Developers, the city, the school district. Everyone’s caught in
a Catch-22.
Developers, the city, the school district. Everyone’s caught in a Catch-22.
With the housing market still on the outs, developers are clinging to their coveted building rights waiting for the right time to build. But the city council allocated those rights in 2001 and again last fall with the expectation that houses would be up by now with the fees rolling in. The cash-strapped school district also needs money from new home construction to pay off debt obligations, but the standstill has everyone wondering how to get things moving again and what might happen when the market recovers.
Councilman Craig Gartman sees it as a filling reservoir: The banks and credit institutions represent the dam holding back the developers who have permission from the city to build. When that dam comes down, he worries a construction rush similar to one in the late 1990s will overwhelm the city’s infrastructure and crowd Gilroy’s schools.
“All these unused (housing units) are piling up behind the dam of an economy, and when banks start freeing up money, we as a city council – we as a city – we need to make sure there is not a huge flood of homes suddenly hitting the market with people moving in and overwhelming the school system, the water system, the sewer system, our city inspectors, everything,” Gartman said.
The city’s two major developments – Glen Loma Ranch along Santa Teresa Boulevard and the Hecker Pass Specific Plan straddling the city’s scenic western corridor – have 2,120 houses to erect with specific years to build specific numbers of them. Glen Loma should have built 50 of its 1,693 homes by January and another 50 by the end of this year, according to its development agreement with the city, but that agreement also gives the group wiggle room in case of a sour market. Slight reprieve for the developers who said they would rather be building, and huge what-ifs in the city’s and school district’s budgets.
The city expects to collect about $82 million in fees from the two developments to offset the costs of new roads, pipes, parks and emergency services, and the school district will take in about $11 million. The average 2,000-square-foot house costs a developer in Gilroy about $50,000 in city and school impact fees – but no houses, no fees. This leaves the option of collecting fee advances, but developers say there’s no money to give even if that were a fair option, and that means Gilroy Unified School District officials may become more reliant on a $150 million school bond before voters this November.
“This is a big issue, and our schools are already crowded just from natural growth,” District Deputy Superintendent of Business Services Enrique Palacios said, adding that the district has $33 million in outstanding certificates of participation to repay, mostly for Christopher Ranch High School.
“If the developer fees do not come in at the rate they should, then we probably will tap into the bond money,” Palacios said. He added that the district checks in with the Glen Loma Group regularly for updates, but Palacios and council members agreed that it all boils down to the housing market’s recovery. Still, council members said they will consider any and all ideas at an Oct. 6 study session.
Councilwoman Cat Tucker said the body should find a more effective way to enforce current timelines. Colossal developments such as Glen Loma agree to build a certain number of houses per year or within three years before or after that assigned year. That means the 145 houses it is expected to build in 2011 could be built as early as this year or as late as 2014. Smaller developments have a year on either side of their assigned year, and exempt units such as affordable and senior housing have no time limits. It’s all a bit mercurial and something that needs clarification, Tucker said.
“We need some sort of time frame put in there that makes it specifically clear,” Tucker said. “Developers take a risk when they put through all these applications, and the market will bear what it bears, but I’m more likely to be lenient in tough times.”
Good idea, developers said.
“The council should give some consideration to this unprecedented economic condition,” Glen Loma Group co-owner Tim Filice said. “Even if we wanted to start building, no lender is willing to advance us the tens of millions for infrastructure, so essentially, Glen Loma is on hold until economic conditions can justify us moving forward.”
Jim Hoey, a stake holder in Hecker Pass and the developer of a completed 15-unit development in the same area, also called for patience.
“The market is what it is. You can’t force it,” Hoey said. “The council just needs to be patient. There has to be flexibility.”
Since 2002, the city council has awarded 4,815 so-called “Residential Development Ordinances” to developers with building timelines stretching through 2016. About 3,000 of those RDOs went through a lottery system, and remaining ones fell into special exempt categories for affordable housing and small projects. Glen Loma and Hecker Pass hold 2,120 of the total pot, but they’re not moving because there’s no money, and developers say forcing anyone to move in these times is wrong.
Councilman Dion Bracco sympathized with this point but agreed with his colleagues that the process needs revamping.
“When you’re talking about as many homes as Glen Loma, you can’t hold them up and say, ‘You’ve got to use them or else …’ But I don’t see a lot of these really big developments coming on in the near future,” Bracco said. “Maybe we could borrow their (RDO units) until they’re ready to use them for smaller projects we went over that would’ve started building.”
James Suner had two smaller projects that lost out during the last housing lottery, but he said he was not sure if he would be building right now had he won the rights.
“I don’t know if we would’ve pulled the trigger, but the process should be flexible,” Suner said. “The time is takes to apply for and then receive RDOs and then get the tentative map and arch and site – it’s so lengthy that you cannot time the market, but an opportunity fund would help that and also help the school district and the city’s impact fee fund.”
