The Great Recession may have officially ended five years ago, but you wouldn’t know it by looking at construction activity in Sonoma County.
City and country building officials issued just 251 permits for new single-family homes here last year, according to the California Homebuilding Foundation. That was the lowest total in at least 45 years and a far cry from the average of 1,900 single-family homes built in Sonoma County annually in the two decades before residential construction took a nosedive in 2008.
The paltry construction numbers have contributed to a tight housing market and some of the biggest apartment rent hikes in the nation.
In response, both business and civic leaders this year have begun calling for action. Without more housing, they warn, local companies will have trouble hiring new employees, the economy will suffer and lower-income workers will find it increasingly difficult to remain here.
When families have two incomes and still can’t afford to live in the region, “we have big problems,” said Cynthia L. Murray, president and CEO of the North Bay Leadership Council, a group of private and nonprofit employers. She called the situation “a crisis” and said the council will host a housing summit in Petaluma in May.
Sonoma County Supervisor Shirlee Zane and the mayors of Santa Rosa and Rohnert Park will jointly host a workshop next month with local builders to examine ways to increase the stock of affordable housing.
“We simply cannot afford to not address this problem,” said Zane, whose district includes Santa Rosa.
Building industry officials expressed support for such efforts but also cautioned that it will take years to reverse the current shortage.
“For the housing market, this is going to be a long, slow recovery,” said Keith Woods, CEO of the North Coast Builders Exchange, a Santa Rosa trade group.
The dilemma comes down to “pure economics,” said Woods. “It’s a limited supply and increased demand.”
It also will take time to build new affordable housing units, said Chuck Cornell, executive director of Burbank Housing, a Santa Rosa nonprofit that has built nearly 3,700 housing units here over the past three decades.
“We have a fairly long pipeline to produce housing, and there’s been a giant gap in that pipeline since the financial crisis,” Cornell said.
A ‘need for millions’
The main reason for the slowdown is that state and local governments suffered severely in the downturn and had to cut back the financial aid needed for such housing projects. And the price tag to build more housing will be large, he said. A typical apartment can cost $350,000 or more per unit, a significant amount considering that the county’s median price for an existing single-family home in December was $515,000.
“There’s a need for millions (of dollars),” Cornell said.
For decades, home building was a major engine of economic growth in the county, employing thousands of construction workers and providing business for scores of home furnishing, appliance and landscaping companies.
But the construction industry was battered by a world financial crisis sparked by risky residential lending in the United States. In the past seven years, county builders have obtained permits for just 2,441 single-family homes, fewer than were built here in 1990 alone. And the county’s construction sector now employs 4,400 fewer workers than it did a decade ago, a decline of 30 percent.
Since the recession ended in 2009, the county has added 22,000 jobs across all industries. As employment has increased, so have rents.
Leading in rent increases
Apartment rents climbed nearly 30 percent in three years to $1,567 in December, according to Real Answers, a Novato-based rent research firm. Last year Santa Rosa ranked fifth for the nation’s biggest rent hikes.
At year’s end, 97.2 percent of the county’s apartments were occupied, a level that property managers consider essentially the same as full occupancy.
Apartment-building down, too
In 2013, home builders briefly saw a bump in apartment and condominium construction. That year builders received permits to construct more than 700 multi-family housing units — mostly for two apartment projects in Rohnert Park and Santa Rosa that are expected to open in the coming months.
But a year later the numbers fell. In 2014, the county and its cities issued just 214 multi-family permits, the lowest level in three years, according to the state homebuilding foundation’s CIRB Construction Data Report.
For 2014, Mendocino County reported permits for 72 single-family homes, a decline from 92 in 2013. For Lake County, the single-family permits totaled 42 last year, compared to 50 the year before. Neither county had any multi-family construction.
Sweat equity difficulty
In today’s housing environment, even when a solution seems in hand, difficulties can still arise. At its 60-unit Catalina Townhomes ownership project, Burbank Housing has been able to qualify only two families for the 28 available units in the second phase. The families must not only be willing to help build their homes, but they also must have an annual income of between $48,000 and $65,000 for a family of four.
To date, many of the otherwise eligible applicants can’t qualify for loans because they already have too much debt, said Pascal Sisich, Burbank’s director of housing development.
Looking ahead, Rohnert Park is anticipating new home construction this year, said Marilyn Ponton, the city’s development services director. Two developers have long been preparing projects in the east and southeast portions of the city that are slated to one day hold 2,000 new homes.
