Draft Memorandum
To: City of Pacifica
From: James Edison and Molly McKay, Willdan Financial Services Date: December 6, 2022
Re: DRAFT Conceptual PPP Feasibility Analysis
The City of Pacifica (“City”) has engaged Willdan to examine the feasibility of a potential land exchange and PPP between the City and the Pacifica School District (“District”). The City’s current corporation yard is located at 151 Milagra Avenue (the “City Site”) and is space-constrained and not particularly compatible with neighboring uses. The District has a site at 375 Reina del Mar Avenue (the “School Site”) that contains its current administrative offices and a limited corporation yard for district vehicles. The City and District wish to explore the possibility to redevelop the City’s corporation yard site and public works offices as a mixed-use development that contains affordable housing and administrative offices for the District and redevelop the current school district site as a corporation yard that serves both the City and the District, along with offices for public works. Willdan understands that there is no funding available for the project other than some affordable housing funds.
Willdan has spent the past two weeks talking to City and District staff, affordable and market rate housing developers, and analyzing the site characteristics and a range of practical and legal issues to understand the broad feasibility of the contemplated land transaction and the extent to which private development on the City site could assist with the funding of contemplated improvements such as District offices and the new/renewed corporation yard on the District site.
City Public Works/Corporation Yard Site (151 Milagra)
The City site comprises approximately 0.75 acres, or 33,000 square feet, and is located at the southern end of a strip of commercial properties along both sides of Highway 1. It is rectangular in shape, slightly wider at the southern end than the northern end. It has a walk score of 81/100, with good availability of services and transit nearby and a good candidate for higher density residential development, especially where residents are more dependent on transit and walking.
The site currently contains the City’s public works offices and corporation yard. Fueling and heavy maintenance are done elsewhere. It is severely constrained and inadequate for its current purpose, with material storage offsite and equipment left outside that should be sheltered. City staff have also indicated that its current location is not a good fit given the area and surrounding homes and businesses.
December 6, 2022 DRAFT PPP Analysis
The site has a 54” storm drainpipe running underneath from east to west and then to the ocean. In Willdan’s experience such a pipe often cannot be covered by a structure such as a building, and therefore any development must include an easement over it (with a use such as parking) or the pipe must be relocated to a site where it can be accessed for maintenance and repair, such as adjacent right of way.
In the City General Plan the site is zoned C-2 (Community Commercial), which allows housing above ground-level commercial (including office) at 21.8 units per acre. Height is limited to 35 feet. To accommodate the likely density needed for feasibility (67 units per acre or higher) the General Plan land use designation must be changed to allow higher density, such as Mixed Use Center, or the City could create a new land use designation to accommodate both higher density and lower parking requirements.1 As will be discussed below, for the site to be feasible as a multifamily residential site the limit will likely need to be increased to five stories.
School District Site (375 Reina del Mar)
The District site contains its current administrative office and corporation yard and comprises approximately 69,000 square feet, or 1.6 acres, according to the District’s facilities master plan. The school district offices total approximately 11,000 square feet, and the District has indicated that it need only replace that space, not expand it.2 The site also includes shop space for the corporation yard of approximately 6,600 square feet. The District’s corporation yard is mostly storage and administration, with fueling and maintenance performed offsite. The District site has a walk score of 51, with limited access to services and transit.
A facility master plan prepared by the District indicates that the offices are in fairly good condition and have over 10 years of useful life remaining.
On the northern edge of the District site is the Calara Creek that may pose a challenge to redevelopment. Current City policy calls for a buffer of one hundred feet, which may restrict development or other improvements such as surface improvements. Willdan assumes that existing structures can stay, but it is not clear to what extent existing structures can be modified or improved.
A portion of the District site is also used for drop-off and pick-up for the adjacent Vallemar Elementary School and City-operated childcare. Willdan expects that any changes to the District site may need to accommodate that continuing use, which will restrict the amount of land available to accommodate a larger corporation yard. 1 City staff have also indicated that the State Density Bonus Law may allow the project to proceed without zoning amendments.
2 The District facilities master plan indicates that staff expressed interest in some improvements, such as ADA access, HVAC improvements, and ESS Building safety egress.
