A recent land-swap will allow the city to develop a subdivision behind the Christ Evangelical Lutheran Church northwest of the Brotherhood Bridge.

Conflict boils over Pederson Hill development plans

Juneau’s Lands and Resources Division has an ambitious plan to fight the high cost of housing. But where city officials see a solution, several developers in town see a problem.

Recognizing that Juneau’s housing problem was only getting worse, the city began combing through its vast land holdings looking for buildable sites about a decade ago. In the 2006 update of the City and Borough of Juneau Comprehensive Plan, city officials recognized a dozen sites suitable for future development. Among them was Hill 560, a 400-acre chunk of city-owned land between Auke Lake and the Brotherhood Bridge known as Pederson Hill.

Since then, Lands and Resources has been working to turn the currently undeveloped Pederson Hill into a large residential subdivision, and after 10 years that plan is nearing completion.

“It’s conceivable, if everything goes well, that we could have buildable lots ready to go by fall of next year,” City Lands Manager Greg Chaney told the Empire. “It’s possible that foundation work could begin then.”

Chaney has been working on the project, which will be split into at least three phases, for the past two years. For the first phase of the project, the city would develop as many as 86 5,000-square-foot lots on the hill. This may sound like a developer’s dream, but a significant portion of the city’s home-building community sees it as a nightmare.

 

The roots of unrest

Right now, deer, bears, fish and other wildlife are Pederson Hill’s only denizens. You won’t find houses, roads, sidewalks or streetlights at the site of the potential subdivision, if you can find it at all. It’s not yet connected to the road system, but a recent land swap with a nearby church has provided the city with access to the property.

With that access, the city will punch a road into the subdivision, level all of the trees in the way of development and run utility lines to each lot, effectively developing ready-to-build lots complete with sidewalks and streetlamps, “all the good stuff,” Chaney said.

According to the engineers’ estimate, the first phase of the project will cost about $6 million. Accounting for a 30 percent contingency, as city projects must, engineers recommended a budget of $8 million. It’s an expensive project — one that very few, if any, developers in town could undertake on their own — but Chaney sees it as necessary.

His goal for the subdivision is to provide options for young professionals and entry-level homebuyers — houses “that are less expensive than what the private sector is currently providing,” he said.

Private developers build what people are buying and what they can make the greatest profit on. To that end, larger homes typically mean larger profit margins. City officials, on the other hand, are more motivated by ideals, City Manager Rorie Watt said, and fixing Juneau’s housing crisis has been at the top of their to-do list for a long time.

“The city is getting involved because it believes it has to,” Watt said. “We are more philosophically driven. We’re motivated to build a style and size of house that isn’t being built by the private sector.”

To accomplish this, Chaney has planned small lots for Pederson Hill, which will force developers to build smaller, less-expensive homes. He said he has modeled the subdivision after Starr Hill and the Flats, both downtown neighborhoods that feature small, similarly-sized lots.

Chaney is chasing a $300,000 price point for Pederson Hill homes, a feat he believes he can accomplish by forcing developers to think small. Juneau developer and Affordable Housing Commission member Wayne Coogan thinks Chaney is “chasing the wind” instead.

Both he and developer Spike Bicknell said the reason the private sector isn’t building houses for less than $300,000 is because it can’t be done.

“It just ain’t going to happen,” Coogan said.

This is because of the high cost of building supplies and land. Almost all of the lots available for residential development in Juneau are assessed for about $100,000, according to Bicknell and several other developers.

“If that’s your starting point, and you’re going to build a 1,100-square-foot house, which costs $200,000 to $250,000 to build, it’s just simple math,” he said. “You’re already out of the ballpark.”

According to data from the Multiple Listing Service, a database containing 90 percent of home-sales records in Juneau, the median price for single-family detached homes last year was $385,000 — up $20,000 from the previous year and more than $65,000 from 2011.

According to Chaney’s plan, Pederson Hill’s ready-to-build lots would go for about $80,000 each.

 

Developer discontent

Earlier this month at an Affordable Housing Commission meeting, Coogan invited about a half dozen developers to air their grievances about the Pederson Hill project. His goal: to open a dialogue with the city, allowing developers to be heard before it’s too late.

“There’s some serious harsh comment out on job sites about this project, so I wanted to clear the air,” Coogan said. “I want to see if we can get this straightened out at an earlier stage.”

