Conversations with Advocates of Fair Growth
Overview | Conversations with Advocates of Fair Growth | Living on the Fenceline
Patrick Kennedy
Patrick Kennedy is president of Panorama Interest, a private real estate development firm that builds mixed-income housing in Berkeley, California.
Interview
Steve Lerner (SDL): Why did you get into building affordable housing as a private developer?
Patrick Kennedy (PK): Berkeley doesn't give you much choice. I like to think it was sheer altruism but it was more political necessity combined with a desire to do the right thing. Berkley has probably one of the most demanding "set aside" requirements for inclusionary housing [in the nation]. Twenty percent of the units have to be affordable - 10 percent set aside for people at 50 percent of the Area Median Income (AMI) and 10 percent for people at 80 percent AMI. Our developments prototype has always included that component. We calculate that it costs us about $150,000 subsidy per [affordable] unit. That is a huge hurdle to overcome when you have to do that with every fifth unit. But because we often get financing through the state that has tax free bonds as part of the deal, we can afford to do it.
SDL: How does the tax free bond work?
PK: We qualify and compete for allocations of tax credits and the state determines which projects are give an allocation and how much. They rank projects in accordance with a number of criteria which include, among other things, proximity to mass transit, the length of time the projects stay low income, other amenities such as social services offered in the project, and the percentage of units that are set aside for low income residents. If you provide a 30 to 40 percent set aside for low income residents then you get more points than if you have 10 to 20 percent. So they have a list of probably ten or eleven areas where they scored applicants and developers compete for these funds. What you get out of it is both a tax credit and you get bonds at a rate of interest that is lower than conventional financing.
SDL: Does that cut this $150,000 deficit per affordable unit down to nothing?
PK: No. It probably cuts it a third because bond rates float and sometimes they are close to market rate.
SDL: So you are still subsidizing these affordable units at about $100,000 a unit.
PK: At least. That works if you have a strong project on the market side and Berkley has had, at least historically, a very strong rental market. That covers the subsidy that is implicit in the [provision of] low-income units. In other communities that do not have as strong a rental market [as we do in Berkeley] would [find the subsidizing of the affordable units] much tougher. The easiest way for the government to subsidize a mixed-income project, that would require the least amount of management on the part of the government, would be to simply find a way to make financing less expensive.
SDL: How does the state ensure that these units are going to low-income residents?
PK: We have deed restrictions on the building and we file monitoring provisions that are reviewed by the state every six month or 12 months. It is a pretty simple exercise confirming that the low income apartments are in fact occupied by low income residents.
SDL: What happens when residents get a better job and their incomes go up?
PK: They have to leave in some cases. Usually the low-income residents that we get - we work through a number of agencies - are, you might say, structurally unemployed. They are very often incapable of getting long-term employment. But they are stable in many cases and have minor disabilities. We have a building that has nine developmentally disabled individuals. Most of those residents have autism. I don't think they will ever have a job. In the rare instance where you do get someone whose income rises there are provisions that allow the resident to have income rise 40 percent above what it was. So there is some latitude; but beyond that they just have to move out. As far as I know, we have about 75 low-income residents and maybe one or two have exceeded their income restriction after a year or two in one of our places.
SDL: How long do these units have to remain low-income?
PK: It varies depending on the agreement but I think here in Berkeley they have to remain low-income for 55 years. We put them in our pro forma at that level. There is a cost of living adjustment but the rents you charge are set by The Department of Housing and Human Development (HUD). They do their annual analysis of what the AMI is and calculate rents from that.
SDL: Do you build affordable for sale units?
PK: We do some for sale units. This is a list of all the projects we have done and it lists the number of low-income units. The Shattuck Loft project was a low income project. The for sale low income units don't work quite as well. This particular project had too many low-income units in it. The reason why I say that is that the maintenance of buildings is expensive [and that creates tension between the owners of the low-income units and the owners of market rate units. The problem arises] when you have a disproportionate number of low income residents who are very sensitive to what the monthly fees are in the same building with market rate people who are more inclined to want to spend money to maintain a building because they have a bigger stake in the upside of the investment. The low income people often have very serious income restraints that are not conducive to being able to spend as much as is necessary. So there is some tension there. In this project almost half were low-income. That was really high. The other [for sale affordable housing project] is more like 20 percent [subsidized units]. I still belong to the associations of both those places because I still own the commercial space and I see [this tension] at the meetings. Some people say I can't afford any increases in my monthly maintenance bill on the one hand; on the other hand people are saying that we need to pay our janitors more because it costs more now than it did ten years ago when we moved in to hire a janitor.