However, Ponton referred questions on the timing and scale of the construction this year to the developers. And spokesmen for both companies, Brookfield Homes and Redwood Equities, this week either declined or didn’t respond to requests for comment.
This year, two new rental complexes will open for their first tenants. Both are characterized as “luxury” apartments and will charge rents above the county’s current average.
The 244-unit Fiori Estates complex in Rohnert Park is advertising rents starting at $1,730 for a one-bedroom unit and $2,255 for a two-bedroom place, according to the project’s website. A spokesman for the 270-unit Annadel complex in Santa Rosa said rent will start at $1,700 for a one-bedroom unit and $2,100 for a two-bedroom. The first Annadel units are expected to be available by the end of April, if not earlier.
Proposals in Santa Rosa
In the effort to build more housing, both builders and local officials already are discussing possible approaches. In Santa Rosa, the City Council last month directed planners to consider a request by developer Hugh Futrell to defer approximately $2.2 million in development fees on a 141-unit building for low-income seniors. Futrell is seeking up to 16 years to repay the principal, plus interest at an annual rate of 3 percent.
Another effort involves possible joint funding by the city of Santa Rosa and the county for a 79-unit rental project by Burbank Housing in southwest Santa Rosa.
The local governments that get housing built in the future will be those that are “willing to partner” with developers, pointing them to areas of town where projects can get more easily approved, said Greg Owen, CEO of Blue Mountain Enterprises. His company is building 12 single-family homes at its Spring Brook subdivision off Fulton Road in northwest Santa Rosa and next hopes to build a 110 townhome project in the southwest section of the city.
Before the downturn, builders could afford to spend five years bringing a project to fruition, but “you can’t do those anymore,” said Owen, whose company first made headlines here three years ago when it bought and flipped scores of foreclosures and other existing homes. Projects don’t make financial sense now unless work can start after eight months in the regulatory process, he said.
Bob Glover, executive officer with the Building Industry Association of the Bay Area, said tighter lending criteria and increased regulations are making all building projects difficult today.
“Even the quote ‘easy ones,’ what used to be called easy ones, they’re not easy,” he said.
A Bio Revolution
in FeaturedALL THE WORKERS in BioMarin Pharmaceutical’s Novato plant look alike.
It’s not that the drugmaker’s more than 1,100-strong local workforce lacks diversity. The uniformity comes from the dress code required to enter the clean rooms where the company’s lifesaving drugs are made: dark blue pants and shirts with tight cuffs, puffy caps covering hair, goggles and layers of disposable booties over shoes.
That’s just to walk the halls.
To enter the rooms where the company cultures and purifies the enzymes that make up its drugs, workers first enter an air lock, where they don rubber gloves and unwrap freshly laundered lab coats from plastic packaging. One more layer of booties, a squirt of hand sanitizer, and finally they can enter, their bundled-up feet making whisking sounds across the floor with each step.
Inside the rooms, air whooshes through filters that catch any bacteria, skin cells or hairs somehow shed by the wrapped-up humans within, lest the impurities get into the product. So clean is the air that the only smells in here are the astringent odor of sanitizer and the occasional whiff of plastic from the disposable tubing that moves the brown liquid that will become the drug Vimizim through the plant.
“If you have allergies, this is a great place to be,” jokes Erik Fouts, who oversees BioMarin’s three drug production plants in Novato. Fouts has a Ph.D. in molecular and cell biology; the majority of his staff, who are busy cleaning out stainless steel vessels in preparation for the next production run, have bachelor’s degrees in life sciences or engineering.
This is the epicenter of Marin’s small biotech cluster, which is growing thanks to the area’s educated workforce and proximity to research facilities. Between Marin and Sonoma counties, biotech firms bring in $2.7 billion in annual revenue, the Marin Economic Forum estimates. The biotech mini-boom is an outgrowth of the region’s strength in life sciences. While other counties, such as San Mateo, may have more companies, we have more life sciences businesses per capita here than in any other California county, according to the MEF.
Biotech companies harness living organisms to create products and processes. Many, like BioMarin, are drugmakers, using living cells cultured in stainless-steel vats to produce enzymes that can treat diseases.
