DATE: March 24, 2022
TO: Council Economic Development Committee
FROM: Assistant City Manager
SUBJECT: Program and Ordinance Update: Vacant Property Ordinance Monitoring Program & Property Owner Engagement Strategy
RECOMMENDATION
That the Council Economic Development Committee (CEDC) reviews this update on the Vacant Property Monitoring Program and Ordinance and provides feedback to staff.
SUMMARY
Prior to adoption of the Vacant Property Monitoring Program and Ordinance (VPM), there were three key elements affecting staff's ability to conduct enforcement on abandoned residential properties: (1) knowing when a property has been vacated; (2) knowing who the current owner or authorized representative might be and how to effectively and timely communicate with him or her; and (3) determining the minimum standards for maintenance, security, boarding and site conditions that apply.
Adopted by the Council on October 29, 2019, under Article 29 - Vacant Property Ordinance, the new ordinance and monitoring program established general standards and compliance policies to assure accountability for neglected vacant properties, combat nuisance and safety concerns, ensure public safety, and encourage economic development through owner engagement.
In March of 2020, proactive inspections and administrative tasks associated with the VPM were placed on hold due to COVID-19 and Code Enforcement staff being reassigned to emergency duties related to the pandemic response. As Emergency Operation assignments leveled out in October of 2020, administrative tasks and proactive field investigations associated with vacant properties were re-initiated with a focus on vacant property locations that presented an elevated level of safety concern to the public.
Code Enforcement staff have been engaged at ensuring the VPM continues on a successful path by establishing effective monitoring policies and procedures that allow effective observance and monitoring of vacant properties throughout the City
BACKGROUND
Prior to adoption of the Vacant Property Monitoring Program and Ordinance (VPM), there were three key elements affecting staff's ability to conduct enforcement on abandoned residential properties: (1) knowing when a property has been vacated; (2) knowing who the current owner or authorized representative might be and how to effectively and timely communicate with him or her; and (3) determining the minimum standards for maintenance, security, boarding and site conditions that apply.
The VPM was created with the goal to address identified concerns that cause difficulty in regulatory compliance, as well as address root causes contributing to the neglected and deteriorating conditions associated with vacant properties.
Adopted by Council on October 29, 2019, under Article 29- Vacant Property Ordinance, the new ordinance, and monitoring program established general standards and compliance policies to assure accountability for neglected vacant properties, combat nuisance and safety concerns, ensure public safety, and encourage economic development through owner engagement.
While the new ordinance and associated monitoring program were meant to be fully active at the start of 2020, the start of 2020 began with a world pandemic essentially placing a hold on newly adopted programs as local jurisdictions activated Emergency Operations Centers in response to growing health and safety concerns.
In March of 2020, proactive inspections and administrative tasks associated with the VPM were placed on hold pending further direction from the Development Services Director and executive staff due to the newly emerging state of emergency related to COVID-19 and Code Enforcement activation under the City’s Emergency Operation Plan for COVID-19 education and compliance support.
As Emergency Operation assignments leveled out in October of 2020, administrative tasks and proactive field investigations associated with vacant properties were re-initiated with a focus on vacant property locations which presented an elevated level of safety concern to the public.
Code Enforcement staff have been engaged at ensuring the VPM continues on a successful path by establishing effective monitoring policies and procedures which allow effective observance and monitoring of vacant properties throughout the City.
DISCUSSION
The remainder of this staff update is broken into the following sub-sections:
Retail/Commercial Vacancy Trends Update – To provide context on the current state of retail/commercial space vacancies.
Monitoring and Tracking Update – Data is provided detailing vacant property monitoring and tracking activities to date.
Inspections and Compliance Update – Data is provided on staff inspections and fees levied through the program.
Overview of the Three-Pronged Approach to Property Owner Engagement – Engagement strategies of both Code Enforcement Division, Economic Development Division and joint efforts are detailed in this section. This section also includes an example of a successful case study.
