The developer of a sprawling, mixed-use project that aims to build hundreds of new residences in the housing-challenged San Francisco Bay Area is asking officials to put it on hold until economic conditions improve.
A request by Roseville-based Tim Lewis Communities to postpone its apartment-focused redevelopment of a former industrial property on the East Bay waterfront known as Encinal Terminals is scheduled for consideration Jan. 7 by the Alameda City Council. In an October letter to the city, the developer wrote that the “terrible macroeconomic environment” has discouraged investors from moving forward on multifamily ventures in the Bay Area.
The developer’s director of forward planning, Michael O’Hara, cited a combination of falling rents and high construction costs, interest and capitalization rates that took hold after the ambitious project was greenlighted in 2022. Added to that was a “lengthy, complicated and costly permitting process,” along with expensive infrastructure requirements that were needed to make the bayfront site “shovel ready,” explained O’Hara in the letter.
“Obviously, it has never been our intent to delay the project in any way,” he wrote. But due to the current combination of high costs and a softening market, “Encinal Terminals residual land value has been decimated, and rendered this project infeasible to build and finance at this time.”
Under the current master plan, the development of the 100-year-old bayfront shipping site that's stood vacant for decades would include 589 homes, 80 of them affordable to moderate and low-income residents, and up to 50,000 square feet of commercial space, a marina with spaces for 160 boats and seven acres of parks and open space. The project would also include a 14-story residential apartment building, as well as condos and townhouses.
The combination of high costs and a softening residential market presents a particular conundrum in California, with its acute shortage of affordable housing. Alameda is required by the state to build more than 5,300 new homes by 2031 to fulfill its “housing element,” a plan all cities must come up with to do their part to solve the crisis.
Projects 'not penciling'
The plan has been in the works since 2013, when Tim Lewis Communities bought the property for about $12.5 million, according to CoStar. During World War II, the facility was a Navy supply depot, and afterward it serviced hundreds of cargo ships until it was eclipsed by the Port of Oakland in the 1960s. It served as a shipping container storage facility until it closed in the 1990s.
The city approved the developer’s master plan for the 32-acre site in 2018 with several obstacles preventing development. A patch of land in the middle of the property, for example, was restricted from nonmaritime uses, prompting an expensive land swap agreement that had to be enabled by a state law passed specifically for the project in 2023.
The developer has tried since then to sell the property, explained O’Hara in the letter. Since it also can’t currently obtain financing for the redevelopment, he said, Tim Lewis Communities is asking officials to extend the deadline for certain milestones in the project’s development agreement and master plan by three years in order to wait for better economic conditions.
“The market is such right now that apartments are simply not penciling anywhere in the Bay Area,” O’Hara told CoStar News.
Indeed, the region ended 2024 with a decade-low level of new multifamily construction, according to a CoStar analysis. Going into December, developers had broken ground on fewer than 2,900 units in the past 12 months, the lowest total of new homes since the Great Recession and marking a substantial drop from the area's pandemic-era peak of 8,750 units in 2022.
Development activity in the part of the East Bay that includes Alameda was booming when the COVID-19 pandemic hit, with almost 19,000 new units starting construction between 2017 and 2021, wrote Nigel Hughes, a senior director of market analytics at CoStar. But the new supply has lifted the East Bay’s vacancy rate and put downward pressure on rents.
It’s a dynamic being felt nationwide, especially in the rental market, with a sharp contraction in construction financing serving as a primary driver of this pullback. Beginning in early 2023, banks and other lenders scaled back significantly on multifamily construction loans, according to CoStar. Interest rates were prohibitively high for those still offering financing, making many proposed developments financially unviable.
Housing needed
Granting the extension requested by the Encinal Terminals developer would not change the 2037 end date of the agreement or the design or scope of the project, said O’Hara. But he explained that without them, the agreement would expire, throwing the entire project into jeopardy.
Under the 2022 land trade deal, both the developer and the city would relinquish their ownership of the land if the project fails to materialize.
The project is not the first ambitious housing development to face challenges in the island community of Alameda, a family-friendly city just southwest of Oakland that’s known for its iconic Victorian homes and its decommissioned Naval Air Station. The town is also known for passing a law back in 1973 that outlawed the construction of multifamily apartment buildings in much of the city. In 2020, the town voted down a ballot initiative to throw out that law as “exclusionary zoning” meant to prevent racial and economic diversity.
However, a number of other ambitious new housing projects are in various stages on Alameda’s waterfront.
Construction is underway on the Alameda Marina project, a mixed-use district on a 43-acre bayfront parcel with 760 homes, 104 of them affordable, and 150,000 square feet of commercial space and more than 500 new boat slips plus parks and other recreational spaces. The city has also greenlit another development called Alameda Point with 2,000 houses —many of which have already been built—plus commercial space and research and development sites that are slated to rise on a 1,000-acre parcel that formerly housed the naval air base.