What is the City of Oakland’s subsidy to Forest City’s Uptown project?

Somehow, the comments on my election results post turned into a discussion of City subsidies to Forest City and the Uptown Apartments. There seems to be a lot of confusion about our agreement, so I’m just going to explain the whole deal.

The City of Oakland’s total funding contribution to the Uptown Project was $60,031,057.

The Redevelopment Agency was responsible for purchasing the 38 individual properties that comprised the Uptown project area, contributing to part of the environmental clean-up costs, paying for street and infrastructure improvements, and paying for the public park on the property. We provided Forest City $13 million in financial assistance for their development efforts. In addition to that, between 2007 and 2020, we will be making annual payments to Forest City (funded by the tax increment in the City District redevelopment area and reimbursements of Forest City’s business tax payments to the City) to help cover project costs.

This is how the costs break down:

  • Costs for assembling the land: $23.5 million
  • Initial Financial assistance: $13.6 million
  • Financial assistance from tax increment and business tax reimbursement through 2020: $12.1 million
  • Environmental Remediation Assistance: $4.1 million
  • Infrastructure/Street Improvements: $5.7 million
  • Public Park: $1 million
  • Total funding: $60 million

Now, $12.1 million of that is money generated by the project itself given back to Forest City, so the total City subsidy of non-project generated funding for Uptown was $47.9 million.

So once we’ve done all that, Forest City gets to build apartments on the property, 20% of which they must make affordable to households earning less than 50% Area Median Income, and 5% of which they must make affordable to households earning less than 120% Area Median Income. They get to lease the land from us for 66 years, and have an option to extend that lease for an additional 33 years.

If they decide to buy the land from us, which they have an option to do, they have to pay either the Fair Market Value of the land or what the land cost us to purchase and assemble, plus annual CPI increases. Whichever of these amounts is less is the one they have to pay (most likely that would be the CPI-adjusted land cost). If they decide to extend their lease after the initial 66 year term, then they just have to pay Fair Market Value whenever they decide to buy it.

Now the part that seems to be causing most of the confusion – the profit guarantee. We are not on the hook for any more money. Forest City wants a minimum of a 12% return on the project. If they do not achieve a 12% return, they don’t have to pay us rent on the land. If they do get that 12% return (the estimate was that this would happen in 2017), then from that point on, they have to pay us 25% of what they’re making over the 12%. They have to do this until whatever date all our financial assistance has been repaid. If, at some point, Forest City sells the project, they have to use the proceeds of the sale to pay back our financial assistance.

So, the best case scenario is that the project is an enormous success and Forest City ends up paying back the entirety of the subsidy (note – costs for infrastructure improvements, remediation, and the park will not be reimbursed at any point). The worst case scenario is that Forest City makes no money on the project and doesn’t pay us back any of the subsidy. Probably it will be somewhere in between.

The information is assembled from a number of different reports. I wasn’t sure how best to include the links, so if people want to know more than I included in the post, you can find it here, here, here, here, here, here, here, here, here, here, and here. They’re all PDFs.

Hope that cleared things up.

28 thoughts on “What is the City of Oakland’s subsidy to Forest City’s Uptown project?

  1. len raphael

    v, good stuff.

    am too lazy to click on the links, is the 12% return after a management fee is paid to the developers or related party? if so, what are the terms of that fee?

    so the annual real estate taxes on the city owned land is an “expense” to the city until the land option is exercised? say another 287k/year .0125*23Mill or is this part of the 12.1Mill ?

    were the construction costs public info?

    on that risk discussion, how much of their own capital did the developers/investors put in. I assume they have relatively long term financing?

    -len raphael
    temescal

  2. V Smoothe Post author

    Len -

    Sorry to be dense, but I don’t think I understand your first question. Try to rephrase and I’ll answer the best I can.

    Taxes from the project are part of that $12.1 of project-generated revenue.

    My understanding of the financing was that Forest City was putting $31.7 million into the project upfront and borrowing the rest. I believe the total project costs were estimated to be somewhere around $200 million.

    Re: long-term financing, I’m not sure I exactly understand how to answer that question either, but I’m guessing what you’re getting at is whether we should be concerned about the developer going bust? That should not be a concern. As a diversified REIT, Forest City’s a pretty stable company.

  3. len raphael

    1. what is the contractual definition of a “12% return”.
    a. does FC or an affiliate get annual management fees?
    b. if yes, do those fees count toward hitting the 12% return

    2. which taxes are counted in the 12.1 of project revenue. ie. taxes on the buildings owned by FC or taxes on the city owned land, or both.