In contrast, in the mixed income rental projects we don't have that problem. For one thing we are in charge of maintaining the buildings and we pass through the expenses in market rents to everybody and it is easy to do. So you don't have the conflict between the low-income residents and the market rate residents.
SDL: What is your experience with how mixed-income projects work socially?
PK: The quick answer is that it takes extreme vigilance at the outset to make sure you get the right people [into the low-income units].
SDL: How do you get that?
PK: One way we do that is we work through social service agencies and they give us people who have already been through their program and have established their bona fides and are well launched on the road to recovery or are stabilized. A lot of people can get Section 8 certificates and absent some kind of familiarity with what they have been doing for the past two or three years we are in a difficult position to evaluate how well they are going to do [in terms of being good renters] going forward. We work with a group called the Berkeley Food and Housing Project, with the Housing Authority here in the city of Berkeley, and with a group called Building Opportunities for Self Sufficiency (BOSS). We get rental referrals from all of them. They give us the clients in their organizations that have demonstrated sufficient self reliance, maturity, and positive outlook [to be good renters]. In most cases someone else is paying the rent. They pay a third of their income, which, if it is zero, then they pay zero.
Where there are some problems is where you get a number of people in that come from a shelter plus care program that serves people who were formerly on the street or are in dire circumstances. They sometimes have friends who are still on the street and when their friends visit and influence the behavior [of our renters] you can have some problems. We had one woman who came from a social service agency who was living in a horrible flop house around the corner here who was a fine tenant by herself but she had an alcoholic son who would come in from time to time and create problems. Happily, we were able to get her social service agency to intervene and let her know that her son couldn't come here any more and that she had to meet him elsewhere. That solved the problem. Occasionally other residents will have friends come visit them and I think the perception is more disruptive than anything else because we have plenty of [university] students in the building some of whom go out merry-making on Friday or Saturday night and come back [drunk]. But when you have a street person coming in who is obviously under the influence it is more threatening to people, I suppose, than to have some co-ed come in a little tipsy on Friday night.
In the main, we have had very few problems but we have been very careful at the outset in interviewing all the people who have moved into our buildings. In some cases we like to go visit them in their existing living situation if only to see whether they keep their room clean even if it is a dump. We just had a woman move in to this building right here, a beautiful two bedroom apartment: she is a single mom with a six year-old kid who goes to Berkeley. She is just having another kid and makes $900 a month but she has a section 8 certificate and has a job working as an attendant. Her mentor from the local housing clinic met with me and we went to visit her apartment and it was in a scary area of Richmond that had bullet holes in the walls and the front door but the place itself she was doing a good job and it was tidy and neat and it suggested to me that she would succeed.
In one instance in a building we just opened just around the corner from here we had a young woman who was supposedly moving into a one bedroom with a single kid and she moved in with four friends including a boyfriend. And that was basically the tenant from hell. But we were able to convince her and her entourage to leave. We would have begun eviction proceeding immediately because it was clear the she was not going to work out in the building. Her friends were in there smoking marijuana in the presence of a four year old. And you were not supposed to smoke in their in any case. So there were obviously just going to be a lot of problems. The boyfriend was living there even though he wasn't on the lease and it was just supposed to be this woman and her son and a caretaker for her kid when she was taking classes. But it didn't work out. That was the first time in five or six years that we had a frightening problem with an existing tenant. Happily we were able to get the social service agency involved and we got her to move.
SDL: It sounds as if the social service agencies have some interests in sending clients who will be able to make this work.
PK: They do because we won't place their tenants again [if we have serious problems with their clients]. So they have a very significant interest.
SDL: As a result, they give you the best people they have because they want to be able to come back to you.
PK: Right. This fall, for example, we will have 35 apartments available for very low-income residents, which is not a huge number but a significant number in a town like Berkeley. And I think the residents much prefer to live in a mixed-income building because they are not stigmatized or ghettoized. You can go to the low-income housing projects here in Berkeley and they all look like low-income housing projects. Obviously this building (The Gaia Building) does not look anything like a low-income housing project and yet we have 19 households here that are very low-income and most of them are on Section 8 certificates.
