Kris Hartley

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Kris Hartley: CP 235, Final Project

1899 Oxford Street, Berkeley, CA 94709

Kris Hartley

CP 235
Dr. Michael A. Smith-Heimer

University of California, Berkeley

May 11, 2009

1.0 Summary

1.1 Site and Neighborhood: The address of the site is 1899 Oxford St. The lot is 105 feet deep (from the perspective of Oxford St.) and 162 feet wide, for a total 17,010 square feet. The site is located at the corner of Hearst and Oxford Streets, on the Northwest edge of the UC Berkeley campus. The immediate neighborhood resident profile is a combination of students, local workers and commuters. The median income of the zip code (94709) is $45,185, with a median home value of $669,834.1 22% of the units are owned, 69% rented and 9% vacant.2 The median age is 34.4 and median household size 1.9.3 Berkeley’s crime statistics are as follows:


Most of downtown Berkeley’s dining and shopping establishments are less than a 10-minute walk, as are a BART station and major bus lines. The physical environment of zip code (94709) is primarily residential, with a mixture of single-family structures, multi-unit structures that were originally single-family structures, and multi-family apartment buildings typically ranging from 2 to 4 stories high. There is minimal commercial activity in zip code 94709, except for a district along Euclid Avenue (4 blocks to the east) that features restaurants and retail catering to students and neighborhood residents.

1.2 Regulations: Regulatory constraints governing the site include a three-story, 40-foot height restriction for residential construction,4 and setbacks of 20 feet for street frontage, 10 feet (or 10% of depth) for rear yards, and 5 feet for side yards.5 Since this is a corner lot, street frontages for both Oxford and Heart have been calculated, which has cost at minimum 525 square feet (assuming Hearst as a side yard), and at maximum 810 square feet (assuming Oxford as a side yard). For this corner lot, both the west and south sides of the lot are beholden to the 20-foot setback. The north border is used as a side yard, and the east border as a back yard (which, given the 105-foot depth, is 10.5 feet for a total of 1,701 square feet.) Because the site does not sit within the C-1 or C-W development districts, no stipulation exists for required open space per unit.6

2.0 Overview

2.1 Land Cost: The site is currently a vacant lot used for parking. For purposes of this project proposal, it is assumed that land cost will be $40 per square foot, for a total cost of $680,400. This price is based on data from previous sales in the city of Berkeley, including per-square-foot land costs that range from $34 to $45.7 Minimal demolition costs are anticipated.

2.2 Hard Cost: Total hard costs will be $6,514,830. Several important assumptions have led to this number:

  • Infrastructure allowance of $75,000 has been included. This price may be less, however, given that no removal of existing structures is necessary.

  • The project will use structured parking, at a cost of $15,000 per space. At one space per unit, this totals $405,000.

  • Landscaping is assumed to be $10 per square foot, assuming that amount is calculated on the square footage of the entire site, not merely the undeveloped land available for landscaping. Therefore, the total cost for landscaping will be $170,100.

  • A contingency cost, applied for unaccounted and unanticipated expenses, is calculated based on 5% of total hard costs, and totals $310,230.

  • Course of construction insurance (“builders risk insurance”) is required by the bank to secure a loan, and will total $19,299. This has been calculated based on 0.2% of the completed project value, according to Fidelity Amerisurance of California.8

  • The calculation of total hard costs does not include a provision for “general conditions” or profit.

Finally, the construction costs per square foot have been calculated at $181. Below is a description of how this was calculated.

Construction Cost (From Berkeley City Manager's Office)9


Cost per square foot for apartments







Adjusted 2010


The adjusted 2010 cost is based on a multiplier applied to the original 2010 cost of $139. The multiplier is derived from the percent change in the U.S. Census Bureau's Construction Price Index for new single-family homes (Western U.S.) between January 2002 and the most recent measurement period, March 2009. This premium reflects the rise in input costs, adjusted for regional variations.11

2.3 Soft Cost: Soft costs for the project total $1,164,090. Several key assumptions are behind this number:

  • Architectural and engineering costs of $521,186, which is based on 8% of total hard costs of $6,514,830.

  • Appraisal costs of $15,000.

  • Soils and environmental testing of $25,000.

  • Consulting costs of $25,000.

  • Survey costs of $7,500.

  • Approval costs of $35,000.

  • Legal costs of $20,000.