    3. yes viability. i’d assume that each big project of FC is firewalled off from other projects and the parent company, within it’s own llc or corporation. so FC could let it go w/o hurting the parent too badly. though with these subsidies, land lease and options it would seem very unlikely to be a loser for FC.

  4. Steve Carney

    Nice research, V. The $4.1 million for contamination cleanup was most likely federal EPA funds (possibly state EPA money), not city redevelopment funds. The City may have received the money and then allocated it for the Forest City project, or the Feds provided the financing directly to Forest City. Either way, this $4.1 was most likely not city money.

    Also, the $4.1 million is probably a low-interest loan, but might be a grant because of the affordable housing.

  5. Max Allstadt

    I have only one question. Define “affordable”. Does that mean that they mandate a percentage of area median income which rent cannot exceed? What does an affordable rental cost per month.

    Our standards for what percentage of one’s income should be spent on housing have been deteriorating. My parents generation was told 25% of take home. Later it was 25% of gross income. Now most people say 33% of gross is acceptable. When will it stop? And what is the standard at the Uptown apartments?

  6. V Smoothe Post author

    Len –

    1.”The Agency will receive a 25 percent participation in the excess net cash flow generated by the property. Excess net cash flow is defined as any net cash flow generated by the Uptown Project that is greater than that cash flow required to provide a 12 percent cumulative annual return of developer’s equity including any outstanding balance of cumulative preferred return.” Forest City is both the developer apartment operator. They don’t pay a management fee to themselves.

    2. Forest City pays normal business tax and pays property tax on their buildings. I do not believe they pay taxes on city-owned land. For now, property taxes mostly go to the Redevelopment Agency (35% are passed through to the City). Beginning in 2021, after the Central District redevelopment area expires, the entirety of those taxes will go to the City. This amount was estimated to be $1.8 million per year by 2021.

    3. Every project is financed individually, yes. The Uptown Apartments project is a partnership between Forest City and MacFarlane Partners. But it’s still part of the company’s portfolio.

  7. V Smoothe Post author

    Steve -

    The $4.1 million for clean-up was not a loan – we had a cost-sharing agreement with Forest City on hazardous materials remediation. It came from the ORA, at least some of it was EPA Brownfields Grant Program money, but beyond that, I don’t know the specifics.

    Max -

    That standard is set by the government, and is not unique to any particular project. Both Federal and State rules use the same affordability metric, which limits gross housing costs (gross rent + utility) to 30% or less of a person’s income.

    There are maximum allowed rents for affordable properties, although depending on income, these figures are not necessarily what renters in affordable-designated units pay, just what they can’t pay any more than. This varies depending on income level and unit size, of course, but here’s one example. A family of 3 earning 50% AMI would be making $59,600/year. The maximum allowed rent in that category currently for an affordable 2-bedroom unit is $968 minus utility costs.

  8. OakStaff

    Affordable rent schedules can be found here:

    http://www.oaklandnet.com/government/hcd/policy/limits.html

    As for property taxes….normally all of the INCREASES in property taxes that result from the development of the site are captured by the Redevelopment Agency. About 25% of that is passed through to other taxing entities like the schools, the County, etc. Another 25% is deposited into the Agency’s Low and Moderate Income Housing Fund and used to develop new affordable housing, fund the City’s first-time homebuyer program, etc. The Forest City deal allows those funds to be returned to the developer. In one sense, the project is paying for itself through the higher property taxes it generates. In another sense, its a form of subsidy, because most development projects in redevelopment areas don’t get to keep the tax increment funds.

  9. len raphael

    V, you answered my questions.

    12.5 pct rate of return, isn’t that what rental property owners used to get before the real estate bubble started but no way have been able to get the last 4 years?

    but this deal was signed, probably several years ago when 12.5pct was reasonable.

    don’t suppose there’s a shortcut way to ballpark the cost per sq foot to us for the affordable housing units since the subsidies are meant to yield more public benefits than only provide affordable housing.

    -len raphael

  10. Max Allstadt

    $968 on that income is pretty reasonable. I’d hope that’s for a two bed at least. That’s certainly the kind of rate that a couple of young public school teachers could manage easily, and a rate that poorer folk could manage with some good effort.

    It’s good to see affordable housing coming to a safe part of Oakland. We have plenty of affordable housing in West Oakland already, but the affordability strategy seems to be to keep crime up.

  11. Ken O

    As one who plans to move there…

    THe cheapest market rate 1BR units are $1600/mo without parking.
    The most expensive range up in the 2-3000/mo range for 2-3BR units with parking.

    THe affordable units are at ground level with cheaper, although flame resistant formica kitchen counters. Some of them have neat layouts. They are mostly carpeted without “hardwood.”

