Z O N I N G A D J U S T M E N T S B O A R D S t a f f R e p o r t FOR BOARD ACTION OCTOBER 22, 2015 2319-2323 Shattuck Avenue ZP2015-0114 to modify Use Permit #06-10000148 to permit the payment of an affordable housing mitigation fee of $30,000 per unit in lieu of providing three below market rate (BMR) units out of a total of 16 dwelling units and an in lieu payment of the 0.2 remainder unit. I. Background A. Land Use Designations: General Plan: DT Downtown Current Zoning: C-DMU Downtown Mixed Use District, Outer Core 1 B. Zoning Permits Required: Use Permit Modification, under BMC Section 23B.56.020. C. CEQA Determination: An Initial Study and Mitigated Negative Declaration (MND) were prepared pursuant to Article 6 of the California Environmental Quality Act (CEQA) Guidelines. The MND was circulated for public review from February 21 through March 13, 2007, and the Landmarks Preservation Commission (LPC) conducted a public hearing and received comments on the MND at its meeting of March 1, 2007. The Zoning Adjustments Board (ZAB) adopted the MND and approved the project at its September 27, 2007 meeting. As the proposed modification would not substantially differ from what was originally approved, no new California Environmental Quality Act (CEQA) analysis is necessary. D. Parties Involved: Applicant Jim Novosel, The Bay Architects, 1840 Alcatraz Avenue, Berkeley, CA 94703 Property Owner Prasad Lakireddy, 2278 Shattuck Ave., Berkeley, CA 94704 1 At the time the Use Permit was approved (9/27/07), the property was zoned C-2 Central Commercial District. 2120 Milvia Street, Berkeley, CA 94704 Tel: 510.981.7410 TDD: 510.981.7474 Fax: 510.981.7420 E-mail: zab@ci.berkeley.ca.us
2319-2321 SHATTUCK AVENUE ZONING ADJUSTMENTS BOARD Page 2 of 6 October 22, 2015 Figure 1: Vicinity Map Subject Site 2319-2323 Shattuck
ZONING ADJUSTMENTS BOARD 2319-2323 SHATTUCK AVENUE October 22, 2015 Page 3 of 6 Table 1: Land Use Information Location Existing Use Zoning District Subject Property Surrounding Properties Mixed Use: incl. restaurant, 16 dwelling units C-DMU Buffer General Plan Designation Downtown North Pacific Telephone Building C-DMU Buffer Downtown South Retail C-DMU Buffer Downtown East Bank C-DMU Buffer Downtown West Restaurant, Bank C-DMU Buffer Downtown Table 2: Project Chronology Date December 14, 2006 March 1, 2007 February 21, 2007 through March 13, 2007 September 27, 2007 April 18, 2008 May 1, 2008 June 12, 2008 July 24, 2015 August 23, 2015 October 22, 2015 Action UP/Variance: Application submitted UP/Variance: LPC Design Review Referral Meeting UP/Variance: Mitigated Negative Declaration and Initial Study circulated for public review and comment UP/Variance: ZAB Hearing/Approval UP MOD No. 1: Façade Changes Application Submitted UP MOD No. 1: DRC/LPC Joint Hearing/Approval UP MOD No. 1: ZAB Hearing/Approval UP MOD No. 2: In-Lieu Payment Application Submitted UP MOD No. 2: Application Deemed Complete UP MOD No. 2: ZAB Meeting October 22, 2015 PSA deadline 1 1. Project must be approved or denied within 60 days after being deemed complete if exempt from CEQA, or 60 days after adoption of a negative declaration, or 180 days after adoption of an EIR (Govt. Code Section 65950). II. Project Background and Modification Request On September 27, 2007, the Board approved Use Permit #06-10000148 to: convert an existing 4,000-square-foot landmark office building into a restaurant and one dwelling unit; demolish an existing 3-story addition and remove eight existing parking spaces; construct a new 5-story mixed-use building with 2,609 square feet of commercial floor area and 15 dwelling units; and to provide parking off-site. 2 The Use Permit was approved and conditioned per the requirements of the City s Inclusionary Ordinance (BMC 23C.12). 3 For projects with five or more dwelling units, the Ordinance requires 20% of units to be below market rate (BMR); of the BMR units half are required to be at 50% of the Area Median Income (AMI), which is considered Very Low Income (VLI) and half are required to be at 80% AMI (Low Income). An in lieu payment is required for any 2 The ZAB approved a modification to the exterior façade and roof deck of 2323 Shattuck on June 12, 2008. 3 This project was approved prior to the restriction on inclusionary requirements for rental housing resulting from the State of California Court of Appeals decision in Palmer/Sixth Street Properties v. City of Los Angeles (2009) 175 Cal. App. 4 th 1396.
