For the past year I have kept my head down, stopped writing opinion letters, and focused on building my project at 632 McCorkle Ave. I do not relish public attention, but I cannot remain quiet any longer. As the entire City of St. Helena screams for affordable housing, there are forces at work behind the scenes that are creating such a toxic and hostile investment environment that any additional affordable housing will quickly become a pipe dream. No sane developer would ever dare tread here again.
Affordable housing is a well-defined term by Housing and Urban Development. It is defined as restricted housing units that serve the County Average Median Incomes (AMI) below 120 percent AMI, and is further broken down into many sub categories ranging from Extremely Low to Moderate Income. “Affordable” means spending 30 percent or less of gross income on housing. For a family of four, with Napa County AMI at $91,000, that translates to the average income earner spending $2,275/month on rent or mortgage payments. We all know that in St. Helena, as in much of California, the “affordability” crisis goes well beyond 120 percent of AMI. The average home price in St. Helena is well over $1 million. Presuming that one could find a $100K down payment, a 30-year mortgage on that home will require approximately $4,250/month to service. For that to be considered “affordable” would require annual family income to be $170K or greater, or $85/hour for a single earner. Perhaps, now you can see the extent of the challenge to retain the “middle class” living in St. Helena, or the Napa Valley for that matter.
Building is expensive. Development is risky. And that is on a good day. A big rainy season even takes its toll. But these are the “Known Knowns” as Donald Rumsfeld infamously said. What really worries developers, and all investors, are the “Unknown Unknowns.” And this is where the McCorkle opposition groups, under Ms. Bradshaw’s guidance, have been operating — creating “unknowns” by using scorched earth tactics for driving up costs and in creating uncertainty, in this case through the perversion of the regulatory and legal system.
For those unfamiliar with the saga of 632 McCorkle, let me recap. At the end of 2015, I purchased the property at 632 McCorkle. This half-acre lot has been zoned High Density Residential (HR) for over 30 years, even prior to many houses built around it. I saw an opportunity to invest in my hometown on a project that served an acute community need. In February 2016, I submitted an application to build a 10-unit apartment infill project. After meeting with neighbors in April 2016, I pared down the application (that met all zoning ordinances and codes) to eight units (the minimum density required) and made other changes in response to neighbor input.
The project was designed in a “contemporary” farmhouse style to tuck nicely into a residential neighborhood, with parking not visible from the street and a single-family “look” facing McCorkle. The Planning Commission approved the project in December 2016. That decision was appealed by a 501©(4) organization called “St. Helena Residents for an Equitable General Plan” and another unregistered group called “McCorkle Eastside Neighborhood Group.” Neither group will disclose its members. Victoria Bradshaw stands at the helm of both groups.
The City Council denied the appeal in a 3-2 vote in January 2017. These two “groups” then appealed the decision to Napa County Superior Court. That appeal was denied in November 2017. That decision was then appealed to the State of California 1st District Court of Appeals. In December 2018, the Court of Appeals resoundingly denied the appeal. That decision was appealed to the California State Supreme Court. The Petition for Review was determined to be late by the court clerk on March 7, 2019, and the saga should have finally been over. But on March 8, the Chief Justice granted an extremely rare time extension and allowed the Petition to be filed. Let me remind you that Ms. Bradshaw served as California Labor Secretary under two governors and is a partner at one of the largest political lobbyist firms in California.
I have spent nearly $400,000 defending these challenges. In addition, I have unnecessarily spent another $100,000 to disprove the many non-factual claims made to the California State Water Board regarding undisclosed contamination left by the prior owner.
I have also defended spurious claims made to the California Architects Board, the California Air Resources Board, the Contractors State License Board, and the Department of Industrial Relations (DIR). The DIR was once overseen by Secretary Bradshaw. For nearly nine months, the DIR has sat on a very simple prevailing wage rule interpretation. The prevailing wage challenge was brought under the auspice of a “labor advocate” for the trade workers at the site. I work side by side with these workers two to three days a week. I eat lunch with them. I joke with them. I have known many of them since I was 6 years old. I respect them, treat them with dignity, and fairly compensate them. They did not ask for advocacy.
Why am I telling this tale? Because $500,000 of unnecessary cost overruns to defend spurious legal and regulatory challenges on an eight-unit project amortizes to $62.5K per unit. A good rule of thumb for an investment in rental property is that it should yield about 1 percent of the total investment. One percent of $62.5K translates to $625/unit/month in incremental rent necessary to generate the same return as the investment proforma. That $625/month translated back to the “affordability” scale equates to an incremental income requirement for the renter of $2,080/month salary for family of four ($25,000/year) or $12.50/hour in incremental income required to live there “affordably.”
Of course, the market will only bear what the market will bear, and so a sound investment now becomes a terrible investment. Thus Ms. Bradshaw’s actions have successfully created the uncertainty necessary to hinder any further market development for non-public, non-subsidized “affordable” housing. They have already been successful in discouraging a residential multi-family project on Fulton Lane.
You might argue that subsidized or nonprofit affordable housing is the answer, like the Turley Project (eight units on Pope) or the Brenkle Project (to-be eight units on McCorkle). I have great respect for Our Town St. Helena, and have collaborated at every opportunity with Mary Stephenson and her Our Town team. I would like to do a project with them in the future perhaps. Keep in mind that each of these projects were subsidized to the tune of well over $1 million by the city, and the housing fund is not a bottomless reservoir. The Turley Project has been in the works since 2011. The Brenkle Project has been in the works since 2013. A quick stroll down McCorkle Avenue will give you a visual reference to the relative velocity a market project can achieve versus a subsidized or publicly funded project. Even the federal government shutdown has contributed to slow progress on the Brenkle project.
The 632 McCorkle project will pay the city over $250,000 in development fees, for parks, schools, and public utilities etc., and we have dedicated two of my units on Grayson Avenue as affordable under the HUD guidelines. In addition it will generate over $30,000 annually in property taxes. I am OK with this. These are “knowns.” And this is what being a member of the community is all about.
But I am not OK with Ms. Bradshaw’s scorched earth tactics that have created such a toxic investment environment that the “unknown, unknowns” will keep any rational investor at bay, and subvert the goals of the City of St. Helena. And anyone who believes the City of St. Helena needs more affordable and median income housing, and that the solution, by necessity, must be a mix of subsidized, nonprofit, and market projects should be as concerned as I am, and voice those concerns loudly to the new council and to fellow residents.