The following is a three-part exposé of how the University of California, Berkeley came to the idea of creating a special department to manage all its real estate holdings and how it took it all down. The first part of this story was published on Monday, October 21, the second was published on Wednesday, October 23, and the final part is below.
By Meghan Hall
Despite the successes that the office of the Vice Chancellor of Real Estate (VCRE) achieved during its short tenure, Bob Lalanne and the VCRE encountered a good deal of opposition in their quest to overhaul Cal’s real estate portfolio and many of the university’s spending practices. The opposition proved effective — and the departure of Bob Lalanne in 2016 signaled the end of the office of the VCRE and everything set in motion to upend a decades-long process of inefficiency and siloed organization structure.
According to John Wilton, the university’s former Vice Chancellor for Finance and Administration (VCFA), general opposition to change, Cal politics and weak leadership at the level of the chancellor meant the failure of the VCRE. “I think one of the root causes of all of this was that the academics, they really like to run the place,” said Wilton. “But I think they 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.”
Wilton departed in 2015, after which the VCFA was split into two positions: a Vice Chancellor of Administration and a Vice Chancellor of Finance. In early 2016, Chancellor Nicholas Dirks was facing heavy opposition from faculty as well as a potential vote of no-confidence. He resigned in August of 2016, stating, “I have come to the personal decision that the time is right for me to step aside and allow someone else to take up the financial and institutional challenges ahead of us,” he said in a letter. “We need fresh approaches and new ideas as Berkeley forges a path to maintain its excellence along with its full commitment to a public mission.”
Two months after Dirks’ departure, Lalanne resigned. One source mentioned that Student Affairs and Athletics — two sources of debt within the university — refused to acquiesce to attempts to restructure.
“They are not unique,” added Wilton of the two departments. “It is like the chemistry department would not want people to do physics in it. The place is so siloed that people see property as their piece of real estate, not Berkeley’s. We put the Haas Business School [in Athletics], with the innovation lab, and we put the Goldman School [of Public Policy] in there. All of those schools were paying for space outside of campus; instead of paying a private landlord, they were now paying us. But I had to force it. You can only do that if you have the power.”
The ultimate result, Wilton noted, was that Dirks, along with new Chancellor Carol Christ, decided to change the Cal’s lines of financial reporting, making it nearly impossible for the VCRE office to push new capital projects forward. Christ, and Cal’s Office of the Chancellor, did not respond to The Registry’s request for comment.
Indeed, the same sentiment was laid out in Lalanne’s departing letter, in which he notes that, “One of the main reasons why real estate challenges existed at Berkeley is that the responsibility for the assessment, management and execution of real estate was dispersed across many departments, some of which have little real estate development and operating expertise and even less data or metrics to measure performance. The VCRE’s authority to integrate outcomes across disciplines…was a key to success for optimizing Berkeley’s real estate portfolio, on and off campus. I fear changes that have been recommended will take us backwards in terms of addressing this fundamental disaggregation and as a result, the inability to maximize outcomes for the benefit of UC Berkeley.”
Ultimately, however, it was the decision by the Chancellor, Provost and new VCAF to eliminate the position of the VCRE and offer Lalanne an advisory role on real estate projects external to campus that ultimately drove Lalanne to resign.
Now, three years later, it appears that Berkeley has resigned to its old ways in its handling of finance and real estate. A letter issued by Sanjay Govindjee, Chair of Berkeley’s Committee on Academic Planning and Resource Allocation (CAPRA), in September 2017, nearly a year after Lalanne’s departure, notes that Cal was still experiencing an “accountability crisis” that threatened progress on reducing the university’s structural deficit.
The letter continues to state that, “The campus has limited staff with the type of financial and real estate skills we presently need, including at the most senior levels, so reports and projections both before and during a major investment are almost always woefully lacking, if not absent entirely,” representative of an almost ironic reminder of what the VCFA and VCRE offices were striving to achieve in the first place.
Since the dissolution of the VCRE, Cal continues to struggle with its laundry list of “to-dos” at a time when monetization of its assets has become increasingly critical. In March of 2018, three years after the $200 million Lower Sproul Student Affairs and ASUC project opened, Chartwells, the company responsible for providing the center with food and drink businesses, pulled out of its ten-year lease agreement, denying the university of $500,000 in rent annually. Chartwells sited low traffic as the reason for its withdrawal. Sources who spoke with The Registry maintained that the VCRE had advised against the viability of the project in 2013, but those suggestions, one person noted, were ignored.
Additionally, the university is now mired in a lawsuit as a result of its financial and real estate policies. In June, the City of Berkeley sued UC over its failure to accurately analyze its decision to increase university enrollment by 30 percent, a decision that arose out of a need for additional revenue. But in its lawsuit — which was issued in response to a supplemental EIR recently approved by the university for its proposed Upper Hearst project — the City of Berkeley contends that the cost of providing public services has skyrocketed, and the city has asked the university to pay an additional $21 million a year on top of Cal’s current payments to the city, as a result.
The lawsuit has also been compounded by criticism that the Student Affairs’ version of the Upper Hearst project is nearly $43 million more than that of the one originally proposed by the VCRE. Save Berkeley Neighborhoods, a local association, is also suing on similar grounds.
The extra $21 million annually would not be easy to spare; the university has already taken out a three-year, $60 million loan from the University of California Office of the President (UCOP), repayable beginning this year, in an effort to keep up with its deferred maintenance.
“They couldn’t borrow in the market, because the campus had maxed out its borrowing capacity…the president’s office turned the tap off,” said Wilton.
Where future funding will come from in order to keep up with the annual requirement of $40 to $60 million for maintenance is unclear. But unless Berkeley addresses the issues head-on, believes Wilton, the university’s caliber will only continue to decline.
“As soon as you threaten the existing power structure, you have a problem,” said Wilton. “You have got to change the governance structure; you have got to change who is hired. You have to make the place more independent, and then hire the right people who have knowledge of those dynamics. I do not think either of those things will happen, and that is why Berkeley is declining in ranking. Unless you tackle deep structural issues, everything else is a band-aid.”