“We’re in two crises: We have a pandemic crisis,
and then we have a financial crisis, and they’re not
entirely lateral. The pandemic crisis is going to
end before the financial crisis,” Stone said.
Coronavirus delivers first blow against Bay Area construction,
economy could knock it out
Anticipated recession will be sharply exacerbated by
COVID-19 crisis, officials say
By JOSEPH GEHA | jgeha@bayareanewsgroup.com | Bay Area News Group
Neighbors sheltering in
place inside their new homes along Centre Point Drive in Milpitas sent angry
emails to city officials early last week, complaining about the cacophony of
construction noise across the street where a large mixed-use development was going
up.
“Please drive by and hear
it for yourself,” one resident wrote. “The constant, simultaneous sounds of
hammering, drilling, rapid stapling, and heavy pounding!”
On Wednesday morning, the
neighbors’ wishes seemingly were granted. The job site — where SummerHill
Apartment Communities had started building hundreds of planned apartments and
more than 10,000 square feet of retail across multiple five-story buildings —
was silent, other than the occasional sound of a few shooting nail guns and
swinging hammers.
But it wasn’t because
city officials heeded the neighbors’ requests.
Several hours earlier at
the stroke of midnight, the Bay Area’s latest shelter-in-place order kicked in,
halting most construction in its tracks and sending thousands of workers home
until at least May 3 in an effort to contain the rapid spread of coronavirus.
In the tech-driven
economy of Silicon Valley, where over the last decade record job growth has
spurred billions of dollars’ worth of new housing and commercial construction,
officials say the COVID-19 pandemic could wreak a huge economic toll on the
development scene.
“I believe that the
development, the construction and the leasing activity will be delayed, and in
some cases canceled, due to the heightened sense of uncertainty over the
economic and business outlooks,” Larry Stone, Santa Clara County’s longtime
assessor, said Thursday.
While the shelter order
is in effect until May 3, the work stoppages could be extended well beyond that
date and the ripple effects may alter the area’s landscape, he suggested.
Half-finished buildings
may languish indefinitely if the financial constraints become too much for
builders to bear. In other cases, parcels may remain vacant as the demand for
homes and offices vanishes in an economy that’s tanking.
“At the height of the
Great Recession, we had between 10 to 12 percent unemployment, we’re going to
be over 15 percent if this thing lasts another three months,” Stone said.
“Some developers may very
well conclude that they’re not going to proceed even when the pandemic goes
away because the market has been impacted so much by unemployment and those
kinds of things,” he said.
Developers say they
understand the importance of social distancing, which is driving the
shelter-in-place order, but argue that construction could be safely done.
“I certainly believe in
the shelter-in-place and the necessary steps we’re trying to take as a
community to flatten the curve, but construction of this type, I thought was a
place that we could control the risks and minimize the risks,” said Robert
Freed, CEO of major Bay Area developer SummerHill Homes.
“We’ve also heard from
the hundreds of people we employ on these jobs that they want to keep working,
and they want to be safe,” Freed said.
SummerHill isn’t the only
big developer in the Bay Area left in the lurch.
In San Jose, for example,
Bayview Development Group’s Miro project — two 28-story towers with more than
600 housing units and 18,000 square feet of commercial space at 167 E. Santa
Clara St. — has ground to a halt.
So has the Serif
Condominiums project in San Francisco by L37 Partners, a 242-unit complex at
950 Market St. that was expected to be completed in February 2021.
And back in Milpitas, The
Fields project by Lyon Living is another victim — 1,185 market-rate apartments
off McCandless Drive planned to include almost 150,000 square feet of retail
and a hotel across from The Great Mall. The 370 apartments in the first phases
of the four-phase project are up, but only a little more than half of the 200 planned
for the second phase are done.
With few other
exceptions, about the only kind of construction that health officials said
Tuesday would be allowed to continue involves housing projects with “at least
10% income-restricted units.”
Although the public risks
in building all homes are the same, they reasoned that affordable housing would
be in even more dire need long after the pandemic has passed, according to
spokespersons for Alameda and Santa Clara counties.
Exceptions aside, Freed
said the shelter order will hurt developers as deeply as did the Great
Recession.
“I think developers and
individual projects that are overleveraged, or have debt structures that are
onerous, are going to fail if this goes on for any significant length of time,”
he said.
“Time is never a friend
of a construction project. There will be a financial hit all the way around.
The clock is still ticking on the debt, the clock is still ticking on a return
on equity, and the longer it goes without producing the housing, the revenue is
being pushed out further into the future,” he said.
“None of that bodes well
for us,” he added.
A few miles north in
Fremont, SiliconSage Builders CEO Sanjeev Acharya also is wary, though hopeful,
of the future.
The development company
had to halt work at the Osgood Residences, a 93-unit condominium complex near a
planned future BART stop.
The structure, already
coated in white paint with copper, California Poppy orange and deep-red accents
around the windows, is more than three-quarters finished, Acharya said.
Crews were about to
install some wooden siding and other portions of the building’s facades.
“We’re hoping it’ll open
up on May 3rd and we’ll be back to business to push the production through,”
Acharya said.
“People want to see
things built and done, they don’t want to see vacant properties, especially
when there’s also a possibility of more vandalism and theft,” he added.
“We are hoping that we
get past this soon and we are able to at least open up construction in a
prudent manner where we keep people safe, but at the same time, get things
going,” he added.
Stone, the assessor, said
some financially stable developers will manage to weather the storm, but as
unemployment spikes and major industries are hamstrung, there may no longer be
a demand for new homes, and mortgage companies are not going to be as willing to
provide loans.
“People were building and
financing … because the market indicated that they could do that,” Stone said.
The value of new
commercial and residential construction totaled an unprecedented nearly $6
billion of Santa Clara County’s assessment roll last year, he said.
“Go or no-go in real
estate development is always based upon the market, whether it’s residential or
commercial. And if the market is changing because of this accelerated crisis,
then the decision making on real estate development could be altered as well,”
he said.
“We’re in two crises: We
have a pandemic crisis,
and then we have a financial crisis, and they’re not
entirely lateral. The pandemic crisis is going to
end before the financial
crisis,” Stone said.
“And the question is, how
do you get out of that?”
Joseph Geha
Joseph
Geha is a multimedia journalist covering Fremont, Milpitas, Union City, and
Newark for the Bay Area News Group. His prior work has been seen in multiple
Bay Area outlets, including SF Weekly, as well as on KQED and KLIV radio. He is
a graduate of California State University, East Bay (Hayward), a Fremont native
and a lifelong Oakland Athletics fan.
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