2319-2321 SHATTUCK AVENUE ZONING ADJUSTMENTS BOARD Page 4 of 6 October 22, 2015 partial unit remainder. As such, with 16 total dwelling units for rent, project approval is conditioned to include three BMR units, two at 50% AMI and one at 80% AMI. The project applicant is also required to pay an in lieu fee of approximately $48,000 for the 0.2 unit remaining (20% of 16 units = 3.2). 4 At this time, the property owner does not wish to include the BMR units within the development and has submitted this modification to request an in lieu payment of $30,000 per unit for a total payment of $480,000 to be deposited in the City s Housing Trust Fund (HTF). 5 As the project did not include a density bonus, allowing an in lieu fee instead of BMR units this would not violate state law. III. Community Discussion The applicant installed a pre-application poster prior to submittal of the application July 24, 2015. On October 8, 2015, the City mailed notices to adjoining property owners and occupants, and to interested neighborhood organizations and posted the public notice at and around the project site. As of the writing of this report, staff has received no public comment. IV. Analysis The subject Use Permit was approved and conditioned per the requirements of the City s Inclusionary Ordinance, which required new rental housing development projects to provide BMR units on site (BMC 23C.12.035). 6 New rental project developments entitled after the State of California Court of Appeals 2009 Palmer/Sixth Street Properties v. City of Los Angeles decision are subject to the City s Affordable Housing Mitigation Fee (AHMF) Ordinance (BMC 22.20.065). Adopted at $28,000 (Ordinance 7,192-N.S.), the fee was established though a 2010 impact fee nexus study, which quantified the need for affordable housing created by the development of new market rate rental housing. 7 Planning staff conferred with staff of the City s Health, Housing and Community Services (HHCS) Department to discuss the merits of the modification request. Staff from both Departments concurred that the existing entitlement, which includes the provision of two dwelling units at 50% AMI (Very Low Income) and one dwelling unit at 80% AMI (Low Income), plus payment of the 0.2 unit remainder (approximately $48,000) is preferable to the proposed in lieu payment. Staff s position is based on the following considerations: As of February 2015, the City has entitled 15 projects that are subject to the AHMF. The Planning Department estimates that 11 of these, all of which have elected not 4 The remainder in-lieu fee is calculated on the fractional value of the difference between development cost (excluding marketing costs and profit) and actual sales price for the average comparable unit in projects (BMC 23C.12.040.E). 5 The application originally proposed an in lieu payment of $20,000 per unit. 6 The California Appellate Court decision City of Berkeley v. 1080 Delaware LLC, (2015) 234 Cal.App.4th 1144 affirmed that permit conditions remain enforceable despite a subsequent intervening decision (e.g. Palmer/Sixth Street) invalidating the enabling ordinance (e.g. Inclusionary Housing Ordinance). 7 An applicant for a development project that is subject to the fee may elect to avoid the fee by providing, for the life of the project, a number of units equal to 10% of the market rate units in the project at rental rates affordable to Very Low-Income Households. An applicant may provide less than 10% of market rate units as Very Low-Income Units and pay a proportionately reduced fee based on the following formula: [(A-B) x Fee] [(B/((A-B) x 10%)) x ((A-B) x Fee)] Where: A = Total number of units in the project B = Number of Very-Low Income (VLI) Units provided the project.
