Quick Take
The developer heading the large housing project on Ocean Street in Santa Cruz is still attempting to push the project forward, and is currently in discussions with the city on changes that could help reduce the overall cost. City planning officials say that it’s still too early to say whether developers are feeling more pressure from economic uncertainty that has loomed large throughout the year.
The developer leading the housing project on the north side of Ocean Street is in talks with the City of Santa Cruz to make adjustments to the project, particularly reducing the number of units in the large development to both make the development fit in better with the neighborhood and to potentially lower costs.
The project, slated for 908 Ocean Street, involves demolishing 12 residential units and four commercial buildings in order to build one five-story building along Ocean Street and two three-story buildings along May Avenue. The project was originally approved in February.
City Director of Community Development Lee Butler said that the developer, High Street Residential, a subsidiary of global real estate development firm Trammell Crow, has remained in touch with the city about the project, and is mulling possible adjustments. Global real estate firm CBRE, Inc., is Trammell Crow’s parent company.
Adam Voelker, market leader and principal for Trammell Crow’s Northern California office in San Francisco, told Lookout on Thursday that the development firm has not walked away from the project, and continues working with both the city and the owner of the property, Los Gatos-based private equity firm Sridhar Equities. He added that the main change under discussion is reducing the number of units to around 300. The complex was initially planned for 389 housing units, 18 of which would be low-income units and 36 very-low income.
“It’s really just being conscious of the total size of the investment,” he said. “But we’re really committed to this project. We’ve spent multiple years getting this approved and we’re committed to making it work.”
Voelker added that the goal with the changes would be to both reduce costs and create a project that is “appropriately sized” for the neighborhood and fits the community well. The vision is that the Ocean Street frontage would remain largely unchanged, but fewer units on the backside of the development facing May Avenue, which is a more residential street than Ocean.
Voelker said that, despite the challenges surrounding development costs, including rising cost of materials like lumber, concrete, and lighting, and the uncertainty surrounding the impact of tariff, he feels good about the future of the real estate investment market in Northern California: “We’re really optimistic about this project, this site, and the future of Santa Cruz.”
Butler said that it’s likely still too early to tell how much economic uncertainty and federal decisions are affecting developments in the city on a broader scale, given how long development timelines typically are. However, he added that many of the economic concerns from earlier in the year are still at play.
“Tariffs make investors uncertain, so they might be demanding a higher rate of return, they might be charging a higher interest rate, he said. “And material and labor costs are still high.”
Still, Butler said that it’s common for developers to make changes to projects as they go through the pre-construction process.
“Sometimes they’re making substantial changes, and sometimes they’re making less substantial changes, but they are always happening as it moves into construction drawings,” he said.