Retail/Commercial Vacancy Trends Update
Currently, the vacancy rate for all retail space citywide is at 2.9% with the average rate for rent at $2.32 per square foot. On average, a vacancy rate below 4% is considered a tight market in that there are few spaces available for new tenants to move into the city or existing businesses to grow or move to other suitable locations. In the table below, staff evaluated the current vacancy rate and compared it to one year ago during the middle of the pandemic and two years ago, just prior to the pandemic. Overall, the vacancy rate has increased 1%; however, some corridors such as Tennyson and the Downtown have seen a drop in vacancy while others such as Hesperian and Mission North have seen significant increases in vacancy.
The 8.1% vacancy along the Hesperian is due to the large box vacancies at the former Toys R Us site and the small shopping center Oliver Corners, located at the southeast corner of Hesperian and W. Winton, which is anchored by Harbor Freight. Along the Mission North corridor, which is from Downtown to the City limit line, the 11.2% vacancy is due to several large commercial buildings on the east side of Mission Blvd. The Hayward Fault runs through these parcels. As a result of the Alquist Priolo Act, which prohibits major improvements or reconstruction of new facilities on these parcels, owners are unable to do any significant upgrades over 50% of the building value. Since most of these buildings are now empty shells or former auto related uses, major improvements are needed to meet new commercial standards. Mission South corridor is showing the third highest vacancy rate of 5.4%. However, this is due to several new commercial tenant spaces being constructed and the old Kmart site being upgraded. It is expected that most of these spaces will be leased in the near future.
Current Vacancy Rates
Area/Corridor
Total Inventory
Square Feet (SF)
Under Construction
Vacancy Rate
(Q1, 2022)
Current Asking Rent
Citywide
7.8 Million SF
60.7 K SF
2.9%
$2.32
Downtown
1 Million SF
0 2.5%
$1.93
Tennyson
180 K SF
0 0%
$2.07
Hesperian
729 K SF
0 8.10%
$1.72
Jackson
540 K SF
0 3.70%
$1.99
Mission North
350 K SF
0 11.2%
$1.85
Mission South
1.3 Million SF
60.7 K SF
5.4%
$1.94
Historic Vacancy Rates
Area/Corridor
Vacancy Rate
(Q1, 2020)
Vacancy Rate
(Q1, 2021)
Vacancy Rate
(Q1, 2022)
Highest Vacancy Past 2 Years
Citywide
1.90%
2.70%
2.90%
3.2% (Q2, 2022)
Downtown
3.80%
2.30%
2.50%
4.2% (Q3, 2020)
Tennyson
1.85%
0.00%
0%
1.85% (Q1, 2020)
Hesperian
1.90%
14.90%
8.10%
14.9% (Q1, 2021)
Jackson
1.40%
3.90%
3.70%
7.2% (Q3, 2020)
Mission North
1.70%
11.70%
11.20%
11.7% (Q1, 2021)
Mission South
5.30%
1.50%
5.40%
6.3% (Q2, 2021)
Monitoring and Conditions Tracking Update
An important part of staff’s ability to effectively understand and respond to vacant property conditions was the need to establish a mechanism by which vacant properties are constantly evaluated for conditions and regulatory needs. Information such as vacancy status, public hazards, unpermitted uses, maintenance trends, land use, and owner contact information assist staff to effectively evaluate vacant properties and provide awareness and regulatory support for areas of interest.
As part of efforts to provide the availability of real-time information associated with vacant properties, staff, in partnership with IT’s Geographical Information Systems (GIS) Division, developed one of the region's first real-time tracking systems for vacant properties. Since the program launch in March 2020, staff has identified 123 vacant properties throughout the City. Staff logged a variety of important data points, such as those listed above, and are continuing efforts to locate and evaluate all vacant properties within the City. While the majority (76) are unimproved vacant lots, 19 percent were identified as vacant residential structures, while 17 percent were identified as vacant commercial or industrial structures. As Code Enforcement and the GIS teams finalize testing and data updates during its initial stage, staff anticipates that some data will become publicly available during the 4th Quarter of the current 2021-2022 fiscal year.
In keeping consistent with the City’s goals for open data, the new public data layer will provide color-coded and detailed vacant property information for both the public and internal services, such as Code Enforcement, Police, Fire, and Planning. such as property hazards, location, conditions status, code case progression, zoning, and much more. The data provided on the mapping system will provide staff with access to more streamlined methodologies of compliance and strategic opportunities for property improvement and development.