December 6, 2022 DRAFT PPP Analysis
Policy and Practical Considerations
Conceptually, the proposed transaction makes sense. The City site is a better location for an office and is also a desirable site for higher density residential development. The City site is too small for its current use as a corporation yard. Both the City and District have expressed interest in consolidating their corporation yard functions on the District site. The City site offers the opportunity to increase housing supply, including affordable housing.
Overall, there are a few practical considerations/requirements applicable to any development alternative:
1. Replacement of public works offices currently located on the City site (14,000 square feet),
2. District office currently located on the District site (11,000 square feet),
3. Corporation yard functions for both the City and the District to be located on District site,
4. Existing stormwater pipe under the City site,
5. Limited food service transportation and storage which is currently handled at the District site, and
6. Surplus Lands Act.
3 Residential Development Economics
Willdan has contacted several market rate and affordable residential developers to get a broad sense of the current environment and prospects for the City site.
The Bay Area has seen historic increases in construction costs over the past few years, which are currently very high. Current construction costs have rendered market-rate multi-story residential development infeasible in all but the most expensive markets (such as San Francisco). More generally, to be feasible such projects also require significant scale (several acres typically) which is more than the land available for the contemplated project. Willdan believes that the current situation reflects a disequilibrium caused by a combination of extreme fiscal stimulus and COVID-related supply chain and labor effects, and that these factors will balance out in coming years as the economy adjusts to a new equilibrium.
But even in the medium to long term for market rate development the densest construction likely to be feasible on the City site would be Type V construction, which is typically up to four stories of wood frame, and potentially a concrete podium to accommodate parking, which would yield approximately 30-50 units (depending on the unit size and parking requirements).4
3 Willdan is not an expert on the Surplus Lands Act but notes it because it came up in discussions with City staff and understands that it poses a potential constraint on disposition of the land. 4 It is important to note that these numbers are very rough, and some design work will be necessary to understand the site and how development would fit with constraints such as ingress/egress, parking, height restrictions and other factors (such as an easement for the storm drain) taken into account.
December 6, 2022 DRAFT PPP Analysis
Single family residential development is likely still feasible on the site but would not yield many units and might not yield significant land value.
5 Affordable housing remains broadly feasible in the Bay Area largely because the financing and subsidies of affordable housing are based on development costs and therefore increased construction costs can be accommodated with increased funding/subsidies.
In discussions with affordable housing developers Willdan has been told that the site is favorable and likely to receive the subsidy necessary to make it feasible. The land is located within what is known as a “high opportunity zone” and therefore can likely compete effectively for affordable housing funding. Affordable housing developers expressed concern about the size of the site, the proximity of Highway 1, and environmental issues given its use as a corporation yard.
Affordable housing developers also expressed support for the notion that a project could accommodate school district offices but expressed concern about on-site parking requirements and how such space could fit into an affordable housing transaction.6 Willdan also explored the notion of a mixed-use development with market rate and affordable units. The developers Willdan spoke to expressed doubt that the project had enough scale to make that feasible, both because of the likely economics of the project and the limited number of affordable units it would include. One way it might work would be in the case of a townhome project in which several of the town homes are dedicated to moderate income households, through a deed restriction or other mechanism.
Generally, the affordable housing developers indicated that a project of at least 50 units would be necessary to be suitable for development and operation. To achieve this number of units it might be necessary to limit unit size and might suggest designation as senior housing (which typically has smaller units and therefore can accommodate a higher unit count for a given site).
Common in all discussions with the developers was that for the City site project to work it will be necessary to limit uncertainty as much as possible. This includes getting environmental clearance for the City site, establishing all the necessary zoning in advance, getting neighbor and stakeholder support, and ensuring that the District and City are fully supportive of both the disposition of the City site and the disposition of the District site. 5 Willdan’s recent work on the City’s impact fees estimated that land in the City is generally worth $1.4 million per acre. Considering the relative favorability of the site combined with the need for demolition and environmental clearance $1 million may be a reasonable estimate of the residual land value of the site and therefore its value as a single-family development project. 6 Possible conceptual alternatives were either selling the space as a condo to the District for a nominal amount or a lease/leaseback arrangement in which the affordable housing developer leases the land on a long-term basis and leases the office space back to the District.
December 6, 2022 DRAFT PPP Analysis
Development Alternatives – City Site
After consultation with the City, District, and individuals in the development community, Willdan has identified three basic development alternatives for the City site that include both residential units and a District office.
