Sources: UC Berkeley’s Woes Caused by Poor Governance, Planning and Financial Inadequacy—Not CEQA

UC Berkeley, UCOP, Blackwell Hall, Governor Gavin Newsome, Save Berkeley’s Neighborhoods
Blackwell Hall. Courtesy of UC Berkeley

By Meghan Hall

UC Berkeley’s development challenges have been splashed across the front pages of major media outlets over the past few weeks. Many of the latest headlines are quick to point the finger at CEQA, California’s oft-complained about environmental law. However, a number of sources have come forward to The Registry stipulating that Cal’s issues with development are not because of environmental regulation, or even not-in-my-backyard-ism, but the university’s own mismanagement of funds, talent and political pressures. 

“I think the way that Berkeley is run, and the way that it is governed, it is inevitable that something would blow up,” said a source familiar with Berkeley’s finances. “The way the place is run, it is not financially sustainable.”

The source, who requested to remain anonymous in order to protect relationships added, “If your strategic plan is not financially sustainable, it’s not a strategic plan. The pressure has got to show somewhere.”

However, Berkeley’s problems started long before the institution became mired in this latest conflict with its neighbors. In the 1960s, about two-thirds of U.C. Berkeley’s funding came from the state. By the end of 2019, the university was receiving just 12 percent of its funding from the state. State funding, in nominal dollars, has declined from more than $500 million in 2007/2008 to $320 million in 2015. 

Berkeley’s main source of funding was already slashed when tuition freezes took effect. Tuition across the UC system remained frozen between 2011 and 2014, until the UC Board of Regents ultimately voted to increase tuition by five percent over five years. This, however, was not a politically popular decision, and then-governor Jerry Brown placed a new two-year freeze on tuition in May of 2015.

With tuition frozen but costs rising, Berkeley’s next step was to increase enrollment. The most lucrative way to do this was by increasing the number of out-of-state students accepted to 24 percent, since those students pay more in tuition. Those plans were subsequently thwarted in 2016, when the University of California system made another critical decision that would impact Berkeley’s path: It voted to place a cap on the number of out-of-state students UC Berkeley could accept. Berkeley pivoted once again, this time working to increase its overall headcount in order to keep its proportion of in-state and out-of-state students in line with UCOP’s mandate.

All of this occurred while other austerity measures were undertaken: Teachers were cut, and $1.5 billion in deferred maintenance quickly piled up across campus. Most significantly, the university failed to expand physically. Despite a student population of about 42,000, Berkeley has just 8,700 beds. By comparison, UCLA has around 45,900 students and houses about 20,500 of them; by fall of 2022, UCLA will become the first University of California campus to guarantee housing for all of its undergraduate student population. 

“They constrained all other sources of revenue so the only way they could expand, and it happens to be politically acceptable, is through adding California students. But the university had no plan for dealing with them because they didn’t have the debt capacity or the professional capacity…There is not a business in the world you can run [like that]. The neighbors have a genuine grievance,” the source said.

At the same time, the university was attempting to move forward with a new department headed under the Vice Chancellor of Real Estate, or VCRE. Headed by Bob Lalanne, a former Cal alum who agreed to do the job for just $1 per year, VCRE was planning to help get Berkeley’s balance sheet—and commercial real estate—back on track.

As Cal took on more students, the VCRE warned university officials that it would be in violation of its long-range development plan, which stated that the university needed to have 18,000 beds to accommodate the growth of its student population.

“When you take all of these students, and they have no place to live, [it creates] an impact,” Lalanne said.

But with limited development, students instead were housed throughout greater Berkeley, in off-campus communities that were master-leased at or above market rents, according to sources familiar with UC Berkeley’s housing policies. 

“Berkeley is the only institution that has no student housing on their central campus,” said Phil Bokovoy, who represents several Berkeley neighborhood associations, including Save Berkeley’s Neighborhoods (SBN). “Their development strategy has just been to put the students in the community, and they’ve done that for a long time.”

During its brief, three-year tenure between 2014 and 2016, the VCRE developed $500 million in projects, including the renovation of Bowles Hall, Albany Village Senior Housing and Sprouts-anchored retail center, adaptive re-use of California Memorial Stadium, the new School of Public Health and Jacobs Engineering Building, and more. Blackwell Hall, a 700-student dormitory, was developed for about $125,000 per bed. The VCRE projects were all constructed using union-contracted, public-private partnerships. Blackwell Hall was constructed entirely on the balance sheet of American Campus Communities, so no debt was accrued. 

By comparison, Martinez Commons, built before the VCRE took over, was constructed for $195,000 per bed. The Helen Diller Anchor House, which has 772 units and is under construction, will cost about $350,000 per bed to construct, per Lalanne’s analysis. Lalanne emphasized that the increases in costs were not from supply chain or the price of construction alone.

“I think it is absolutely [about] process,” Lalanne said. “It seems like most want to blame this housing mess right now on CEQA, and while I really feel like CEQA needs to be reformed, this isn’t a CEQA issue..It is more of a question of the campus meeting their requirements.”

Despite the VCRE’s relative success, however, the department struggled to gain support from university officials. In 2016, the office of the VCRE was eliminated by university leadership after a lethal mix of politics and stubborn habits got in the way.

“I think [the opposition] perceived Lalanne as part of that structure that was a threat to them, because [for them], it was a little bit too oriented toward private sector efficiency and holding people accountable, and they had lost control of the VCRE in that process, which they did not like,” former Cal Vice Chancellor for Finance and Administration (VCFA) John Wilton told The Registry in a 2019 interview

Lalanne called the decision to get rid of the VCRE a “head scratcher.” 

While the VCRE faced a lot of internal opposition, the department worked well with the surrounding community. None of the projects pursued by the VCRE were challenged by the greater community via lawsuits.

Lalanne noted that when he initially began reaching out to local neighborhood associations, many questioned the decision to connect with “the enemy.”

“Bottom line, we met with them, had a great meeting,” said Lalanne. “When it comes to business partners or commitments you make to a city or community, when you say you are going to do something, you better darn well do it because there’s consequences, probably negative, if you don’t. That’s the communication I think you need to have. Obviously [the university] hasn’t been good the last five, six years, because things are where they are today.” 

Bokovoy added, “[Bob] was great. Everybody liked him. We never understood why he got thrown overboard. That’s the problem at UC.”

Since then, Berkeley seems to have largely reverted to its old ways. In April of 2018, Save Berkeley’s Neighborhoods filed its first lawsuit against the university and UC Regents due to over-enrollment. In June of 2019, Save Berkeley’s Neighborhoods and the City of Berkeley filed another lawsuit against the UC Regents and UC Berkeley Campus for similar reasons.

“The catalyst [for the lawsuits] was when we discovered that they were playing hike the ball with enrollment numbers,” said Bokovoy.

UC Berkeley, some say, has a long way to go. While Governor Newsom has signed legislation to permit students to enroll on campus this fall, its structural and political issues remain.

“If the state really cared about the students, they would make sure there was adequate housing, that the buildings aren’t falling apart,” said Lalanne. “If Berkeley built the 10,000 units from their last long-range development plan, my hunch is that the neighbors would be a lot happier today.

As of this writing, UCOP has not yet returned The Registry’s request for comment.

West Coast Commercial Real Estate News