SDL: So some people are very lucky.
PK: And that is exactly what social service agencies like about it. And I would have to say that as a percentage of our residents we have no more problems with low-income residents than market rate tenants. [We do have] complaints about them. Sometimes it is minor stuff: yappy dogs. We generally don't let pets in buildings but some low-income residents have pets that their doctors have ordered them to have. It is kind of a ruse but I'm not going to fight the medical and legal system. As long as they keep their pets under control we tolerate them. And you have more leverage against the market rate tenant: you can always raise the rent. In our buildings here we rent parking separately and parking is always on a separate basis. So if we want to get someone to focus on his or her duties we threaten them with revoking their parking privileges. And there is very little parking available here.
SDL: With the low-income tenants you don't have that leverage.
PK: Yes, very few of them drive. We have a few with cars. But I would say for the most park they are assimilated. I will give you another problem we had with a low-income tenant. It wasn't really his fault. We had an autistic fellow move into a building we opened in August. He was developmentally disabled. By all accounts he was a very nice guy. He has an attendant for a good portion of each day. He moved in and two days later he was taken to his classes and he came back to the building and for some reason he got upset with his attendant. His social work explained that he was just unsettled because he was in a new environment and there was some disruption in his day-to-day routine. He ended up attacking or wrestling - but it took some cops and firemen to pull him off this diminutive woman who is a social worker. And it happened right in front of the building. The guy just flipped out. It was the first time it had ever happened to this guy. I get phone call saying I've got construction people and firemen pulling this guy off a young woman. She didn't press charges or anything. It was the kind of incident you don't expect under normal circumstances. The social worker said that if it happens again we will move him: it is out of character. It was triggered by a combination of circumstances that would not be repeated.
SDL: Are you sensitive to the criticism that this is essentially creaming of the low-income population?
PK: You mean they would rather give us their worst clients?
SDL: Or perhaps your critics think that you should have to cope with the full range of people in need of affordable housing - both the east to manage and those who have more unresolved problems.
PK: If we didn't get their best clients I don't think it would work all that well. One bad household in a 70 unit building can ruin it. All you have to get is one person dealing drugs and, boom, the market rate units empty. So I think you are ensuring the successful integration of low-income people by cherry picking if you want to use a pejorative phrase. A lot of low-income clients have serious social problems and you can't inject them into a quiet healthy stable environment without having some serious ramifications that ruins it for everybody.
SDL: So this experiment in building mixed-income housing is quite fragile.
PK: I think it is extremely fragile and I think that is important for people to remember [that fact]. If we wanted to we could take only 60 year-old women who are not going to have boyfriends who come at three in the morning and breakdown the door; or are not going to have children or lovers or all sorts of other attendant individuals. [By pursuing that strategy] we would minimize our exposure but we wouldn't be serving much of a public good. Social service workers tell us that it is important to have our places as something for them to work towards. Our buildings are not completely low-income places. They are buildings where low-income people will be treated no differently than market rate residents.
SDL: Do low-income residents sign something with the social service agency that says if they don't behave well they will be yanked out of this apt.
PK: The social service agencies do not have much leverage with people on Section 8 vouchers, which is a federal program with strict guidelines. But we have a number of clients who are on Shelter Plus Care program and that is a certificate that can be jerked by the social service agency at any time. And that is a very big club. This is not true for those on Section 8. Once you have a Section 8 it is basically property and it can only be revoked with fairly laborious procedure. There are a number of protections against stripping it away. As a practical matter it is a lot of trouble. We have used this authority that is vested with the social service agencies to deal with a couple of tenants who didn't understand that they couldn't carry on in their own ways in this building if they wanted to stay here. And that worked.
SDL: So you have leverage with them that is above and beyond what you have with other tenants who have the market rate units?