A Rare Breed
BioMarin specializes in “ultra-orphan” drugs, meaning that the enzymes it formulates treat uncommon genetic disorders. Vimizim, approved by the FDA last February, is for rare metabolic syndrome Morquio A, which afflicts 260 known sufferers in the United States. BioMarin executives refer to many of their customers by their first names, and patients
themselves have suited up to tour the plant and visit with scientists researching new cures.
“We treat rare diseases, and that gives us rare opportunities,” says Chris Brodeur, associate director of commercial manufacturing, who likes to show visitors photos of the time he and a patient’s mother swam to Alcatraz together in a fundraising effort to combat Morquio A. Employees are especially tight with that patient’s family, who relocated from Chile so the patient could participate in a clinical trial at Children’s Hospital Oakland.
As for the company’s older drugs, like Naglazyme, approved in 2005 to treat a disorder called MPS VI, some staff members are now working with patients they have watched grow up. MPS VI patients, short in stature and with enlarged heads, can suffer from poor endurance; Naglazyme gives them the strength to walk farther and climb more stairs, and data suggests patients on the therapy also live longer.
A marketing director was recently trying to arrange a video shoot with the first patient to receive commercial Naglazyme, now a student at Louisiana State University. The patient’s exams schedule was interfering. “Jill sends a note and says ‘School first!’,” says spokeswoman Debra Charlesworth with a grin.
With such tiny customer bases and high research and development costs, BioMarin must charge high prices for these drugs. Infusions of Vimizim cost up to $400,000 a year for one patient.
In addition to its expanded Novato production facility, part of which used to be a Birkenstock warehouse, BioMarin is expanding its new San Rafael headquarters and laboratories. Two start-ups that spun off from BioMarin, Raptor Pharmaceuticals and Ultragenyx Pharmaceutical, are both based in Novato. Marin is also headquarters to a foundation that pushes for biotech-friendly public policy, the EveryLife Foundation, led by Dr. Emil Kakkis, who left BioMarin to start the foundation and later launched Ultragenyx.
The Buck Starts Here
Supporting these companies with research partnerships and talent are the Buck Institute for Research on Aging and the University of California, San Francisco. UCSF is more commonly associated with the much larger biotech cluster in South San Francisco, but BioMarin CEO Jean-Jacques Bienaimé (“JJ” to his staff) points out that the university is “not that much closer to South San Francisco than it is to here.” BioMarin has partnered with both, as well as with research institutions outside the region.
The Buck is helping to grow the Marin biotech cluster by spinning off independent companies to bring its scientists’ discoveries on prolonging healthy life to market. The nonprofit research facility has also supported the growth of BioMarin and other existing biotech drugmakers through scientific partnerships and by sharing resources like laboratory space; Ultragenyx leases its lab space from the Buck, for instance. The Buck also continually draws new research talent to the region through its undergraduate, graduate and postdoctoral programs, some of which are run in partnership with universities.
“It’s very important for us to have a growing biotech sector in this region,” says Buck president and CEO Brian Kennedy. “While we’re happy to partner with pharmaceutical companies anywhere if it makes sense, it’s nice to be able to bounce ideas off people who are local and get that exchange of ideas that it’s hard to get at a distance.”
Over time, more companies are expected to spin off from the Buck and BioMarin and even from their spin-offs. Despite all this growth, Marin’s biotech cluster is still far from rivaling the size of the cluster surrounding Genentech in South San Francisco, or even San Diego’s cluster. But it has progressed from the early start-up phase to the second stage of development, says Robert Eyler, chief executive of the Marin Economic Forum.
Growth With Challenges
Many of the smaller companies, like Ultragenyx, are also expanding. The firm grew its staff to more than 100 from 59 this year and is likely to need more space as its products move into later-stage development, says Chief Financial Officer Shalini Sharp. Rounding out the cluster are biotech firms that don’t make drugs, most of them also in Novato, such as Cytograft Tissue Engineering, which repairs diseased cardiovascular tissue using the patient’s own cells; Biosearch Technologies, which makes nucleic-acid-based products for genetic research; XCell Science, which creates human neural cells for research, and Marin Biologic Laboratories, a research contractor.
“You’re seeing a lot of the businesses in Marin County are maturing, but are not yet mature enough to have multiple product lines and multiple years’ worth of contracts. A lot of the companies are still trying to get drugs through the testing process and are in a fundraising phase,” Eyler says.
