Marc Babsin, Emerald Fund, Talks Bay Area Barriers at CAPRE’s NorCal Apartment Summit

SAN FRANCISCO, CA – At CapRE’s Fourth Annual Northern California Apartment Summit, a particularly salient theme of the day was barriers to entry (and expansion) in the Golden State, largely focusing on entitlement and construction costs. However, some Bay Area insiders on the panel San Francisco, East Bay, South Bay Multifamily 360: Still Strong and Growing in the Face of a Potential Macro Economic Shift, Rising Interest Rates, Proposition 10 and Construction Challenges revealed that taxes, policy, and politics are also to blame for many barriers. Below, we highlight some input from panelist Marc Babsin, Principal, Emerald Fund.

On Penciling Deals in the Bay Area:

“I’ve got a good anecdote about all of this becoming a little too much. We have a project which we had been working on for awhile named Excelsior – it was just in the San Francisco Chronicle about a week and a half ago, about its demise,” began Babsin. “And it was because the costs just became too much.”

“We had this kind of complicated arrangement where Safeway was in a complicated lease,” he contiuned. “They had 17 years left and it was way below market. Our partner on that site and the next door bridge, before the housing developer had said they were going to combine them, we were going to be subsidizing Safeway by providing a brand new turn-key store. We were going to be subsidizing Bridge by providing affordable housing. And creating public plazas and this whole bag of goods.”

“And then Safeway kept re-trading us. It happened a few to times. And then basically the subsidy to Safeway just became so great, when added to the affordable housing fees and the transit fees and the plaza, that actually, we just had to say, we gave up,” he conceded. “It doesn’t work anymore. And this was after we had invested a lot of time and lot of money. So the tipping point – the straw that breaks the camel’s back – is real, in some cases. And here, the city lost a great project.”

Marc Babsin, Partner, Emerald Fund

On Rent Control:

“When you think about how vacancy de-control could go away – and you could apply it going forward or to building built one or two years ago – you could never raise the rent more than 2%,” Babsin shared. “And the expenses go up more than 2% a year. It’s just crazy. So the quality of your housing stock – no one would build anything new of course – but why would anyone upkeep the housing stock if the rent is fixed? You’d have a degradation. And it would apply to single family housing as well. You’d have a degradation of our housing stock and no new housing would be built. Talk about living in California and its competitiveness. It’s a really big deal.”

For more coverage of this panel, check out earlier CapRE Insider Reports: