The designer of the Ed Roberts Campus, owned by a consortium of seven disabled-rights organizations and abutting a BART station in Berkeley, California, discusses the development process with the developers.
Owned by a consortium of seven disabled-rights organizations, the Ed Roberts Campus (ERC) abuts the Bay Area Rapid Transit (BART) Ashby Station in south Berkeley, California. The project is not only a new international model for accessible design, but also a unique model for development. Architect William Leddy, designer for the project and a founding principal of Leddy Maytum Stacy Architects, speaks with project developers John Clawson and Ben Golvin, principals at San Francisco–based Equity Community Builders (ECB), about the development process.
William Leddy: How did you get involved with the Ed Roberts Campus?
We met the folks at the ERC through Steve Oliver, a local contractor. At the beginning, one of our partners, Tom Sargent, helped them think through the development challenges in carrying out their vision for a center—issues such as planning for entitlements, selecting a design team, and economic feasibility. Ed Roberts, one of the first disabled-rights advocates, died in 1995. The community wanted a tribute of some kind. The more people talked about it, the more appropriate it seemed to form this consortium and build a living memorial. These different groups all had roots in the Berkeley nonprofit organization Center for Independent Living, which Ed helped start.
Leddy: BART has not completed many joint development agreements. This agreement was crucial to the project going forward, right?
The city of Berkeley retained ownership of the air rights at this station, which meant the city had ultimate site control.
Golvin: The split between the ownership of the land and ownership of the air rights was, in a way, a stalemate. But eventually this strange situation turned into a win/win for everybody. The ERC got the land and the air rights for its portion of the site, and BART got the land and air rights for the rest of the site.
Did the Ed Roberts Campus pay for the land?
Golvin: There was a price that was set back in the 1960s for that land, but it was not a large amount—a few hundred thousand dollars.
Leddy: It might be useful to describe the nature of the organization that led to the finished design.
Clawson: There is a board, and the executive director of each partner organization sits on the board. The leadership of the ERC, Dmitri Belser and Susan Henderson, provided a continuity that was critical. I think the group agreed that this was not an office building but a civic building that would help to knit together this hole that BART created with their parking lots back in the 1960s. It includes new access for BART, with an entrance on the new building’s concourse. The larger idea was to help revitalize this part of south Berkeley, which is why the city really supported the project.
Golvin: This is why you designed an arc form to encircle the plaza?
Leddy: Yes, to make this big civic gesture, to really create a plaza. We didn’t have a lot of space to work with, but we could create a crescent-shaped plaza that was welcoming for the folks who were coming to the campus and also made a civic gesture to the larger city. The building was designed to fulfill the specific program needs, but also to make a space for people who wanted to take their rightful place in the larger community. Placing everybody at the BART station was a way of putting them in direct contact with the citizens of Berkeley on a daily basis.
I came into the process after you were involved for a while. Tell us about your development role.
Clawson: Our broad role was as project manager and development manager. We assisted somewhat in the approvals phase, but Caleb Dardick of CDA Strategies was really the lead, and then we were the project manager throughout construction and occupancy. We also took an active role in a portion of the financing, primarily the New Markets Tax Credit financing.
Golvin: But the Ed Roberts folks did a lot of work with the city and with the transportation agencies. They did the grant writing and lobbying Congress.
Leddy: Just for clarification, the total cost for the project was around $50 million including tenant improvements. How did the funding break down?
Golvin: The transportation money was about $25 million. That’s from the federal, state, regional, and local level—the city of Berkeley. Then there was a private fundraising effort through foundations. Our client did that. When it came closer to construction and we needed to get construction financing, that was something for which ECB took a lot of responsibility. We ended up working with Wells Fargo, in part because we had worked closely with them on affordable housing.
Leddy: Is there a special kind of loan for construction financing? Is there a state setaside?
Golvin: There is no mandate that the banks have to make this kind of loan. But the Community Reinvestment Act–type lenders saw the similarity of this multilayer financing package—the transportation grants, the private foundation grants, the loan from the Northern California Community Loan Fund [NCCLF], the Section 108 loan from HUD [the U.S. Department of Housing and Urban Development] through the city, and the Brownfields Economic Development Initiative Grant—to their affordable housing loans: similar credit underwriting challenges, similar complications, parallel public benefit.
Leddy: Some of the funding comes from grants, but much of it comes from financing. How will the ERC repay the loans?
Clawson: The real loans that must be paid and serviced on a monthly basis are the Section 108 loan for $6 million, the NCCLF loan for $2 million, and the Wells Fargo loan, which was originally anticipated to be $6 million. This was a construction loan that would become long-term financing; the amount has been paid down significantly from the New Markets Tax Credit equity. The income to service that debt comes from rent that the organizations pay to occupy the space. The seven partner organizations pay rent, and there is about another 25,000 square feet [2,300 sq m] for which tenants will also pay rent.
Leddy: Are the tenants paying close to market rents?
The Ed Roberts Campus in Berkeley, California is intended to be an international model
for accessible design while helping ensure that people with disabilities can live
independently and without discrimination. The campus knits together the hole that
BART created with its parking lots back in the 1960s and is designed to help
revitalize this part of south Berkeley.
Golvin: The partner organizations are paying a below-market rent. The new organizations that are coming in, by and large, are paying market rent.
Clawson: Perhaps one of the most interesting aspects of this deal is the New Markets Tax Credit financing. We pursued this mechanism because it would allow the ERC to fund the tenant improvements that were not included in the original budget and reduce the amount of the Wells loan from $6 [million] to $2 million, which makes the financial viability of the whole center much more solid.
Golvin: At the commencement of construction, there was enough money from all the sources we just identified to build the base building, but there was no money to pay for tenant improvements. At the time, the partners’ solution was to go to capital campaigns individually to pay for the tenant improvements. But the economy collapsed, and an ambitious capital campaign became impossible. We needed to find a way to do the tenant improvements and reduce the debt service.
Clawson: The New Markets Tax Credit program was developed to create incentives to stimulate business development in qualified census tracts and in qualified low-income communities. We were familiar with that kind of financing from our work with other nonprofit centers, like the David Brower Center in Berkeley. The challenge is that to qualify for New Markets Tax Credits, you have to be in a census tract that meets certain low-income qualifications. Oddly enough, the census tract where the ERC is located isn’t one of those. There are low-income tracts on all three sides, but this tract includes the BART station and its parking lots, so it has a very low population, and the neighboring residential area is somewhat more upscale. There is another provision in the program regulations called “targeted populations” that said that if you can demonstrate that the business serves a targeted low-income population, then it can qualify for New Markets Tax Credits. But the regulations were unclear.
Golvin: The fundamental problem was that everybody assumed that you have to look at the clients being served—that that’s the way to meet this low-income qualification. The documentation would have been horrendous, because you would have to income-certify every client that walked through the door. But there were regulations that allowed another approach, which is that the employees of these organizations can be low income. And provided that over 50 percent of the employees are at or below 80 percent of the median income at the date they were hired, then they qualify as the targeted population.
Clawson: By and large, the Ed Roberts Campus partner organizations hired low-income employees who came from the disabled community. Many of these employees had been with these organizations for 15 or 20 years. When these organizations started, they were very grass roots and had little funding. Each of the organizations had to identify all their employees and have them get records from the year before they were hired. Then we had to create a master lease of a portion of the Ed Roberts Campus and sell that master-lease interest to a newly formed entity. Then the master-lease premises would be leased solely by those organizations who qualify with their employees so that a portion of the building could be financed.
Leddy: So the tax credits only financed part of the building?
Clawson: The tax credit is equal to 39 cents on each dollar of qualifying costs financed with New Markets Tax Credits. Because we subdivided and master leased this interest, we sold that master lease interest to a newly formed entity for the New Markets Tax Credit financing. So we took two-thirds of the cost of the building as the sale price to this new entity. And then we added on to that the costs that were going to be incurred in the tenant improvements and related fees and everything associated with those tenant improvements for that master-leased space.
Leddy: For some percentage of the building?
Clawson: Sixty-some-odd percent. So we sold the master-lease interest, which was money that had already been spent and had been financed with all these other sources; we put it through the New Markets Tax Credit structure. That generated New Markets Tax Credits. Those tax credits were bought by JPMorgan Chase. And that tax-credit equity that they invested—net-net-net, after all the expenses—was about $8 million. And that $8 million paid for the tenant improvements, which was about $4 million, and allowed the ERC to reduce the amount of the Wells loan by approximately $4 million, to take it down to $2 million. So the whole New Markets Tax Credit financing generated about $8 million in subsidy.
Leddy: What’s the future of developing for not-for-profits?
Golvin: With redevelopment in California likely to be eliminated [through Governor Jerry Brown’s plan to eliminate redevelopment agencies to help address the state budget deficit], we’re going to see some significant displacement of the infrastructure that’s been built up, which has been very effective in building affordable housing in this state. The tax increment setaside from redevelopment has been the main source for local money, in addition to the state bond money. Legislatively and politically, we’re going to have to be fighting for a different way to get projects funded. Until that happens, production, especially affordable housing, is going to shrink for a while.
Clawson: Yet we are seeing a lot of interest from nonprofit organizations. They are becoming more sophisticated and more knowledgeable about these types of funding programs. And frankly, there’s more need. The likely collapse of redevelopment means more folks will be turning to New Markets Tax Credits as a funding source. Since standard commercial financing is still almost nonexistent, the nonprofit sector represents some ray of hope because there’s still a desire and a need to invest in those communities. And as that can get coupled with some of these other funding sources and tax credits, some real opportunity remains.
Leddy: Beyond the Bay Area, do you think that this kind of work will keep going in other places where there is a strong philanthropic community?
Clawson: Yes. The New Markets Tax Credit program has grown and matured nationwide. There’s a lot of demand in the urban areas for redevelopment. And they have created a portion of the New Markets Tax Credits to go to rural communities. There’s also a portion focused on disaster areas, like the areas affected by Hurricane Katrina.
Leddy: What about new mechanisms?
Clawson: There are two in California that have been in the works for a while. One is a fund for transit-oriented development, and one for affordable housing around transit. Both are supported by a handful of organizations that lend primarily to the nonprofit and affordable-housing community.
Leddy: Who is funding this?
Clawson: Half is coming from banks, and the rest comes from philanthropic funds like the San Francisco–based LIIF [Low Income Investment Fund] and NCCLF. Both of these funds are set up so they can work within more flexible financing structures like the ones we have been discussing.
Golvin: Which goes back to the philanthropy. The groups that have put those funds together come out of the philanthropic world, and their money comes, ultimately, from the foundation world. Fifty million bucks is a lot of money. But it can’t be left in a project. It’s got to cycle back through.
Clawson: This is the core of public/private participation in mission-driven work. You need activists, architects, lawyers, finance people—and yes, developers.