One of Oakland's most valuable residential development sites, wedged between downtown and Lake Merritt, was zoned last year for "one of the most generous density allotments in a Bay Area major city," according to the property's sales brochure.
The site at 12th and Webster Streets could pack in 650 units in two high-rises and a mid-rise across 1.25 blocks near downtown, which would have made it Oakland's largest residential development in the pipeline near downtown.
The economic realities of building in Oakland are getting in the way.
Forma LLC now has a non-refundable agreement to buy the site and build apartments two blocks from 12th Street BART. But the developer says highrises don't make financial sense. Construction costs are similar to San Francisco, but rents are typically 30 to 40 percent lower.
"The more we look at construction costs in Oakland, it's not that much cheaper the San Francisco so we're trying to determine what the final project should be, said Forma president Walid Mando. "The more we look at it, the more it makes sense to do lowrise."
He added that the site would likely include a mid-rise building between 10 and 16 stories to sit side-by-side with a low-rise building on one piece of the property and another low-rise building across the street. It would likely include 200 to 300 units in all, less than half the 650-unit zoning.
This project points to an unfortunate reality of the housing crisis: Policy and zoning can only make so much difference in efforts to increase density.
Dean Rubinson, director of development at Ellis Partners, said highrises are more expensive to build because of pricier construction types, structural code requirements and life-safety systems. His firm plans to build highrises nearby in Jack London Square because the area can demand higher rents or sales prices than 12th and Webster site due to its thriving retail and waterfront views.
"Very often, highrises only make sense in certain locations with demand potential to absorb the units. Even if on paper you can make it work, it's really only limited to locations where there's peak demand, in cities like San Francisco or select locations in Oakland," Rubinson said. "I'm not sure if 12th and Webster falls into that category. Zoning aside, it may not pencil as a highrise."
Construction cost estimates vary, but usually are about $500,000 to $600,000 a door. Rents for new construction projects in Oakland are approaching about $4 a square foot.
Several developers have submitted plans for highrises a bit farther north in the Uptown neighborhood, but are seeking financing.
Mando said the San Francisco-based firm will soon submit plans with the city and has a financial partner to build it. He added that the firm has been "bombarded" with offers from larger multifamily developers to create a joint-venture on the development, but declined to name names. He also declined to share the land price.
The land was brokered by David Wientjes of Kidder Mathews. The only major project touted on Forma's website is the San Francisco boutique luxury condominium project at 829 Folsom St., built in 2008. It has also worked with larger developers, particularly with REIT AvalonBay Communities on projects in San Francisco.
Major developers like Strada Investment Group and the U.S. arm of China's Greenland Holdings (SHA: 600606 ) declined to buy the 12th and Webster site after being offered it, said one source.
The site was rezoned under last year's Chinatown/Lake Merritt BART plan. The plan accommodates 4,900 new housing units, 4,100 new jobs, 404,000 square feet of additional retail, and 1.2 million square feet of office uses over the next 25 years.
The 12th and Webster site - which now houses a parking garage and Oakland Charter Academy that have flexible leases - is surrounded by more promising development proposals. The couple blocks surrounding the 12th and Webster site include a mixture of Chinese and Vietnamese restaurants, along with banks, liquor stores and an adult bookstore.
But two blocks west, SKS Investments has the right to build a 20-story office tower and is in serious talks with potential tenants. Two 100-plus-unit residential proposals sit on 14th Street, a couple blocks north. A half-dozen blocks east is the vacant Henry J. Kaiser Convention Center, which is slated to get a huge makeover into an events center and high-end offices.
BART also controls two adjacent 60,000-square-foot parking lots on top of the Lake Merritt station. The agency is due to solicit development proposals for the site this fall. The properties are zoned for 275-foot towers, likely providing the opportunity for the construction of 800 or so units.
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