That applies to Ultragenyx, which has four products in clinical trials, and Raptor, which has one drug on the market and three in clinical trials. BioMarin is more advanced, with five drugs on the market, including Vimizim and Naglazyme, as well as Kuvan (for PKU, the disorder tested in newborns with a heel prick), Aldurazyme and Firdapse (approved in the European Union only). It has five more experimental therapies in clinical trials and two slated to go to trial in 2015. The company has been publicly traded since 1999, reporting revenue that has grown steadily over the years to 2013’s $549 million.
However, BioMarin is not yet profitable. “What we’ve been communicating (to investors) is that when we reach a billion dollars in revenue, which should be in two to three years, we will be operationally profitable,” Bienaimé says.
The fact that investors are willing to wait through more than a decade of testing and steady growth throws biotech into sharp contrast with high tech. “It tends to be a longer term play than the short bursts you see in tech like mobile apps, social media,” Eyler says. Pair that with its hunger for educated workers, and the industry has the potential to be a good driver of Marin’s economy, he adds.
But biotech firms that would launch or expand in Marin County face challenges. A major hurdle is finding space for laboratories and drug production plants. The vacancy rate for industrial and warehouse space in Marin is only 4.1 percent, meaning that space here is much scarcer than in Oakland, where vacancy is almost 20 percent, or San Mateo, with 11.8 percent, according to the Marin Economic Forum.
When considering if Marin’s biotech cluster could ever rival South San Francisco’s in size, Bienaimé gazes out his office window. BioMarin is constructing a new research laboratory not far from where he is sitting and has drawn up plans for another building across the street. “Maybe it could happen here too. It would take a while. The space is more limited here,” he says, finally. BioMarin has purchased a drug production plant in Ireland, but intends to continue growing in Marin as well.
In the end, it doesn’t matter if Marin’s cluster will ever rival South San Francisco’s. It’s a good thing at any size, industry insiders agree. “We don’t have to get to that level to be successful,” says Kennedy, CEO of the Buck. “These are high-paying jobs, they’re technical jobs, they bring a lot of young exciting people into the region — and we’ve got a nice base to grow from here.”
Housing Starts Drop to New Low in Sonoma County
in FeaturedThe Great Recession may have officially ended five years ago, but you wouldn’t know it by looking at construction activity in Sonoma County.
City and country building officials issued just 251 permits for new single-family homes here last year, according to the California Homebuilding Foundation. That was the lowest total in at least 45 years and a far cry from the average of 1,900 single-family homes built in Sonoma County annually in the two decades before residential construction took a nosedive in 2008.
The paltry construction numbers have contributed to a tight housing market and some of the biggest apartment rent hikes in the nation.
In response, both business and civic leaders this year have begun calling for action. Without more housing, they warn, local companies will have trouble hiring new employees, the economy will suffer and lower-income workers will find it increasingly difficult to remain here.
When families have two incomes and still can’t afford to live in the region, “we have big problems,” said Cynthia L. Murray, president and CEO of the North Bay Leadership Council, a group of private and nonprofit employers. She called the situation “a crisis” and said the council will host a housing summit in Petaluma in May.
Sonoma County Supervisor Shirlee Zane and the mayors of Santa Rosa and Rohnert Park will jointly host a workshop next month with local builders to examine ways to increase the stock of affordable housing.
“We simply cannot afford to not address this problem,” said Zane, whose district includes Santa Rosa.
Building industry officials expressed support for such efforts but also cautioned that it will take years to reverse the current shortage.
“For the housing market, this is going to be a long, slow recovery,” said Keith Woods, CEO of the North Coast Builders Exchange, a Santa Rosa trade group.
The dilemma comes down to “pure economics,” said Woods. “It’s a limited supply and increased demand.”
It also will take time to build new affordable housing units, said Chuck Cornell, executive director of Burbank Housing, a Santa Rosa nonprofit that has built nearly 3,700 housing units here over the past three decades.
“We have a fairly long pipeline to produce housing, and there’s been a giant gap in that pipeline since the financial crisis,” Cornell said.
A ‘need for millions’
The main reason for the slowdown is that state and local governments suffered severely in the downturn and had to cut back the financial aid needed for such housing projects. And the price tag to build more housing will be large, he said. A typical apartment can cost $350,000 or more per unit, a significant amount considering that the county’s median price for an existing single-family home in December was $515,000.
“There’s a need for millions (of dollars),” Cornell said.