PK: Yes. Right. Berkeley has its own rent control eviction protections that give tenants quite a few more rights as a practical matter. But at the very least we don't have to renew a lease so if we have a problem we can get rid of a tenant within a 12 month period. We don't write leases longer than a year. I don't think we have ever had to evict a tenant. The key component here is vigilance in the selection process. And we are vigilant both with our low-income tenants and with our market rate tenants. We have them sign a fairly lengthy recitation of the rules of our buildings. I like our buildings to resemble geriatric wards. We have beautiful public spaces. This one has a gorgeous reading room. It has magnificent views [of the city] and couches. When people come to our buildings they are familiarized with our desire to keep everyone in the building well behaved. We don't stop people if they want to throw a party in their apartment but if there are blow outs that affect everyone in the building we will give them a three day notice that they have 30 days to get out and we are beginning eviction proceedings. That will usually solve the problem. It is a warning to clean up their act or we will begin eviction proceedings. Our buildings have a reputation of being tight ships.
SDL: Have you had market rate people say this is not working for me.
PK: That hasn't happened. We have one building, Acton Courtyards, where we have 15 very low income tenants, nine of whom are developmentally disabled. One of them was the one who attacked his attendant in front of our building. To my knowledge we have never had a tenant say that [they want to leave because of problems with low-income tenants]. That is not adequate grounds to get out of a lease: I don't like the looks of my neighbors. And our buildings are designed so there are public areas. Most of our residents are students or people who work. It hasn't been a problem but we don't let them throw wild parties or blast their stereos. Our managers have instructions to enforce all the rules. We don't let the smoke anywhere except the rooftop. Most people learn the rules in the first couple of weeks. I think you need to be wary of getting that percentage of low-income tenants any higher than 20 percent. We have 20 percent here and we have another that is 40 percent (that was a for-sale project) and that is too high. So there is a tipping point and I would say it is 20 percent.
SDL: How transparent is this process. If I came here looking for an apartment would you say I want you to know that 20 percent of the people in this building are low-income tenants on subsidized rents?
PK: It is not transparent at all. I don't think that under state law we can divulge much about the people in the building. If someone asked I think we would be obliged to tell them the truth. But you would never know [who is in a subsidized unit]. Our low-income tenants tend to be older.
SDL: So there are no visible signs that one area is where the low-income tenants live.
PK: No. And they are also spread out through the building. We don't have a wing for all the low-income tenants. I don't think you would know [who is who]. We don't have low income tenants who come in bombed. There lives are together enough that they can take care of themselves. They live by themselves, typically.
SDL: So this is for a certain category of low-income tenants. It really is not for everybody. It wouldn't work for everybody. Is that what I understand you are saying?
PK: We have some young families that are low income in another building. I think we only have one family here with kids. Our apartments here are very urban. Most people with kids would rather be in a place that is less dense. We have 8,000 sq. feet of public space and beautiful courtyards that are wonderful places for kids to play. There is a woman here who lives on Section 8 and works with Bayer Labs. She was living in another low income place that had tons of low income people and it was Dodge City there and there were 40 kids who were out of control in the parking lot and it was chaos. So she is happy here. We try to find people who will appreciate their circumstances and act to maintain what they have achieved.
In the project we have most recently completed in August 2003, Acton Courtyards, we have five families, which is one third of the low-income units.
SDL: What did it take to get these projects permitted and what did it take politically to get these projects accepted by the community? It sounds as if you got together a group of supporters who had an interest in seeing this mixed-income project built. It sounds as if this development job requires certain political skills.
PK: That is true. But you have to understand that in the city of Berkeley it is politically incorrect to be against affordable housing. So attacks from people who do object to it, their objections are not couched in anything that could resemble that [anti-affordable housing language]. We had one project that we battled for over four years and finally won. It was attacked because it was not owner occupied housing. The presumption was that only owners really care about neighborhoods. But in reality that was a not so veiled attack on the fact that it was going to have 20 percent low-income residents. The neighbors thought we would have welfare moms - which in fact we do - but these are screened and they are not the caricature of the welfare mom. Our projects are usually attacked because I am on the private sector side and I am doing it for a profit, which of course I am if I want to stay in business. Or we are attacked on the grounds that our buildings are too tall or too big. There is an active but small, well-organized group in Berkeley that fights almost all development. These are the historic preservation people. I will show you the stuff they have land marked. It is pretty funny. This is land marked because it is supposed to be an Indian burial ground but they drilled and didn't find anything. They want it to remain a parking lot. There was a retaining wall they land marked. This was the site of the first black owned dwelling in Berkeley and the house burned in 1978 but they still land marked it. So you deal with the more lunatic fringe elements.