ZONING ADJUSTMENTS BOARD 2319-2323 SHATTUCK AVENUE October 22, 2015 Page 5 of 6 to make use of the State Density Bonus Law, will pay all or a portion of the in-lieu fee for a total of $6,100,000 into the HTF. 8 The first project to pay the AHMF will contribute $1.58 million by November 4, 2015. As the applicants for these 11 nondensity bonus projects have indicated their intent to pay the AHMF, the HTF balance will be receiving a steady funding source as these project come on line. Although the HTF has the benefit of leveraging other funding sources, as well as funding construction for a range of affordability levels, from Very Low to Moderate Income; the City is dependent on an outside developer to apply for these funds, entitle and construct the affordable housing development. The existing project is close to receiving a Certificate of Occupancy, and the three below market rate units would be made available to qualifying families within the next calendar year. Finally, and perhaps most significantly, the City is currently updating the AHMF nexus study. 9 The draft 2015 Nexus Study found that 93.27 new workers would be generated by direct, indirect, and induced employment resulting from a 100-unit rental project. These 93.27 workers would result in 52.57 new households distributed across the full range of incomes. Housing affordability has significantly declined since 2010, and households must now earn more than 100% AMI in order to afford market rents. In 2015, the financing gap required to produce housing affordable to these new households earning 100% AMI or less resulted in a maximum impact fee of $84,391, as opposed to the maximum impact fee of $34,017 identified in the 2010 nexus study. This is an increase of almost 250%. Additionally, as part of the 2015 analysis, it was determined that 25.55% of new rental households would require assistance to acquire affordable housing. This is a substantial increase over the 10% figure from the 2010 Nexus Study and provides justification for increasing the percentage of affordable units deemed to be equivalent to the fee. The 2015 draft Nexus Study highlights that neither the current fee of $28,000 nor the applicant s proposal of $30,000 are adequate to meet the affordable housing impact created by new development. For comparison and consideration, see Table 3 for various in-lieu fee scenarios. Table 3: Entitlement and In-Lieu Fee Project Scenarios 2319-2323 Shattuck Avenue Scenario On-Site BMR Units Fee Difference between development costs and actual sales price (estimated) Current Entitlement/Inclusionary Requirement (16 units x 0.2) = 3.2 units Current Entitlement if in lieu (based on calc. formula for remainder fee) 2 units at 50% AMI + 1 unit at 80% AMI $239,100 0.2 remainder x $239,100 = $47,820 none ()$239,100 x 3 BRMs = $717,300 Current Proposal none $30K per unit = $480,000 Current AHMF @ $28K none $28K per unit = $448,000 "Test" AHMF ($34K) under draft nexus study none $34,000 per unit = $544,000 Max. AHMF ($84K) under draft nexus study none $84,400 per unit = $1,350,400 8 The estimated funds are based on the temporarily reduced fee of $20,000 per unit. The reduced fee expired July 1, 2015. Newly entitled projects will be subject to the in-lieu fell of $28,000 per unit. 9 City Council held a work session on the Affordable Housing Nexus Study on July 14, 2015. The draft study and staff report can be found online: http://www.cityofberkeley.info/clerk/city_council/2015/07_jul/city_council 07-14-2015_- _Special_Meeting_Agenda.aspx
2319-2321 SHATTUCK AVENUE ZONING ADJUSTMENTS BOARD Page 6 of 6 October 22, 2015 The City approved Use Permit #06-10000148 after a thorough analysis of the project as a whole, taking into account the entirety of potential impacts within the specific context of that time and place, including the provision of the BMR units and the associated conditions of approval. There is no direct relationship between the conditions of approval and the alternative proposed by the applicant and the applicant has failed to demonstrate how eliminating the on-site BMR units is in the City s best interest. V. Recommendation Staff recommends that the Zoning Adjustments Board make the Findings for Denial (see Attachment 1) and DENY ZP2015-0114. Attachments: 1. Findings for Denial 2. Applicant Stated dated July 22, 2015 3. Notice of Public Hearing 4. Correspondence Received Staff Planner: Leslie Mendez, lmendez@ci.berkeley.ca.us, (510) 981-7426