What Happened on Harold?

Becky O'Malley
Friday January 03, 2020 - 02:39:00 PM
Opponents of the 2211 Harold Way project proposal presented thousands of petition signatures to the Berkeley City Council in 2015.
Opponents of the 2211 Harold Way project proposal presented thousands of petition signatures to the Berkeley City Council in 2015.

As recently as December 19, Mark Rhoades believed that the deal for the development on the site of the Shattuck Cinemas (usually captioned with its side street address of 2211 Harold Way although the current building fronts on Shattuck)was going to go through. He sent this email to his contacts on the City of Berkeley Planning Department staff and others:

“All: This email is to let everyone know that balance of the plan check fee for the Harold Way plan check submittal is going to be paid on December 30th. I will be away so Joe Penner will have someone deliver the check midday on the 30th. In addition, Planning will be providing a letter. I will send a meeting request for this event shortly. Happy Holidays everyone!”

Rhoades is the former COB Planning Department manager who now functions in the private sector as the expediter for corporations seeking permits for developments in Berkeley. Many of his former colleagues are still working for the city, so Rhoades’ name and contacts open doors in Planning for his clients.

However for 2211 Harold Way, aka Berkeley Plaza, insider advocacy has not turned out to be enough.

Few projects in the recent history of Berkeley have aroused so much opposition as this one. The use permit for this project was finally approved at a chaotic Berkeley City Council meeting in December of 2015 after months of heated hearings. Conditions of approval included reconstructing the ten theaters currently on the site as the Shattuck Cinemas, a provision which project opponents, many of them film buffs, demanded.

The next step was supposed to be securing a building permit within two years and paying the plan check fees associated with such permits. The Planning Department staff had the power to extend that time limit without the approval of the city council, and managers did grant two one-year extensions to the applicant, doing business as HSR (Hill Street Realty) Berkeley Investments LLC, but in the end, which came on New Year’s Eve, the company didn’t come through with the required fees.

In many ways, this deal was a classic example of the bait-and-switch method of land use regulation. The putative “developer” describes itself thus on its website: “Hill Street Realty (”HSR”) is a privately held real estate investment, management and development firm founded in 2001. HSR employs institutional discipline and entrepreneurial execution to generate attractive risk-adjusted returns from commercial real estate for its partners & investors.”

What this means, in ordinary language, is that in this case the company assembled parcels of real estate in downtown Berkeley and secured an “entitlement” to develop the property (in this case, got a use permit) and ever since has been trying to flip the entitled property to someone else to build and manage. This time they just couldn’t find a buyer. 

The standard operating procedure in what’s called without irony “the development community” is for the money men to get the original entitlement on the basis of promises, promises. After a bit of time has elapsed, they come back to the city when the opponents aren’t paying attention, whining that “it doesn’t pencil out” so they’ll just need to do some “value engineering” on those promises.

The history of the process in this case was recently summarized in details by project opponent Gale Garcia in a December 15 Planet op-ed: Harold Way — New Plans Call for New Review

She warned that:

“My observations of the Planning Department over the years cause me concern that Planning staff may try to circumvent the required zoning process to benefit the project. Citizens have complained for many years that the Department is largely funded from developer fees, a practice that seems bound to create bias in favor of projects, no matter how illogical or detrimental they may be.

The Berkeley Landmarks Preservation Commission had been asked by city staff to review “incomplete” project plans at their December 5 meeting, but they declined to do so until plans were deemed complete by Planning.

At that meeting, project opponents Garcia, Erin Diehm and Kelly Hammargren made it abundantly clear that community activists would not let developers get by with less than what they’d promised to do in order to get the use permit. Hammargren is a film fan who was an original leader of the opposition and is one of the citizens who had unsuccessfully made pro per challenges to the project’s Environmental Impact Report in court when it was first approved.

Tellingly, Joe Penner was there to see their impressive graphic presentation, and evidently he believed that they meant what they said. As reported in the Planet on New Year’s Day:

“On New Year's Eve at 1:02:46 p.m., developer Joe Penner said this in an email to expediter Mark Rhoades and Steven Buckley of the City of Berkeley's Planning Department:

"The city believed that development projects are a never ending piggy bank they can continue to raid. Now the city will get zero."