SDL: This is not the same kind of problem that you would face in an affluent suburb where folks would say...
PK: ...we don't want those kind of people. Yes, that's right. Actually the citizens of Berkeley are very supportive of mixed-income housing. There was a referendum on it last November. P was a referendum designed to down-zone the whole city. I'm not sure if this was a group that secretly wanted to stop affordable housing; or they wanted to stop all development. But they knew I would be put out of business if they down-zoned to 28 feet. That would essentially only permit the construction of a two story building. You can't build multi-family housing that is only two stories. They had a fairly well organized campaign that lost by a four to one margin. That was the No on P campaign last year, 2002. Their campaign claimed to promote affordable housing when it would have basically wiped it out. This is typical of the disingenuous objections to affordable housing here in the city. They want to stop "out-of-scale" development and promote affordable housing. That was a joke. Even the planning department of the city said that if you reduce building heights in the city to 28 feet you will never see any more affordable housing in the city, which was true. You would see $500,000 to $700,000 town houses. A self selected group of neighborhood activists promoted this who wanted to protect the neighborhoods.
It is hard to fathom what is going on in the minds of some people. For example this project right here. This is an area obviously under-utilized that has some drug problems. It is on a busy street that is no longer there because we built a building to stop it. This is Acton Courtyard that critics would say is out of scale development. And yet the zoning ordinance calls for buildings up to 50 feet tall and this is 50 foot. The arguments do not resonate with the voters but there are a number of people who feel themselves protectorates of something: I'm not sure what. If you drive down University Boulevard you will see it is an under achieving street. It is not as if we have sections of Berkeley that resemble Williamsburg, Virginia. We have a few historic buildings but nothing that most reasonable preservationists would deem worthy of going to battle over. It is not Paris. When I proposed that we make University Boulevard our Champs Elysee there was a raft of articles belittling that idea. I agree it is a stretch to imagine that but you have to have some point of reference towards which to move. Happily, the group, which I call "The Forces That Know," has lost all their battles. They have slowed things down a bit. They have forced developers to spend some money but they haven't stopped development. There has been development in the last five years. Prior to there was about a 20 year dry spell where no development took place. Berkeley adopted very strict rent controls in 1969 and that stopped development. The ordinance was later clarified to exempt new construction. So from 1979 to 1998 virtually no new rental housing was built in the city and quite a few units were taken off the market and were converted to condominiums or removed. Rooming houses got converted to office buildings.
What changed is that I did a number of successful small infill projects in downtown which most people had written off as a lost cause. And the buildings filled up and rented quickly. A couple of other developers did a few small projects that also rented up quickly. So the demand was always there. The University of California at Berkeley has 40,000 students and the housing stock in the city had deteriorated dramatically under rent control. Chris was telling a story, (everybody in this office went to CAL) he went to look at a ramshackle old place that had an iguana sitting on the kitchen counter and the resident said it came with the place to keep the cockroaches down. That is when his dad went out and bought him a condominium. That is not that unusual on the south side. If you drive around you can see how dreadful the housing stock is. And the city records show a precipitous drop in rental housing in the city that has accompanied the deterioration of it. That has changed a little since 1999 when the most onerous aspect of rent control - vacancy decontrol - ended. Vacancy control says that even when a unit is vacated the old rent obtains. Vacancy decontrol allows the owner to bring the rent to market rate when the tenant voluntarily leaves. So it allows for some adjustment to market rate. Some students do move on so over time more apartments have been re-rented at closer to market rate which has allowed some of the buildings to be fixed up and thereby improved the housing stock incrementally. In the five or six years since the new law has been in place about a third of the housing stock has turned over. So that helps.
When I did the Berkelean Apartments it was the first downtown housing project built by a private developer in the city since WWII. There has been a famine or at least a housing drought for many years. And there are compelling reasons for people wanting to live downtown. It is close to the campus and close to the Bay Area Mass Transit system (BART) and there are interesting movie houses and other things. According to a broker who is doing a tally, 2200 units have been built, are in the pipeline, have been planned or are in the approval process in the space of 5 or 6 years. And the total housing stock is 25,000 units. So it almost ten percent increase in five years.