Inspections and Compliance Update
Since the program launch in October 2020, staff assigned to the VPM have conducted an estimated 195 assessment and compliance inspections associated with vacant properties. Re-inspections for monitoring and compliance accounted for 72 (36 percent) of inspections conducted for the purposes of enforcement. As a result of inspections and compliance efforts, $36,000 in failed inspection fees, $7,950 in abatement fees, and $4,928 in contractor fees were issued to support compliance needs towards persistent conditions. To ensure compliance with the VPM and reduce community impact from substantially neglected vacant properties, the Code Enforcement Division has implemented a shortened case timeline policy for properties exhibiting significant health and safety concerns to 360 days or less (depending on severity) prior to potential lien and receivership remedies.
While the initial number of neglected vacant properties identified prior to ordinance adoption totaled approximately 100 properties, educational mailers for the program as well as a pause in program operations due to COVID-19 between the months of January – October 29, 2020, resulted in proactive compliance by property owners for 32 percent of the properties. As a result of proactive compliance by many property owners, only 68 were identified for continued enforcement needs after follow-up observation inspections.
As dedicated staffing for continued monitoring was not achieved as initially planned due to budgetary restraints, proactive efforts to assess and conduct ongoing monitoring were slowed due to existing staff caseloads and assignments. As a result of these impediments, staff has focused primarily on the properties initially identified as part of the VPM. Additional focus has been given to high-priority properties exhibiting substantial health and safety concerns through the use of necessary legal remedies, such as penalties, lien filings, and receivership filings, as needed to mitigate concerns impacting the community at large.
Registration and Administrative Fees Update
The ordinance requires that if a property is found to be vacant or shows evidence of vacancy, as defined by the proposed ordinance, it will be deemed to be vacant or unoccupied and must be registered with the Code Enforcement Division’s monitoring program. Thirty-eight properties have been invoiced for registration during the 2021 calendar year, while 28 have been invoiced for registration for the current 2022 calendar year, resulting in $96,900 and $71,400 in registration fees, respectively.
While there was a decrease in registration between 2021 and 2022, it is anticipated that once Code Enforcement fills the vacant Senior and Inspector II positions during spring and summer of 2022, additional staff will be available to conduct proactive monitoring and assessment for registration and monitoring needs. Total fees invoiced as of today for all program activity is currently $217,178. All fees and registration amounts invoiced will be collected by voluntary payment or annual property tax lien/assessment through County of Alameda.
Code Enforcement Property Owner Engagement Strategy
As required in most, if not all regulatory divisions, Code Enforcement deploys inspection resources, administrative and judicial remedies, and policy tools in responsive, and proactive ways when targeting neglected vacant properties. Additionally, Code Enforcement provides educational materials through direct mailing and multi-media outlets to educate the public on property maintenance and upkeep.
While these efforts are an important component of compliance, the benefits of strategic alternatives can help facilitate change at a pace and level not typically observed under a standard enforcement process. The strategic partnership Code Enforcement has with Economic Development is one such partnership, where both divisions exchange important information while implementing unique measures to jointly facilitate positive change on vacant properties throughout the City.
Economic Development Vacant Property Owner Engagement Strategy Economic Development (ED) Division’s mission is to foster a vibrant local economy by supporting business attraction and expansion. A key element of this work is assisting prospective businesses with site selection and working with new and existing property owners to market and fill their tenant spaces. To this end, the ED Team regularly engages real estate brokers and property owners of vacant spaces to understand their physical space characteristics and aid in steering businesses to lease their spaces.
ED Team members engage with these stakeholders throughout the year. ED staff provides these stakeholders with available data to support site selection decision-making including data on traffic counts, leasing rates, new developments in the pipeline, locations of potential competitors or consumers pools, and information about city fees and permitting processing timelines. ED staff also offers to “add value” to a “deal” by offering to shepherd tenants through the City’s development permitting process via the Business Concierge Program. Combined, these labor-intensive engagements are designed as an incentive and support the activation of vacant spaces and place Hayward in the forefront for potential new businesses.