    Max – haha.

  12. Steve Lowe

    It’s all about what makes up a real city, as opposed to what too many cooks, crooks or councilpersons might agree on as to what goes where. Typically, downtowns arise out of accessibility, need, and civic vision. Jerry struck a deal with Forest City that had nothing to do with creating a suitable retail environment at the hub of Oakland, leaving our CEDA / Council folk to believe that the core of retail should be out on the Army Base next to the Port and the biggest muddle of trucks, semitrailers, container stackers, SUV’s, bicyclists aqnd compact cars anywhere in California.

    Was anyone from the world of retail consulted on this boondoggle? Nope. Was Forest City’s retail development project in downtown San Francisco ever discussed around the FC boardroom as potentially competitive with any large scale retail cluster in the Uptown area, especially those that were being pitched to Jerry all the time? Hard to believe it never happened once…

    So it isn’t so much the cost of the subsidy, it’s all about what we lost as an opportunity to reshape Oakland as a retail destination and ended up losing to Emeryville’s Bay Street instead. And now, FC insists that we can’t even have a plaza across from the Fox and facing the old Flower Mart where Glora is now. Our own Union Square, as it were. Nope, their “park” (certainly not ours) will be hidden from Telegraph because the deal went down with FC in complete charge, so much so that the item can’t even be discussed at the Planning Commission, cuz that’s simply the way it is in the world of the big players – everyone else stand back and take your lumps.

    You all say you love Oakland, but what always happens is that the big guys buy their way in and shape the city to their ends, and that’s what we always end up sniffing.

    We’ve lost whatever chance we may have had to have a viable center right where it still could be but won’t because FC (and Jerry!) already figured out what’s best for you, and that’s that!

    Thanks,

    – S

  13. V Smoothe Post author

    Well, as an actual resident of the neighborhood who uses the park roughly three days a week, I’ll say that I think putting the park on Telegraph would have been a totally brain-dead move, totally ruining the potential for turning that street into a pleasant pedestrian-retail oriented thoroughfare. I also think parks are far more enjoyable when somewhat removed from heavy traffic flows, as this one is.

  14. Max Allstadt

    how much retail is adjacent to the park? What about viable restaurant space. A park that size in a climate like ours ought to have some commercial directly adjacent to it. Two or three eateries of different price ranges, and a convenience store at least.

    There are a lot of bloopers in the design around uptown park. How about the tenants only gym on the south side? They have individual private fenced terraces at two feet above street level, with seats for two. It’s standoffish to pedestrians and fishbowlish to the gym patrons. Mindlessly stupid and the architecture is lame.

  15. Steve Lowe

    Sort of like Union Square, the most quality-intensive retail area in Northern California? I’m happy for you that the hidden (almost private) park works for the few who live nearby, but for the rest of us, it’s utterly useless as a center around which a retail cluster could be organized.

    And why is Forest City fighting so underhandedly, twisting arms and in general being hard asses about where the park should be located? No homeless! Instead of working on a better way to deal with the problem, the solution from these bozos is: hide the park from Telegraph and, instead of creating a great public place that America’s great urbanologists might condone, be utterly selfish, elitist, anti-city and anti-public.

    That side of the deal stinks on ice, and if it doesn’t in the minds of some, they might want to ask why so much money has gone into keeping the “park” (it’s really more of an enclosed courtyard) from public view and public discourse.

    Yech.

    – S

  16. V Smoothe Post author

    How much retail and restaurant space surrounds Jefferson Park, Madison Park, Lincoln Park, Lafayette Park, and Snow Park? Does the lack of retail in any of those locations make those parks any less valuable as community resources? I don’t understand why everyone seems to think that my neighborhood park is not an asset to the community just because it isn’t in the middle of a public thoroughfare or surrounded by publicly accessible retail. There is plenty of retail space a block away from the park in either direction. Why do people seem to think that residents of the Uptown area don’t deserve their own little urban oasis that’s set back from highly trafficked streets while every other neighborhood downtown gets one?

    Steve, I understand how it might be tempting to assume that every time a decision is made that you don’t agree with, it’s due to some evil scheming of some faceless developer, but at some point, it might behoove you to learn to accept that you don’t always necessarily know better than everyone else, and occasionally the fact is that most people just think you’re wrong.

  17. Ralph

    set the park back; i have no desire to enjoy my park while cars whiz by my, one might even go so far as to say that with cars whizzing by me i will not be enjoying my park. and it is my park not fit for the hoi polloi

  18. Max Allstadt

    V-

    One of the reasons Snow park is underused and has at least one drunk in it at any given hour is that there’s no commerce near it. Actually, the park around the lake could use some targetted commercial addition too. If people can grab snacks nearby, they spend more time in parks. I’m not saying uptownpark should be surrounded by a mall by any means. And the setback makes some sense too. I might have accomplished it a little differently.