SDL: Is it accurate to say that you have built a quarter of the residential units in the last decade?
PK: I think it is probably higher than that now. For a long time no one wanted to touch Berkeley. It is a very nasty town politically.
SDL: Tell me about the Fine Arts Building you plan to build that will have 100 new apartments?
PK: Right. We had to fight a landmark battle on that one because the space was one operated by a guy who was married to Pauline Kale. (.Pauline Kale was a New Yorker film critic, now dead ten years, but still an icon in Berkeley.) She didn't operate it. Her ex-husband operated it. So it was imbued with historic significance because Pauline Kale divorced the guy who ran the predecessor to the porno shop. You can't parody these guys. They have no shame.
SDL: It sounds to me as if you went to a lot of trouble to attract the good will of people in Berkeley to get this place built. It is quite a coalition that includes people interested in affordable housing, the environmentalists, and the mystic spiritualist group, people who like old movies.
PK: Oh yes. Nothing in Berkeley is ever decided on the merits. In this case we had the new age group. All of our buildings are accessible to the handicapped and the handicapped are a very potent lobby here. Enviros {environmentalists] are very potent [lobby group]. They like us because they know that car free housing is good. This building right here has 237 residents and only 25 rent parking spaces. We charge extra for parking: $150 a month. As a result we have vacant spaces. The environmentalists like that. These buildings are intrinsically green because they use far fewer resources to heat and much less water. The chief environmental benefit is that we put people where they want to be rather than relying on people to commute to town. So if housing is in the right place you will probably get about 85 percent of the environmental benefits that you will ever get. People can use mass transit. And that doesn't include the net benefit of people using mass transit. We do our environmental score card so the environmentalists support it. And the local businesses support us because we build market rate housing for people who have disposable incomes. And the business people realize they will get the benefits of that without having the downside of 100 percent low-income housing where they are not sure what they are going to get. The city is quite supportive too because this building stays on the tax rolls. We pay a couple of hundred thousand dollars a year in property taxes and business license taxes. So, everyone is a winner. But in Berkeley the "Forces That Know" are always more passionate and animated and obnoxious than the forces of yes. And it takes a lot of people supporting a project in one place at one time to counter balance the people who cannot stand development.
This building [the Gaia Building] has been attacked with a straight face as a Stalinist monstrosity and a monument to civic corruption. How do you deal with people like that? For one you just have to build good buildings. But when you are in the City Hall forum and people are shouting stuff like that...if you have a photograph of your building up there people will laugh. But in the Council Chamber, when people are bandying around accusations, you have to counter them. I have been in development here for ten years and people have a pretty good idea about the stuff I build. It is not as if I am parachuting into town for a one night stand, making a killing, and leaving. So the City Planning Commission and the Council members have a more balanced appreciation of the stuff we do and they can discount the hyperbole that is vented in the public forums. Other developers would not have that advantage.
In earlier days when the people in the city didn't have a clear idea of the stuff we were building I would have to bring in my own supporters. On the Gaia Building, for example, we probably had 100 people coming in to testify on behalf of the building including massage therapists, Palestinian green grocers, environmentalists, little old ladies, Grey Panthers, and the bus freaks. We had one guy who lives in one of our buildings now who said that building the Gaia Building was going to strike a blow against corporate America. I don't go to the public meetings as much as I did in the past any more. They are not as contentious now. The opposition in Berkeley has said the same thing so many times that it is almost as if both sides stipulate what they are going to say and then we just let the City Council and the Planning Commission get to the merits. Lately they have been favorable. Now-a-days the people who fight our buildings have gotten a little more aggressive and they hire lawyers. We just won three lawsuits last spring that made it possible for us to build the three projects we have under construction right now. The key to our success is that people know that we will do whatever it takes to get a project done and we will stick with it for five years if need be. Other developers can't so that. We can because we have four or five things going at one time so if one project gets bogged down for a year or two in frivolous litigation we have other stuff to work on. We don't put all of our eggs in one basket.