For decades, home building was a major engine of economic growth in the county, employing thousands of construction workers and providing business for scores of home furnishing, appliance and landscaping companies.
But the construction industry was battered by a world financial crisis sparked by risky residential lending in the United States. In the past seven years, county builders have obtained permits for just 2,441 single-family homes, fewer than were built here in 1990 alone. And the county’s construction sector now employs 4,400 fewer workers than it did a decade ago, a decline of 30 percent.
Since the recession ended in 2009, the county has added 22,000 jobs across all industries. As employment has increased, so have rents.
Leading in rent increases
Apartment rents climbed nearly 30 percent in three years to $1,567 in December, according to Real Answers, a Novato-based rent research firm. Last year Santa Rosa ranked fifth for the nation’s biggest rent hikes.
At year’s end, 97.2 percent of the county’s apartments were occupied, a level that property managers consider essentially the same as full occupancy.
Apartment-building down, too
In 2013, home builders briefly saw a bump in apartment and condominium construction. That year builders received permits to construct more than 700 multi-family housing units — mostly for two apartment projects in Rohnert Park and Santa Rosa that are expected to open in the coming months.
But a year later the numbers fell. In 2014, the county and its cities issued just 214 multi-family permits, the lowest level in three years, according to the state homebuilding foundation’s CIRB Construction Data Report.
For 2014, Mendocino County reported permits for 72 single-family homes, a decline from 92 in 2013. For Lake County, the single-family permits totaled 42 last year, compared to 50 the year before. Neither county had any multi-family construction.
Sweat equity difficulty
In today’s housing environment, even when a solution seems in hand, difficulties can still arise. At its 60-unit Catalina Townhomes ownership project, Burbank Housing has been able to qualify only two families for the 28 available units in the second phase. The families must not only be willing to help build their homes, but they also must have an annual income of between $48,000 and $65,000 for a family of four.
To date, many of the otherwise eligible applicants can’t qualify for loans because they already have too much debt, said Pascal Sisich, Burbank’s director of housing development.
Looking ahead, Rohnert Park is anticipating new home construction this year, said Marilyn Ponton, the city’s development services director. Two developers have long been preparing projects in the east and southeast portions of the city that are slated to one day hold 2,000 new homes.
However, Ponton referred questions on the timing and scale of the construction this year to the developers. And spokesmen for both companies, Brookfield Homes and Redwood Equities, this week either declined or didn’t respond to requests for comment.
This year, two new rental complexes will open for their first tenants. Both are characterized as “luxury” apartments and will charge rents above the county’s current average.
The 244-unit Fiori Estates complex in Rohnert Park is advertising rents starting at $1,730 for a one-bedroom unit and $2,255 for a two-bedroom place, according to the project’s website. A spokesman for the 270-unit Annadel complex in Santa Rosa said rent will start at $1,700 for a one-bedroom unit and $2,100 for a two-bedroom. The first Annadel units are expected to be available by the end of April, if not earlier.
Proposals in Santa Rosa
In the effort to build more housing, both builders and local officials already are discussing possible approaches. In Santa Rosa, the City Council last month directed planners to consider a request by developer Hugh Futrell to defer approximately $2.2 million in development fees on a 141-unit building for low-income seniors. Futrell is seeking up to 16 years to repay the principal, plus interest at an annual rate of 3 percent.
Another effort involves possible joint funding by the city of Santa Rosa and the county for a 79-unit rental project by Burbank Housing in southwest Santa Rosa.
The local governments that get housing built in the future will be those that are “willing to partner” with developers, pointing them to areas of town where projects can get more easily approved, said Greg Owen, CEO of Blue Mountain Enterprises. His company is building 12 single-family homes at its Spring Brook subdivision off Fulton Road in northwest Santa Rosa and next hopes to build a 110 townhome project in the southwest section of the city.
Before the downturn, builders could afford to spend five years bringing a project to fruition, but “you can’t do those anymore,” said Owen, whose company first made headlines here three years ago when it bought and flipped scores of foreclosures and other existing homes. Projects don’t make financial sense now unless work can start after eight months in the regulatory process, he said.
Bob Glover, executive officer with the Building Industry Association of the Bay Area, said tighter lending criteria and increased regulations are making all building projects difficult today.
“Even the quote ‘easy ones,’ what used to be called easy ones, they’re not easy,” he said.