Vice-Chair Ben Anderson had not seen such a dense meeting agenda
in the past six months of economic recession: Five development
projects just waiting to be approved by the Planning Commission in
one evening session.
Vice-Chair Ben Anderson had not seen such a dense meeting agenda in the past six months of economic recession: Five development projects just waiting to be approved by the Planning Commission in one evening session.
Hopefuls may say this is a sign recession’s tide has finally washed over. But the economy is not what’s driving Gilroy’s building momentum out of the slump, said Anderson, it’s being driven by shovel-ready, a city policy that streamlines the process for obtaining a building permit so developers are more inclined to invest.
“You have to have capitalists believe the economy is getting better and the shovel-ready is a mechanism to do that,” said Planning Commission Chair Jim Gailey, adding the Planning Department has given out permits for 39 units this year. “In a normal market, the normal permit process would work, but this market is not normal.”
Developer James Suner, one of the initial proponents of the shovel-ready policy, has financed 51 townhomes on the 9400 block of Monterey Street, near Las Animas Park. He is one of two applicants that have used up almost half of the 200 units allocated under the shovel-ready exemption to the city’s building ordinance.
The City Council approved the exemption in August to remediate the lack of development funds, which stagnated with the economic downturn. Development funds include impact and permit fees, which shovel-ready brings by stimulating development.
“The city relies on the $54,000 of the permit – that goes to schools, sewers, etc.,” said Suner. “Building was stopped and so was the city’s income stream.”
Developer Duffy and Guenther has a 42-single-family-home proposal for shovel-ready at the corner of Wildflower Court and Mesa Road. The Gilroy Planning Commission decided on a 6-1 vote to recommend the City Council approve a tentative map of the Monterey Street development. The Wildflower Court development must return to the Gilroy Planning Department with a tentative map.
Planning Manager David Bischoff said the two developments are almost a done deal.
In August, the City Council passed an exemption for developers to opt out of the Residential Development Ordinance competition, which limits the development growth of the city, provided they can build within 36 months.
“Capitalists have to be induced into putting money on the table. The brutal truth is the RDO process, as it is, is not doing that,” said Gailey.”
That’s where shovel-ready comes in.
Developers still have to pay the same impact fees, a payment to mitigate the development’s impact in the roads and surrounding infrastructure, which Bischoff pegs at around $60,000. But it allows them to get a return on their investment faster, 36 months after the project approval, to be exact.
According to a Planning Department report, 1,000 out of 3,350 RDO units have been granted, and many have remained undeveloped due the economic downturn.
“What happened is that there’s a number of projects that have received approval and have determined that they are not economically feasible,” said Bischoff. “Other builders are saying: ‘If I can get approval, I could get financing and we can proceed.’ The council, being very anxious to get building, decided to establish this pool of shovel-ready units.”
The city can allocate a maximum of 3,350 RDO units to developers within a 10-year period. One RDO unit equals one home. Bischoff said some developers were not able to build because the amount of units granted to them through the RDO competition would not reap enough return for their investment.
Guenther and Duffy had only been granted 12 units through the RDO competition, but were able to get 42 through the shovel-ready exemption.
“Its an incentive because it’s allowing projects to increase their density,” said Bischoff. “Approval for only 12 units was not feasible for Guenther and Duffy because of the cost for street improvements. But instead of building 12 homes, they can amortize their infrastructure costs over a greater number of homes,” said Bischoff.
But is a city incentive enough to kick start the building industry in Gilroy?
Suner said it was still difficult for builders to get any kind of loan from banks and larger builders operating in Gilroy are selling their stocks to finance projects. He says shovel-ready is certainly giving city development a little push.
“Everyone is doing a little less, (but) we’re still building something,” he said.