The lawsuits were basically bogus environmental lawsuits. The used the California Environmental Quality Act (CEQA). The Touriel Building was a hundred year old building here but the front had been ripped off. The architectural integrity of the building was nil. It was a fragment of another era. They put on a cheesy addition in the 1950s. But a couple of motivated and affluent members of the Berkeley Architectural Heritage Association brought the lawsuit saying that this was an historic resource that needed an Environmental Impact Statement to be assessed. The irony was that the same group that brought the lawsuit did a survey of buildings in the area in 1988 and said that every building on the block except this was an historic resource. Back then they didn't have an anti development or anti-Panorama Interests agenda so they said it was not of historic interest. But they came back and reviewed the situation when they learned we were going to build on it and they suddenly discovered that it had historic significance by virtue of its connection to a gentleman by the name of John Doyle who was an officer in the Working Man's Party around the turn of the century, whose chief goal was to rid California of the Chinese influence and protect the jobs for the working man.. So that was a one or two year delay on an utterly frivolous lawsuit. But once these CEQA lawsuits are launched there are procedural guidelines that have to be followed and you have to go through the suit and have a hearing in front of a judge.
SDL: Some look at mixed-income developments as a panacea and that we are going to be able to fix the affordable housing problem by integrating low income units into developments all over the country. They want to get rid of exclusively affordable housing developments. They argue that many social problems result from having areas with high concentrations of poverty. I hear you saying that this mixed income thing is fragile and it may not work for everybody. PK: That's right.
SDL: Is the logical extension of that argument that we will continue to need buildings that are exclusively for low income residents?
PK: I think that is true. It does work because there is a certain built in alignment of interests in a mixed-income project that provides an incentive to keep it healthy and that is that we are very careful and vigilant about managing the activities of our low-income residents because we do not want to destroy the economic viability of the 80 percent market rate units. Those residents do have choices and they can go anywhere. The reason why, it seems to me, many low-income projects become full of problems is that the residents there cannot go somewhere else very easily. They are stuck there and the owners know that and the economic incentive to keep them happy don't exist as it does in a mixed-income building. That is why the low-income projects deteriorate and become problematic. SDL: So this is not a solution for all low income residents but rather one for people who cannot pay market rate but have their lives together enough that they can live with market rate tenants.
PK: I think that is true. If we randomly took residents from the projects in Berkeley and Oakland I don't think we would have the relatively successful environment we have in our buildings chiefly because depending on how the building is laid out - for example in this building that is built around a central courtyard - if you have one tenant who is making a racquet then 91 residents know about it. And our buildings, that have double-loaded corridors that don't all open into a common area, it is less significant. But you still have disruptions that affect the people in the immediate area.
SDL: Do you put a lot of money into noise insulation?
PK: We do, we put a ton in, usually about $500 to $1,000 a unit. We build in double-wall construction in all our apartments. We put in sound insulation under the sub-floor in our units. We put in extra insulation. In our most recent project you don't hear any noise but you do hear some vibration noise, which most people accept. But we don't have it in our other buildings and we are fixing it. If you spend money up front it is well worth it on the back end. Our buildings aren't very dense as you can see. The densities run from 100 to 225 units per acre. And most of them are not high-rises.
In Fine Arts building the cinema is under construction now and the shell of the theatre is being built. This is the site of the historic Pauline Kale Building. It would be funny if it weren't so expensive. If people want to do something for affordable housing they should do something about cranks and crackpots who slow up projects for years and add sheer numbers[expense to the process]. This will probably have more families and it has a beautiful interior courtyard here.
SDL: Tell me about the smart growth gatherings where you have given presentations. How does the construction of mixed income housing fit in with the smart growth groups? It is my observation that gradually the equitable part of the Smart Growth agenda is expanding. Before, people didn't want to talk about the affordable housing part of this because it was politically such a hot potato. You could build smart growth projects that looked nice, were environmentally sensible, and located next to mass transit. But as soon as you started talking about mixed-income units as part of the project it was a whole different can of worms. And that a lot of developers were terrified about this and didn't want to get next to it because they saw it as the kiss of death for their project.
PK: You mean kiss of death because public acceptance would be problematic?
SDL: Yes. These developers don't live in Berkeley or Boulder. They live in places where middle and affluent people live who don't want affordable housing projects built in their community. They think of a welfare mother with seven children on crack who will make their property values go down.
PK: They don't realize that affordable housing, at least in Berkeley, also includes a number of under-achieving PhDs who happen to work at local bookstores. Maybe Berkeley is unique in that regard.
SDL: How do you see that? Do you see a greater acceptance among developers about building up mixed income developments?