  • Permit costs of $6,500 per unit, totaling $175,500.

  • Impact fees of $1,000 per unit, totaling $27,000.

  • Geotechnical costs of $10,000.

  • Title and recording costs of $15,000.

  • Construction period taxes totaling $21,716. This is calculated based on total hard costs at any given time (total hard costs divided by two). The annual tax rate is 10%. A monthly rate has been derived (by dividing by 12), and multiplied by the total anticipated construction period of 8 months.

  • Testing and inspection costs of $15,000.

  • Financing cost of $148,555. This is calculated using the maximum loan value of $5,942,185 multiplied by the construction financing fee of 2.5%.

  • Other unaccounted or unanticipated costs have been calculated at 10% of soft costs, for a total of $106,146.

2.4 Building Details: Oxford Gardens will have a total of 27 units, 17 one-bedroom and 10 two-bedroom. One-bedroom square footage will be 825, and at $392 per square foot, will sell for $323,400. Two-bedroom square footage will be 1,064, and at $428 per square foot, will sell for $455,392. These prices have been established based on a data from a market analysis for Berkeley housing, described below.

2.5 Market Environment: There are currently 136 homes for sale in Berkeley.12 The average price per square foot is $370, which is a 12.7% increase from 2008.13 For one-bedroom units, the average price per square foot from January to March 2009 was $392 (a 44.9% decline from a year earlier). For two-bedroom units, the price was $428, only a 5.3% decrease.14 In the first three months of 2009, the average sales price was $555,000 for 99 homes sold. Average sales prices have slowly but steadily increased for the last decade.

Source: (2 May, 2009)

The median price for a one-bedroom unit was $323,000 for the first three months of 2009, representing a 46.1% year-on-year decrease from one year ago, and a 16.6% decrease from five years ago. For two-bedroom units, the median price was $403,000 for the same time period, a 25.2% decrease from the previous year.
Predicting the housing price levels for 3 and 5 years is a complicated process, given recent economic fluctuations. However, based on economic projections provided by the Congressional Budget Office,15 Oxford Gardens will be a competitive project in the future. GDP growth will be used to calculate the future price of housing, rather than inflation or CPI, because GDP growth more accurately takes into account a holistic, catholic assessment of growth that includes more factors than the price of consumables. This paints a more accurate picture of where overall property values will be in the future. Construction price indices are also inappropriate in predicting overall prices, due to the narrow scope of data inputs.

Using GDP growth projections of 6.8% for 2008-2011, the median price of one-bedroom units will be $344,964. This compares favorable with Oxford Gardens, whose one-bedroom units are $21,564 less. For 2013, assuming the CBO’s yearly average of 4.5% GDP growth, the one-bedroom median price will be $376,010, $52,610 higher than one-bedroom units at Oxford Gardens.

Applying the same projection percentages to two-bedroom median prices, the 2011 median price in Berkeley will be $430,404, with Oxford Gardens having only a $24,988 premium. By 2013, the two-bedroom median price will be $469,140, $13,748 above the price at Oxford Gardens.
2.6 Competitive Environment: In regards to existing competition (a sample of which is described in the chart below), Oxford Gardens compares favorably in price per square foot, and in total square footage. To make up for this difference, Oxford Gardens is not able to offer the same high quality of in-unit amenities (skylights, hardwood floors, granite or stone countertops, et al.) as some other luxury complexes. However, it will be a new development and have state-of-the art appliances, new materials and three common rooms for various purposes. Additionally, the location at the corner of campus and next to downtown is better than many competitors.
For purposes of the competitiveness analysis, condominiums for sale were explored in zip code 94709. Aspects of comparison include the above, in addition to homeowners’ association dues (where information was available).16