    As for the design of the uptown, I think Steve may be a bit over the top with his suspicions, but only because it’s likely that the mistakes at the Uptown weren’t coordinated, but quite the opposite. It is exceptional in it’s mediocrity. In general, the design serves the residents, not the park. Grandiose entrances at the corners, for instance, serve no purpose other than marketing. They inflate a prospective residents’ ego, but do nothing for the public. The entrances to older multi units are much more utilitarian. And setting up all the amenities at the Uptown for residents only, instead of making membership available to the public for a fee… Another self centered, anti urban move. It says ” move to downtown Oakland, but lock up you’re women and children ’cause there’s bandits! We built you a fort you don’t have to leave, cmon in!”

    Don’t get me wrong, I think these designs will successfully pander to a certain demographic that will eventually fill the place up. I’d just rather not help them move a gated community mentality into the heart of a city. Plus, the everything included model of housing puts a single company in charge of the amenities, which will make those perks hard to adapt and tweak.

  19. Max Allstadt

    I strongly prefer a neighborhood model where services are provided by small businesses to the insular nature of what’s offered by the uptown. Putting all the amenities in the hands of a lumbering giant stigfles opportunities for this project to attract entrepreneurs around it. If they didn’t already have a bowling alley inside,, maybe one would pop up outside and we could all go.

  20. V Smoothe

    I find the concept that Uptown residents should be expected to share their amenities with the general public bizarre. I certainly don’t want random people coming into my apartment building and using our washing machines. Do you do that at your house, Max? Let all your neighbors come in and use your stuff whenever they want?

    As for this stuff with the park. Seriously, until the issue of the new Uptown park arose, I don’t think I’d ever heard anyone suggest that parks are most appropriately located next to commercial space. I find the concept totally bizarre. And certainly not consistent with practice – none of Oakland’s successful neighborhood parks are lined with retail.

  21. V Smoothe

    Max, what are all these amenities you’re so upset about not getting to use? Their video screening room? Their gym? There’s a nice gym directly across the street.

  22. Max Allstadt

    Take a look around SF. There’s somewhere to get a snack within line of sight of many smaller parks. Most of the places I’m thinking of are jam packed I’m the summer, partly because of adjacent dining options. While we’re at it, there isn’t enough grass in uptown park either. How am I supposed to get my tan on?

    And I’m not saying the residents of the Uptown should share what they have now, so you’re “letting people into my house” analogy is just silly. I’m saying that the city should have pressed from the outset for gyms, parking, etc to be handled outside the complex as much as possible. Too many interior amenities reduces street life. The bustle of density is partly created by people walking around in public to run errands.

  23. V Smoothe

    Re: grass. We have serious water issues. It’s hardly environmentally responsible to start laying down huge swaths of lawn on top of former surface parking lots.

    And I don’t think my house analogy is silly at all. I think it’s quite appropriate in response to your comments. I don’t understand what interior amenities you’re objecting to. You really don’t think the residents should be allowed to have a gym? Why? That makes absolutely no sense to me. What else?

  24. Chris Kidd

    The argument that Uptown is a bad park because it’s not like Union Square is such an enormous straw man. Like, burning-man-sized straw man. As such, I’d like to set it aflame.

    The Uptown park was never designed to emulate Union Square. Let’s look at some substantive differences:
    Uptown park was designed to be a small community park to serve the needs of a small, but growing, downtown residential community. Union Square is a central gathering place in a large commercial district.
    Uptown park is a quarter-block, if that. Union Square is a full city block, banded on all sides by large streets and has a parking lot underneath it (interestingly enough, the world’s first underground parking lot).
    Uptown park was constructed as part of a deal made by the city with an individual, private developer. Union Square is a public space created by the city of San Francisco, and not in conjunction with any single private developer.
    Uptown park is an extremely new space that has not yet established its place or relationship with the neighborhood around it. Union Square is a 158 year old institutuion that has the gravitas of all its years behind it. As such, its place and relationship in the city of San Francisco, and even our national consciousness, is well established.

    A much more apt comparison would be South Park in SF’s SOMA district. Small pocket park, insulated from traffic, shops nearby. As far as design and execution, South park definitely beats Uptown.

