s analysis is a direct response to a feasibility analysis that had been prepared on behalf of Vallco Property Owner, LLC.
The new analysis by Hausrath used the same methodology used by Vallco’s economic consultant for determining whether two potential development scenarios under the new zoning designations for the Vallco site would be economically feasible. The Hausrath memo explains, “Economic feasibility means that given the price the developer paid for the land, a development scenario would produce a sufficient profit to the developer to attract financing.”
The City commissioned this updated economic analysis after the City Council adopted zoning allowing residential development by-right at a density of 35 dwelling units per acre on 13.1 acres of the site. This new zoning allows development of up to 459 housing units, with up to 620 units allowed under State density bonus laws.
“The City Council’s decision to update the General Plan and zoning for the Vallco site allows the developer to move forward quickly with the construction of as many as 620 units without requiring additional negotiations with the City,” City Manager Deb Feng said. “In the meantime, City staff is working in good faith to support the developer’s efforts to move forward with site preparation and construction of the Vallco SB 35 project. The City continues to diligently process Vallco’s demolition and building permit applications for the project.”
Although the developer and Hausrath took the same general approach, the Hausrath report relied on more realistic market data for both construction costs and projected sale prices for condominiums. The Hausrath analysis showed that the analysis by Vallco’s consultant veered significantly from mainstream industry construction cost estimates for this type of housing development and are “fully 50% higher than [such] estimates,” making Vallco’s analysis “not credible.” The City’s consultant found, instead, that a developer could build either of the following scenarios while realizing a substantial profit under the City’s new zoning for the site:
- 459 condominium units; 15 percent affordable (50 percent median income and 50 percent moderate income); no density bonus.
- 620 condominium units allowed with density bonus; 40 percent affordable including 7.5 percent affordable to median income households and the balance affordable to moderate income households.
The City’s consultant agreed with Vallco’s consultant that the development of rental housing on the Vallco site would not be economically feasible.
The City of Cupertino commissioned this additional economic analysis in response to concerns that its new zoning for Vallco would impede the development of at least 389 housing units on the site, which is the number of dwellings Cupertino has slated for the site in its state-mandated Housing Element. Although Cupertino has already approved a project for the Vallco site under SB 35, that project is currently facing a legal challenge by a community group. The City Council amended the zoning for the site to ensure that, should the SB 35 project not move forward for any reason, housing could be built at a density of 35 units per acre on 13.1 acres of the site by right, without requiring the developer to complete a Specific Plan for the project.
Under these changes, any application to develop housing according to the new zoning regulations could be immediately processed by the City so that the planning and construction process could move forward quickly. The City Council also directed staff to begin developing a Specific Plan for the remainder of the site that would allow up to 1,500 housing units within the entire Vallco Shopping District Special Area and it directed City Manager Deb Feng to work with Vallco Property Owner, LLC on other project alternatives.
“The City of Cupertino continues to act in good faith and in full accordance with State housing laws in planning for development of the Vallco Shopping District Special Area,” concluded Cupertino City Attorney Heather Minner. “The City is committed to meeting its regional housing needs allocation. This latest Hausrath analysis makes clear that development of a significant housing project on the Vallco site is economically feasible and would return a profit to a developer.”