Zip code 94709 - One BR



Price PSF





1899 Oxford




Corian counters, linoleum floor, double-pane windows


1119 Hearst



Granite counter, HW floors, fireplace


2605 Virginia




HW floors


1041 Virginia



Stone counter, HW floors, skylight


1045 Virginia




Stone counter, HW floors, skylight


1501 Oxford




Tile floor, bamboo floors


2922 Hillegass




HW floors,


1035 Virginia



Stone counter, HW floors, skylight


1047 Virginia




Stone counter, HW floors, skylight


1814 63rd




HW floors


Zip code 94709 - Two BR



Price PSF





1899 Oxford




Corian counters, linoleum floor, double-pane windows


1532 MLK




Separate patio


2 Panoramic




Granite counter


1037 Virginia



HW floors, skylights, balcony


1039 Virginia




HW floors, skylights, balcony


1308 Henry




Fireplace, stone counter

2.7 Target Market: Based on 13.9% growth in population for Alameda County from 2000-2010 (projected),17 there will be considerable demand for Oxford Gardens apartments. The target market will be parents purchasing condominiums for use by their children, professors, campus professionals and downtown professionals. For all of these prospects, Oxford Gardens is very well located. The chart below is based on a cohort study of graduated income groups for 3 and 5-year projections (also included in the “Demand Analysis” spreadsheet attached). The scale of the study group encompasses all census blocks listed on the fourth worksheet (entitled “census blocks”) of the “Demand Analysis” spreadsheet. These census blocks comprise areas of Albany, North Berkeley, Central Berkeley, South Berkeley, and North Oakland, including the “hills” area of the above. These were deemed to be the most relevant study zones for projections about income and market conditions.

Number of HHs with necessary income (Study area)18


LTV Ratio





One BR




Two BR






One BR




Two BR




Projections for change in ownership also indicate a favorable market environment:


2010 Owners

2010 Renters

Change in Owners*

Change in Renters*

15 to 24





25 to 34





35 to 44





45 to 54





55 to 64





65 to 74















There is a clear pattern indicating that ownership growth will take place among older populations, those with higher average incomes. The highest growth will be within the 45-to-54 cohort. This is a group that typically has children of college age, but also a group that is often at the height of income and career potential. Since Oxford’s target market includes both of these populations, such growth patterns are encouraging. 23% of Berkeley residents have incomes at or above $75,000, and 37% hold graduate degrees.19 The overall ownership rate in Berkeley, according to the 2000 U.S. Census, was 40%. The vacancy rate for ownership housing was 1.52%, well below the vacancy rate for renters, which was 2.49%. Although there may be a brisk rental market in Berkeley, clearly the population profile creates a market landscape well suited for new ownership housing. Additionally, since the target market is also parents of students, the potential pool of buyers is scattered much further than Berkeley. A marketing program that reaches both of these prospects will be an important component of the early phases of selling.