    Let’s just compare apples to apples, and not apples to Union Square. A union-square-esque project like that should be shouldered by the city (or at least a public-private with several small or one large retail/commerical developer/s) and not be reliant upon a single residential developer. FC doesn’t have the vision, inclination or ability to create such a grand public space, and we shouldn’t expect them to. If you’re going to be pissed at anyone, be pissed at Jerry Brown for parceling off sections of downtown without a master plan more complex than “let’s get 10K people to move in downtown”.

  25. Patrick

    I agree with Max: in order for a park to be truly “public”, it needs to appeal in such a way that it becomes a destination. This would include the ability to leave the park and, I don’t know, score a beer or something. As far as parks in SF are concerned, I’m thinking Dolores Park. A set of trees surrounded by self-contained, private developments relegate a park to becoming a dog toilet and view-preserver for nearby residents – and as such are limited in appeal. I might walk to Snow if I lived in the neighborhood, but I certainly wouldn’t go out of my way to visit it. Parks filled with people are fun; parks without people are irrigated former surface parking lots.

  26. Colin

    Another parallel would be parks in dense cities in Europe – that’s what it reminds me of to some extent. Sealed in, but open. Those can be great places to hang out, but I also think a cafe would be a nice addition. Nothing like sitting in the piazza and eating a spleen sandwich.

    My fear is that because it’s surrounded by a single development it’s going to get treated as the private property of FC residents. Time will tell – it could very well end up being more like South park, which would be great by me. But if my apartment faced out onto a park, I would get annoyed if rowdy kids were playing down below or there was a constant stream of people going through.

    But that’s all insanely speculative, and could very easily be wrong. Meanwhile, good luck, new park, and I hope it’s a great place to spend time.

  27. Steve Lowe

    Well I think most squares, plazas, even parks in Europe evolved from something, usually in the heart of town, as the place that retail grew up around. (Ending a sentence with not one, but two prepositions!) The great plazas eventually came to have water there, or maybe that was the reason the piazza was built there in the first place? The main thing is that everyone in town would usually come there to socialize, grab a brewski, enjoy the day or night and interact with all the other townfolk passing by.

    It’s true that some innercity parks, especially the ones with lots of trees and shrubbery are located somewhere else (and. like Snow Park, aren’t thought of in the same way as, say, Jack London Square or St. Mark’s Square or Union Square. Surely those differences apply here, too, even if it is Oakland, the city that can’t plan anything (Oakland Army Base planning has been ongoing since Ron set up the WOCAG over a decade ago from his seat in Congress).

    So you’re durn tootin’ I’m upset with Jerry for not including a public plaza to center the retail along Telegraph. Maybe I’m missing something here, but wasn’t the Uptown area something that belonged to the citizens of Oakland? I know it was purchased with City Redevelopment funds, and eminent domain was used to evict Rivelli Tires who had been there for almost 50 years or something. So it makes perfect sense that something should have been put there that the public could use, especially if that something was a spur to economic development in the area in the form of a more compelling retail presence for Oakland’s downtown than the current thinking that we should now create a new retail district where Auto Row is now. (In case you don’t know where Auto Row is, there’s a nice little tombstone there at Broadway and 30th or so with the inscription to the effect that the beginning of Oakland’s renaissance as an automobile hub begins here.

    Just like the train station down here near JLS, there’s no “feeder” transportation to the new, yet to be built retail center in Auto Row, but that’s okay because the City will commit to some sort of trolly car, and then install a shuttle instead when it becomes evident that the trolly woll cost too much, only to find out that even the shuttle will be too expensive and the only thing left will be a few extra bus stops along the route we’ve already got (just in case anyone reading this blog uses the fabulous bus system we’ve been dealt).

    So just to finish off on the downtown square that FC figures it has no obligation to furnish for Oakland’s hoi polloi, when should a developer consider the public, particularly when there’s a $60M subsidy we’re providing, plus a lot of other benefits that aren’t immediately apparent in the subsidy rally? Or should we just say to any developer who comes here, you just go right ahead and do whatever you want because you’ve got a big company and the citizens of Oakland have no commonsense solutions that will hold up in court once you’ve submitted your EIR – as has been proved in court over and over.

    I agree, incidentally, that the South Park comparison is probably more apt now that the opportunity to have the Union Park model has been pushed off the table by Forest City’s relentless campaign against it. Even though the idea of a square was brought to Bill Claggett (a former head of CEDA before FC was returned by him after losing a bid years back to build in Oakland), he thought it wouldn’t work because Oakland didn’t have the same demographics as other, better cities than this. And these are the guys we hire to redevelop our downtown.

    And what would you do with $60M to revitalize Oakland? Exactly what Jerry did, or something a little bit more along the lines of “elegant density?”

    Thanks,

    – S