PK: I'm not a regular at these conferences because very often the kind of smart growth they talk about there involves smarter sub-division development where they take a piece of land and develop it along the lines of the New Urbanists and prototypes of Seaside and similar places. The focus in the past ones I attended wasn't on taking discrete infill sites and figuring out what to do with them probably because it is so complex and expensive. We just had a next door neighbor who was trying to trying to shake us down for $30,000 because we were going to put a scaffold 4 inches on his property in order to install nice looking stucco that he will see. You run into a raft of headaches that you don't run into at a Kentlands (greenfields, smart growth) project. The divorced husband of Pauline Kale would not become a central part of the argument at Kentlands.
SDL: Do you find numbers of developers who are doing infill mixed income development.
PK: It is kind of coming into its own. Bigger developers have not paid attention to it because it is too much trouble for the amount of money involved and it is also a lot more expensive than building typical three and four story wood frame stuff from scratch. When you put mixed uses together -- especially things like restaurants, parking garages, and housing -- you trigger a number of code requirements and fire safety requirements that add enormous costs to the building. Separation in this building, for example between the garage and the residents is wall that is a foot and a half thick piece of concrete with rebar and lots of other things in it. They are very expensive buildings to build. I suspect that they are 50 percent more expensive than stick frame garden style apartments on vacant lands, maybe even more than that.
SDL: But that is the mixed use side of it.
PK: Yes the mixed use and the infill side of it. I am seeing more developers addressing the mixed income side of it because California is now imposing inclusionary requirements. You should get a copy of this. It shows a list of jurisdictions that have set aside requirements for low-income in California. It is probably 100 communities. It is entitled: "Inclusionary Housing in California: Thirty Years of Innovation." It is put out by the Coalition for Rural Housing. So you can see all the places that require it. California has had an extremely liberal legislature with a Democratic Governor for the past few years and a lot of this stuff has come up.
SDL: Does this mean that you are going to end up competing for low income clients who can adjust to living in a mixed-income building?
PK: I think there are plenty to go around. We have a lot of people coming to us right now because they want to live in one of our buildings. If they have a Section 8 certificate and they know our buildings are nice. They have these requirements but there is still not much being built. We never have any shortage of good low-income clients because people want to live in Berkeley. I'm sure we have people with advanced degrees in our low-income units here. We have an architect and a couple of writers who, through a number of circumstances, found themselves in a position where they need help from the state. But they are talented people. They just can't make a living. Furthermore, it is important to keep in mind that 80 percent AMI in Berkeley is $40,000 a year. So that is a school teacher's salary and we have a number of them. It is only by virtue of the very high incomes in the Bay Areas that these are considered low-income renters. In other communities they would be considered middle class.
SDL: If I went to an area that didn't have the cachet of Berkeley and Boulder would I be looking at an entirely different phenomenon: somewhere where low-income means low income?
PK: That's true. You might well be. The key thing here is the incentives that exist in the architecture of the sociology.
SDL: What do you mean by that?
PK: When you have mixed-income places you have incentives to make them work. And when you have all low-income places you do have incentives to make them manageable but the penalties for being a less than perfect landlord are not anywhere near as great as they are when you have a mixed-income place. And that is a self-regulating mechanism.
SDL: So do you think it is in society's interest to promote that?
PK: I think so. I think it is in society's interest to put the burden of making places habitable on the owner as opposed the state. A lot of low-income housing is owned by Housing Authorities. The City of Berkeley has had extreme difficulty in managing their properties. I think we now have more low-income housing than the City of Berkeley has under their direct management. They have something like 74 units and they spend $450,000 just to manage those units. That's just to manage not to pay for them. We now have built 74 low and very low income units and it costs the city nothing to have those managed. They are managed in conjunction with market rate units. And that does not include the staff the city has to manage Berkeley housing. They probably have a staff of ten people to do it.
SDL: To be fair they are dealing with the people who might not work out in your buildings.
PK: That could be true. I don't know what the demographics are of that population. There is no question that we get what Social Service Agencies view as their best clients. The other question you might ask is whether people who know that they might lose their place in a nice apartment improve their behavior.
SDL: I would think so.
PK: And if those penalties existed in the 100 percent low income places — and it seems as if they don't — you could require good behavior.