Market Rate Development – Townhomes
Based on a rough assessment of the site, Willdan believes that it would be feasible to construct 10 townhomes on the site, along with a headquarters for the District of approximately 11,000 sf (including the associated required parking). Willdan believes that the townhome development would yield a value of approximately $1 million for the associated land, which should be sufficient to construct the desired new school administrative offices and associated parking. As an alternative the City could designate some of the townhomes as affordable housing, but this would reduce the residual land value available to fund other priorities. Also, the City could keep the public works office in place and use it for District offices. These options will require further analysis if the City sees them as promising.
Affordable Housing Development – 50+ units/acre
Based on discussions with affordable housing developers, a project of 30-50 units should be feasible (assuming the required zoning, entitlements, environmental clearance, etc.). This project may be able to accommodate space on site for a 11,000-sf headquarters for the District. An important open question is the parking requirements and whether the site could provide sufficient access and parking for both the residential units and District offices.
Mixed Use Development – 50+ units/acre
Based on discussions with developers, this alternative does not appear to be feasible at this time, primarily because of current construction costs. In the longer term, Willdan expects the balance between construction costs to return to a more favorable equilibrium but it is impossible to know when this will occur.
Development Alternatives – District Site
Given the requirements of the City and the District, Willdan has not identified a range of alternatives for the District site. Because the City site does not appear to be able to accommodate any functions beyond residential housing and the District offices, the District site must accommodate the remaining functions, including the corporation yard for the District and the City’s public works offices. In addition, the District has a food services function that should be accommodated on the District site due to the constraints of the City site. The District site will likely face some pressure to retain its function as a pick-up and drop-off space for the adjacent school, which is accommodated in the District site’s parking lot.
Additionally, Willdan understands that current City policy potentially restricts development or construction within 100 feet of the Calara Creek that runs across the northern edge of the December 6, 2022 DRAFT PPP Analysis
site. Willdan assumes for the purposes of this analysis that any existing structures and improvements can remain.
Given these constraints, and the lack of funding for significant construction of new facilities, Willdan believes that the best alternative for the District site is to retain the current corporation yard space and examine the onsite parking to explore whether the corporation yard can be expanded to the south to accommodate both the City and the District. The current District offices could be occupied by public works and retain the limited food storage and transportation functions currently housed there.
Outstanding Issues
Willdan’s research and discussions have yielded a few issues that require further study and analysis to understand the potential for the contemplated PPP transaction:
1. City site zoning
2. Development economics
3. Surplus Lands Act
4. Environmental Clearance
5. Calara Creek
6. City site size and constraints
7. District site operational constraints
Next Steps
This analysis is intended as an initial look and rough feasibility analysis specific to the possibility of moving the City’s public works and corporation yard functions to the site currently owned by the District and development of the City site as a mixed-use residential development with multiple residential units and space for administrative offices for the District. Based on this rough analysis the development of the City site appears to be feasible as an affordable housing and District office project. Willdan recommends the following next steps to continue the process of exploring the feasibility of the contemplated transaction:
1. Fit study to understand the City site and how a residential project, office, and parking could be accommodated, number of units, etc.7
2. Define exact City and District requirements and whether they could be accommodated on District site given need for public works offices, school drop-off, and creek restrictions
3. Site characterization (environmental issues, easements, creek setback)
4. Stakeholder evaluation
5. Potential identification of development partner (likely affordable housing developer in short to medium term)
7 Willdan estimates that such a study prepared by an architect or similar professional would be $5,000 to $10,000, depending on the rigor of the analysis and complexities that may arise.
December 6, 2022 DRAFT PPP Analysis
Timeline
Following is a rough timeline of potential steps to follow in pursuing the contemplated transactions, in rough order but in many cases overlapping:
1. Functional and Transition Evaluations (5 months)
2. Zoning Evaluation Change (3 months)
3. Environmental Evaluation (6 months)
4. Stakeholder Outreach (3 months)
5. Functional and Transition Planning (6 months)
6. Land Transaction Documentation (4 months)
7. Developer Selection/Negotiation (6 months)
8. Predevelopment/Planning (12 months)
9. Development/Transfer of Functions (18 months)
Some of these tasks could be conducted simultaneously. Willdan estimates that the process from start to completion of the residential project and new joint corporation yard function will take at least two to three years to complete and could be more depending on issues and complexities that may arise.