Economic Development and Code Enforcement Joint Engagement Strategy A key part of the city’s vacant property owner engagement efforts is a critical partnership between the Economic Development and Code Enforcement Divisions. While ED attempts to often engage property owners or their brokerage representatives and build relations by offering Concierge and marketing support, there are instances where these owners do not respond to staff and their sites become sources of calls for service and/or blight.
In instances where owners refuse to engage with ED staff or don’t show a willingness to partner to help activate a property, ED works with Code Enforcement staff to use all the City’s tools to encourage the owner to engage and bring their property into conformance with applicable codes and regulations.
Since activation of the Vacant Property Monitoring program, Economic Development and Code Enforcement have worked together jointly to help facilitate change on several vacant properties, both in core commercial areas and major commercial arteries. Provided below is a case study of joint engagement strategies implemented to facilitate the transition of positive development from neglected vacant properties.
Vacant Property Owner Engagement Strategy – Case Study of 1025 A Street A prime example of the effectiveness of the City’s vacant property owner engagement approach is the former Salvation Army Store at 1025 A Street. In 2018, the Salvation Army store closed and was sold by 1027 A Street LLC, represented by Richard Weinstein of Weinstein Local, to a Mr. Lin Jiaho. Mr. Jiaho secured brokerage representation from GD Commercial Real Estate to market and tenant the space.
Since that time, the site continued to be vacant and began deteriorating with regular occurrences of broken window glass, encampments, graffiti and liter. Economic Development staff worked to engage the property owner, but discovered he was living abroad and was unresponsive.
ED staff worked with Mayor Halliday’s office to draft and send a letter to Mr. Jiaho and his real estate brokerage representatives expressing the City’s concerns regarding the state of the site and encouraging the owner to work with staff to bring the site up to community perseveration standards, vacant property monitoring program registration, and ultimately activate the site. From 2019 through 2021, ED staff continued to engage the brokers and encourage the owner to clean and secure the site and lease or sell the site.
In fact, ED staff marketed the property to several prospective buyers and tenants including a well-known technology company looking for downtown office space and a small retail operation for computer repair. Unfortunately, the referral did not turn into a sale or lease.
Upon adoption of the VPM, ED staff was able to also partner with Code Enforcement, who began initiating regulatory compliance and registration measures as part of the new VPM. The additional efforts by CE provide an additional layer of regulatory accountability through the applications of penalties, abatements, potential liens, and other legal remedies as needed to establish regulatory compliance.
As ED continued to engage the property owner’s brokers and Code Enforcement continued to apply pressure via regulatory remedies, the brokers informed staff that there was a prospective buyer for the property in September 2021. ED staff immediately scheduled a meeting with the potential buyers and provided information about the City and offered to support the redevelopment of the project. This included working with the Planning Division to provide a Zoning Verification letter and Public Works - Engineering and Transportation Division to provide guidance and expedite the City’s review of a geotechnical study required by the buyer’s lenders as the site was within the fault zone. These efforts culminated with close of escrow in November 2021.
Staff’s efforts to activate the site did not stop with the sales transaction. Through the concierge service, ED staff worked with the new owners, Presidio Capital Real Estate, who submitted a major tenant improvement application for the site in January 2022. The owners are proposing to develop a dine-in food hall operation, which will feature between 8 and 10 stalls for food vendors. The tenant improvement project is valued at $1.3 million and currently progressing through the plan check process. ED staff continues to work with Code Enforcement to ensure that the owners are aware of any new incidents or problems at the site and collaborates across all City departments tasked with reviewing and approving their plans. For example, ED staff recently facilitated the property owner filing a Trespass Letter of Authorization, which authorizes the Hayward Police Department to assist in identifying and removing any authorized persons found in the structure.
NEXT STEPS
Following this meeting, staff will take into consideration any comments and feedback from the CEDC pertaining to activity and updates related to the VPM and compliance and engagement strategies. Staff will move forward with reviewing and incorporating any recommended alterations to program efforts.
Prepared by: Phillip Nichols, Code Enforcement Manager Paul Nguyen, Economic Development Manager
Recommended by: Jennifer Ott, Assistant City Manager
Approved by:
___________________________________
Kelly McAdoo, City Manager