High building cost is economically infeasible

Harbor houses in Point Richmond, near the build site // photo by Nick Fullerton

I was at a Design Review Meeting in Richmond a few years ago, in 2016 or 2017, for a project hearing. There was another project slated to go before us and they had boards set up across the room for their presentation.

We were early so we walked around and looked through their project. Our jaws hit the floor.

It was a great looking project. It was a large condo project on the waterfront of Richmond. The unit plans needed some help, but the design was over the top. Floor to ceiling glass walls, structure-less corner foldaway glass doors, aluminum finishes, engineered stone panels, subterranean parking garage with a park above, personal elevators in two story(!!) units...the list of amenities was long and the aesthetic was spared little expense.

For those that don't know Richmond, it's a real messed up city. It's one of the cities in the Bay Area that you pretty much avoid. It, like Oakland, is infested with violent crime, but has none of the charm of Oakland. One small area called Point Richmond, where their project is, is pretty nice, and completely segregated from the rest of Richmond. Still, it's Richmond.

When we were done picking our jaws off the floor, we talked among ourselves at what the cost of construction must be. It must have been astronomical. There is no way any of our for sale clients would ever spend that much money to build condos, especially in Richmond. Maybe in SoMa of San Francisco. Maybe.

It was obvious they've been through multiple rounds of Design Review and later heard that they were in the process through entitlements for give or take five years. The unelected board members gushed over the project and remarked how much better it was now than it was before. Well yeah. If I had free reign and no budgets to worry about, I can build badass looking buildings too.

Of course, we didn't have that. Either one. Someone high up in City Hall demanded us to design Santa Barbara style architecture in our site or he would refuse to support the project. Even though that style of architecture would be completely nonsensical given its context. Even though none of the potential buyers would want Santa Barbara. We also had to consider that these would sell at the lower end of market rate. The Design Review Board absolutely tore into us. Yeah, even though we had buildings we didn't even want to design in the first place. And that we were in a high crime, low income region, one step up from the infamous Iron Triangle, but far from Point Richmond. To give an idea of the disparity, homes in Point Richmond, at the time of this post, is about $500/SF. Where our project is, you're looking at about $350/SF.

And still, the Design Review Board hemmed and hawed about the previous project, citing things they did there and what we're not doing here. They lambasted the aesthetic direction, even though we were forced into it.

Fast forward to today.

I found out recently that the project that went before us is now back on the market. No, I don't mean there is a built condo that people can now buy. I mean that there is nothing built there yet. I don't even mean that the entitled project is on the market to be sold to a builder to build the designed buildings.

What I mean is...there is no project. They wiped everything clean. Their entitlement was worthless. There were no buyers that showed interest in purchasing it to build.

Of course there weren't!!! It was a project that needed to sell at something like $1200/SF located in an area with a ceiling of maybe $650/SF. It was completely out of touch with reality.

I don't know the exact details of the project and the gyrations it had to go through. Some of it was maybe the developer's fault. It was backed by money from China, maybe they didn't do the due diligence of researching the area.

But my feeling, after having to deal with those nutballs in the Design Review Board (okay, not all of them were bad; two in particular suffered from a large case of Dunning-Kruger, and no, I'm not naming names) for a few years over that one project myself, is that they really pushed the costs way higher than reality could support. Saying "high building cost is economically infeasible" is like saying "water is wet". But it's apparently not obvious to government boards.

But pushing costs over that egregiously? The developers really needed to recognize that the DRB does not operate with any financial or economic sense and just because you have to do what they say to gain an entitlement to build, doesn't mean the building will be economically feasible. You can build a Taj Mahal, but it doesn't mean people can afford to buy or rent units inside it. Developers and builders need to operate within the realms of reality because if they don't, they lose millions of dollars. If DRBs operate outside of the realms of reality, it's still the developers and builders that lose millions of dollars. And what happens when builders and developers lose millions of dollars due to repeating circumstances? They have to build the cost of project failures into their pro formas, meaning they can't build until a housing shortage increases to the point where the inflated prices becomes worth it for them to take the risk.

There could have been over 300 more residential units on the market. But instead there is no project. The Design Review Board wasted five years of the developer's time and likely millions of dollars in the process. All for exactly bupkis.