How Will Bay Area Developers Grapple With Sea Rise Costs?

When Landsea Homes acquired a development site fronting the Alameda Estuary in 2021, it knew it would have to pay for more than just the land. The site faced a projected 24 inches of sea rise, so Landsea spent another $12 million on resilience projects to keep its development safe. It built an $8.7 million sea wall, and spent several million more on an underground storm drain system and utilities, according to its Northern California President Josh Santos. It also shouldered time-related costs for the additional coastal approvals.

There was something in it for Landsea, though.

While the construction was expensive, it yielded waterfront homes, which means that now the firm expects to score waterfront prices. The development’s 182 townhomes are among Landsea’s most expensive offerings in Northern California, ranging from $800,000 for its Island View townhomes that sit to the rear of the lot, to nearly double that for the most tricked out Waterside townhomes. Its similar townhomes 30 miles north in landlocked Novato don’t command more than the mid-$900,000 range.

Landsea’s Northern California operation based in San Ramon is one of the many Bay Area developers that barely thought about sea rise a decade ago. Today, they take it as a given.

As water pushes in on their development sites, builders are budgeting additional time and money for sea rise mitigation, considering it another cost of doing business to create the higher-priced homes along the water’s edge. But as the sea rise situation gets more urgent, regulators are looking at ways they can ask developers for even more funding to fill the $100-plus billion gap between how much sea rise will cost and how much the government can spend.

Between now and 2067, the U.S. Army Corp of Engineers estimates that the Bay’s sea level will rise by up to 2.1 feet. Neil Hedgecock is leading up the Corp’s Phase I $545-million mitigation project in the Alviso neighborhood of San Jose, its first specifically targeting sea rise, he said. The specialized fill for the four-mile-long levee alone accounted for about $100 million with up to 200 trucks a day arriving from a quarry in Milpitas.

Projects like Landsea’s have given rise to a spate of public-private partnerships that allow municipalities to address rising seas while private developers move ahead with projects on coveted waterfront lots. The City of Alameda, an island offshore from Oakland with a former Naval Air Station, is redeveloping much of its waterfront through private development because it knows it cannot afford to pay for sea rise mitigation itself, Santos said.

“The City of Alameda is very smart,” he said. “They recognize that they’re an island and that they need to secure their island from future sea rise. They have very much focused on waterfront development opportunities to help them accomplish their goals.”

Meanwhile, buyers don’t seem concerned about rising waters, according to Santos.

“When you come out here, you see the water, you see these views,” he said. “It’s eye candy.”

Protecting your assets

Some $230 billion in Bay Area real estate will need protection from sea rise, and it isn’t going to come cheap: one regional report estimated the price tag will be at least $110 billion. Only about $5 billion of that amount is likely to come from federal, state, regional and local government programs, leaving a $100-plus billion gap.

Private developers may be called upon more and more to fill it, but just how much they will be expected to pay is a subject of debate, said Larry Goldbandz, executive director of the San Francisco Bay Conservation and Development Commission. The BCDC worked on the sea rise cost estimate report and is one of the many entities involved in approving coastline development.

“We’re all kind of looking around for someone to say, ‘Here’s how much you pay,’ and it doesn’t exist,” said Goldbandz. “Who is the person who’s going to decide how much developers pay and what percentage?”

Developer buy-in will be essential to protect what likely amounts to much more than $230 billion in real estate, since that figure is based on assessed value, which is artificially low due to Prop. 13, according to BCDC Chair Zachary Wasserman.

The Bay Area accounts for one-third of the state’s shoreline, but is expected to suffer two-thirds of the damage caused by sea rise, Wasserman said. The area is more developed than most of the coast, putting more real estate at risk. Further, it’s a basin, so if water is displaced in one area, by a sea wall for example, it will make waters rise somewhere else.

“It’s just going to reverberate and cause very significant levels of destruction, not only to the buildings along the shore but to critical public facilities — airports, railroads, BART, wastewater treatment plants,” Wasserman said. “As rising seas impact groundwater height, even inland, you may well have trouble flushing your toilets.”

The Tishman Speyer-San Francisco Giants Mission Rock development allows for more than five feet of sea rise — two feet of actual rise combined with the possible outcome of a once-in-a-century storm — through a combination of physically raising the former parking lot, adding drought and saline resistant plants along its waterfront parks, and engineering streets and utilities to minimize settlement, according to a Tishman representative. Tishman declined to comment on the price tag for these improvements.

Sea rise is an “absolutely critical issue for homebuilders,” according to Paul Campos, senior vice president of governmental affairs for the Bay Area Building Industry Association. Builders have long incorporated flood management into their plans, he said via email, and sea level rise is now firmly a part of those early development conversations.

Campos represents builders’ interests on the Bay Adapt Leadership Group, a BCDC-led initiative that started in 2020 to create consensus around what the region needs to do to protect itself from rising waters. Partnerships between private developers and the public entities that approve their projects will be “essential” to combat the impacts of climate change and to make sure that whatever regional plan is enacted remains feasible, Campos said, especially its costs and therefore housing affordability.

“We always strive to bring practical homebuilder knowledge and experience to the table so that the real world consequences of various policy options can be understood,” he said.

Regulators understand that they must deal with the reality that development has slowed considerably and that incentives and certainty in the process are all key for a successful mitigation plan, said Dana Brechwald, BCDC’s assistant planning director for climate adaptation.

“They don’t want to be overly burdened in their permitting and construction processes,” she said of developers. “We have to pair these requirements with an environment where you can actually get done what we’ve asked you to get done.”

$105-billion gap

Builders have been “quite responsive” towards regulations that protect their own projects, BCDC’s Wasserman said, but there has been much more limited interest in mitigating the damage their projects may have on their neighbors. He’s asking the state to fund a study to determine how the long-gestating development plan from Strada Investment Group and Trammell Crow at Piers 30-32 in San Francisco could impact other spots along the Bay as a first step towards that end goal.

There’s also no way to get developers of finished projects to chip in for sea rise requirements that didn’t exist when they built them, he added, though special assessments or other levies on owners is one way to bridge the $105-billion gap.

Similarly, six major life science development proposals on the Peninsula will have sea rise mitigation requirements, according to Goldbandz.

But getting additional support for sea rise from the large tech and life science companies that already have enormous campuses around the Bay is another idea still in its infancy, Wasserman said, though it’s difficult to see how organizations like his could compel their participation.

“There’s no question in my mind that they are looking at it,” Wasserman said of the region’s big-name tech companies. “What they’re not doing is talking about it, and the agency that can get them to talk about it is not BCDC. It’s the SEC.”

It is not lost on anyone working on this issue in the Bay Area that the whole conversation around sea rise would be markedly different if it were to take place in another area of the country where acceptance of climate change is not universal among stakeholders.

“When I go back to D.C. for our coastal zone management meetings, people always look at us and say, ‘You are so far in front of us,’” Goldfarbz said, “which scares the heck out of us because I think we’re way behind.”