2.8 Financing: Oxford Gardens is a market-rate, ownership development. There will be no continuing costs for service or maintenance, for which the homeowners’ association will be responsible. The costs associated with the project will pertain solely to the acquisition of the land, preparation of the land for development, construction and selling costs. The successful completion of the project is contingent upon the acquisition of owner capital, and capital borrowed on favorable terms. For this proposal, it is assumed that pre-construction cash-in, provided by the developer for “year –0,” will be $2,953,078. This includes land acquisition of $680,400, soft costs of $1,164,090 (itemized in the pro forma attached), construction loan cost of $568,588, and sale costs of $540,000. In “year 0,” the developer’s out-of-pocket expenses will fall to $184,377, paying only for construction loan interest. The cumulative cash in at the end of “year 0” is $3,137,455.
The construction financing is based upon the assumption that a loan can be acquired at 8.5% interest, for a term of 8 months, with fees of 2.5% and a drawdown factor of 55%. The construction loan limit is assumed to be 80% of total cost, for a maximum loan value of $5,915,825. The determination of the interest rate is an important factor in predicting project construction costs. Typically, construction loan interest rates are based on the prime rate for mortgages and are often variable, though the actual rate may reflect an interest rate spread established individually by the lending institution.20 Lending rates may also be based on short-term interest rates, a floating rate based on the prime rate, or the rate offered to the institution’s most credit-worthy clients.21 Besides these methods, interest rates can be based on Treasury bill rates or the LIBOR rate. The interest premium reflects the individual assessment of the project’s risk and the ability of the developer to pay back the loan.
As of May 6, 2009, the LIBOR 6-month interest rate was 1.54%.22 The 30-year U.S. Treasury yield was 4.28%, as of May 8, 2009.23 For Nationwide Construction Loans, the one-year adjustable rate mortgage interest rate, for loans above $417,000, was 3.875%, and land loans 5.5%. E-Construction Loans offers a single-close construction loan on a one-year adjustable for 4.875%, but down payment requirements increase with increased borrowing amounts (from 20% for $1M to 40% for $3M).24 E-Construction’s construction-only loan is a 6.5% adjustable to prime (+1.5%). The Vanguard Funding Corporation provides “Spec” construction loans of up to $1M, with a maximum LTV of 40%.25 It is clear that multiple sources of funding will be necessary to cobble together the $5,915,825 needed for the project. Since it is market-rate, programs such as tax credit financing or AHP funds are unavailable. The project also does not quality for redevelopment, on account of its location.
3.0 Site Plan
Given the zoning constraints listed in part 1.1, the total footprint of the project will be 10,207 square feet. The project will be a rectangular building 74.5 feet deep and 137 feet wide. Attached at the end of this document are floor plans. There will be three floors that accommodate a total of 17 one-bedroom apartments 825 square feet in size, 10 two-bedroom apartments 1,064 square feet in size, and three common areas. The first floor will have a wrap-around 5-foot walkway on three sides and 8 two-bedroom apartments. The second floor will have 5-foot walkways on two sides, with a stairwell for each. It will include the two remaining two-bedroom apartments, and 7 one-bedroom apartments. It will also have a common area of 825.6 square feet. The third floor will have the same walkway layout as the second, and will have the remaining 10 one-bedroom units. It will also have a 580.5 square foot common room, facing south. The two common rooms combined account for 1,406 square feet of proposed 2,500 square feet in common space. One room will be a recreation room with television and pool table, while the other will be a study room. The third common room, located in the basement level with the parking, will account for the remainder of the 1,093 square feet of common space generously offered by Oxford Gardens. This will allow for enough space for the required 27 330-foot parking spaces.
4.0 Profitability and Conclusion
From a financial perspective, Oxford Gardens will be a calamitous failure. The project’s net present value is ($590,595.08), with an internal rate of return of 3%. This is well below the hurdle rate of 8-9%. Key factors constraining the financial feasibility of the project pertain mostly to building costs and land acquisition costs. At $181, the per-square-foot estimate may actually be low, as may be the $40 per-square-foot purchase price of the land. The location is highly desirable, and that it is currently undeveloped may be a testament to owner stubbornly holding out for the highest bidder.
Market constraints are less of a concern, given that the housing market in Berkeley is still relatively strong despite the national housing value crisis. With the Downtown Plan adopted by the City of Berkeley, amenities in the immediate area should increase as a new art museum is built at the corner of Center and Oxford, the Brower Center opens, and economic planners create incentives for more businesses and restaurants to locate in the downtown area. For an investor, luxury apartment property in the area will be a safe investment. Given these facts, it would be excusable to increase the asking price for the units, but the prices have been set based on the prevailing market conditions and current price levels indicated in the market studies. Although it may be misleading to benchmark other properties of less desirable location and older facilities, this is the only information available for market-rate, ownership housing, very little of which is being built in the area. There are many housing developments, but these offer no opportunities to benchmark because most are affordable housing ventures, developed with special finance sources. In the end, it may be profitable to develop this site as planned according to this proposal, but not before the macroeconomic environment stimulates business and retail growth, stabilizes housing values, and provides enough investor confidence to speculate on properties once again.

1 10 May, 2009.

2 10 May, 2009.

3 10 May, 2009.

4 Berkeley Municipal Code, Section 23E.64.070

5 Berkeley Municipal Code, Section 23E.04.050

6 Berkeley Municipal Code, Section 23E.64.070

7 Office of Economic Development, City of Berkeley, 28 August, 2007.

8 10 May, 2009.

9 10 May 2009.

10 Based on percentage increase from 1994 to 2002. Concrete office was used instead of wood-frame apartment.

11 10 May, 2009.

12 (2 May, 2009)

13 (2 May, 2009)

14 (2 May, 2009)

15 10 May, 2009.

16 In zip code, 94709, a similar development charges $200 per month for homeowners’ dues. Several other properties had HOA dues ranging from $165 to $309. For this project, HOA dues of $220 per month are proposed. These revenues will be applied to the upkeep of property, and of common areas. The common room will feature tasteful leisure appointments such as a television, pool table and study areas.

17 10 May, 2009.

18 U.S. Census 2000; City College of San Francisco (Alameda County growth rates)

19 10 May, 2009.

20 10 May, 2009.

21 Brueggeman, William B. and Jeffrey D. Fisher. Real Estate Finance and Investments. New York: McGraw Hill, 2004.

22 10 May, 2009.

23 10 May, 2009.

24 10 May, 2009.

25 10 May, 2009.

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