After HSR’s withdrawal became public, Hammagren commented:

“What remains a mystery is how a Los Angeles developer whose website shows only flipping projects and no history of ever building anything got involved in a project that calls for excavation and construction under property that he does not own. 

(Click here for the site diagram.)

“ Not only is ownership of only two of the three commercial condominiums in the block surrounded by Allston Way, Shattuck Ave, Kittredge Street and Harold Way a problem, but in addition the project would have destroyed the much loved 10-theater Shattuck Cinemas complex with 9 full size screens, threatened the historic Shattuck Hotel, blocked the view from Campanile Way, demolished Habitot Children’s Museum covering less than 20% of the cost of relocation, plus the project would gotten away with paying a grossly discounted in lieu mitigation fee to avoid providing any inclusionary affordable housing.”

She brings up an important point. A key aspect of bait-and-switch development is a touching belief on the part of city officials everywhere that building lots of expensive apartments will somehow result in providing housing for low-income and even homeless citizens. Increasingly, we’re learned that this just isn’t true.

Councilmember Sophie Hahn was quoted by the San Francisco Chronicle as saying that “I’m really sorry that needed housing isn’t going to go up.” But the fact is that this kind of housing is not needed in Berkeley.

Berkeley has seriously over-achieved on building such “cash-register multiples” while under-achieving on low-income projects.

Some cities, including Berkeley, have attempted to remedy this situation by requiring developers to pay per-unit fees in lieu of including affordable housing iln new luxury/market-rate projects, but such fees don’t provide enough revenue to fund much construction of buildings for low income citizens. The Harold Way deal, pushed through at the last minute by former mayor Tom Bates and his council allies, agreed to reduce the already token inclusionary housing in-lieu fee to a meaninglessly small amount.

Yes, one estimate was that the city might get $10 million from this project to apply to the construction of “affordable” housing, but though it sounds like a lot of money it’s peanuts in an area where homes often cost more than a million. “Affordable” is itself a slippery term. And the latest HSR proposal would have reduced the number of units, and thus the total, even more.

What’s next? Berkeley’s current Downtown Plan, another Bates regime creation, allows for one more extra tall building under current zoning. But the ongoing Sacramento takeover of local planning authority, coupled with the Trump scheme to designate development in “opportunity zones” as a means of laundering capital gains, could produce another speculative project proposal for this site. That would be unfortunate.

A better outcome would be for Joe Penner and company to sell the property to someone who specializes in adaptive reuse of existing buildings. The upper floors would be ideal for conversion into low-cost housing, and the ground-floor theaters would continue to draw paying customers to a downtown which continues to need the vitality they provide. This plan would utilize the embodied energy in the structure at a reasonable and environmentally sound cost to address Berkeley’s genuine needs.

It’s not surprising that Penner is somewhat bitter. The bait-and-switch method usually works, in Berkeley and elsewhere, but this time it just didn’t work for him.

When I was working in the 1980s on an early stage high-tech venture, they used to say that if you look around the table when a deal’s going down, if you don’t know who the sucker is, it’s you. It’s true that Berkeley officials, both elected and appointed, were almost suckered by this dumb deal, but Joe Penner might reasonably be seen as another sucker at the table.

Both Penner and Berkeley might have heeded another 80s caution: If a deal seems too good to be true, it usually is. Penner might want to ask who talked him into this boondoggle in the first place.

For future development proposals, we should all remember the story of the Trojan horse, the ultimate insider deal, as reported by the poet Virgil: "Timeo Danaos et dona ferentes”—usually translated as “beware of Greeks bearing gifts”. Berkeley should be wary of insider deals like this one which are being “expedited” by former city employees like Rhoades.

Kelly Hammargren has obtained documents relating to this deal though a Public Records Act request, some 800 pages in all, which she intends to make available to the news media. It will be interesting to find out exactly how this mess happened, in hopes of avoiding the same mistakes in the future. 

Meanwhile, in order to get a shorter history of what happened, use the "Search the Planet" button which is at the top of this page, enter "2211 Harold" in the special-for-the-Planet Google search window, and you'll find a long list of news articles and an even longer list of opinions from the last four or five years on this lengthy process.