At the meeting, Coogan recognized that he “is kinda known for doing things at the last minute.” In September, Coogan went before the Assembly with a proposal to scrap Bridge Park, the soon-to-be location of the bronze Whale sculpture, in order to use the land for housing development. That was the day before the bid period for construction of the park was set to open.

“But I’m pretty sure somebody told Napolean not to go to Waterloo at the last minute,” Coogan joked at the AHC meeting.

The comments weren’t as harsh that night as some that Coogan has heard — which he said were unrepeatable — but they were heated nonetheless.

“This, as far as I’m concerned, is in direct competition with me,” developer Richard Harris told Chaney during the meeting. “I think it’s just wrong. If it’s not illegal, it should be.”

Harris’ complaint was one that several other developers voiced as well. They see the project as dangerous government overreach that has the potential to negatively impact them. The city rarely ever gets involved with developing residential land, and developers are worried that this project will form a dangerous precedent.

“The government is going to turn into the developer,” Bicknell, who was at the meeting, told the Empire in an interview. “They’re going to turn into the real estate agent. They’re going to turn into the financer. They’re taking away from everybody who makes this community go around.”

The last time the city disposed of land and worked to develop it was during the construction of the National Oceanic and Atmospheric Administration’s Ted Stevens Research Institute at Lena Point. The city developed the road that led to the institute, and it developed lots along that road.

Developers weren’t wild about that project, but the development of Pederson Hill really crosses the line, they say. It isn’t tangentially connected to another project, such as the new NOAA lab. It’s development for the sake of development, developers argue, and it could very well compete with the private sector, though Chaney said that was not his intent.

“It’s difficult for us to compete against our own tax dollars; it’s not right,” developer Marciano Duran said during the AHC meeting. His development firm, Duran Construction Company LLC, owed more than $46,000 in property taxes, according to the city’s real property foreclosure list for 2015. (Editor’s note: Since this article was published, Duran has paid his property taxes.) “I don’t think anybody in the city, sitting in our position, would agree with this.”

And he was right. City Manager Watt wasn’t present at the meeting, but he said later that several of the developers’ concerns held water and should be addressed.

“I think there is a worthy philosophical question about what the city’s role should be in entering into land development and housing development,” he told the Empire.

If you ask the developers, they’d likely say that the city shouldn’t have any role in development. Bicknell doesn’t even think the city should hold land. It would be better off if it gave it all over to developers and then charged property taxes on it, he said. “What’s the point in owning land if you’re getting nothing for it?”

Watt sees more room for conversation and said the answer likely lies somewhere on a spectrum. On one hand, the city could develop nothing. On the other, it could build lots and houses.

“I think we’re going to be somewhere in the middle,” he said. Watt has since directed Chaney and Chief Housing Officer Scott Ciambor to develop a “hierarchy of involvement” to help tackle this question. Neither has reported back to him with a finished product yet.

 

If you build it, they will leave

Developers come in all varieties. Some buy land, subdivide it and then sell it. Some only do lot-prep work — like what the city plans to do at Pederson Hill. Some only build homes on already-prepped lots. And some cover that whole continuum, buying undeveloped land and taking it all the way to the finished product.

The most vocal of those opposed to Pederson Hill — Bicknell, Duran and Harris — are bound together by a common thread. They all own undeveloped land. Bicknell owns the 100-acre Montana Creek subdivision, which he bought as undeveloped land 25 years ago. He has since developed 145 of the 180 lots.

Duran owns the seven-acre, 24-lot Vista Del Sol subdivision off of Glacier Highway, most of which is still undeveloped. He also owns more than 100 acres of entirely undeveloped land elsewhere in the city. Harris owns almost 20 acres next to Vista Del Sol, which he is currently trying to subdivide and develop.

Though they would argue that all developers will be hurt if Pederson Hill goes through as planned, the land-owning developers are likely to be the most heavily impacted. But the extent to which the Pederson Hill project will hurt them — or whether it will at all — depends on how the city ultimately decides to sell its ready-to-build lots, Watt said. And that decision has yet to be made.

“I think we’re on the right side of the hierarchy of involvement,” Watt said. “But I think, depending on how the property is disposed of, we could have unintended consequences. If we put that land on the market too quickly, we could have a negative impact on other development.”

On that point, city officials and developers agree. But the developers are concerned that Pederson Hill could have longer-lasting consequences. The city has the capital to take on massive near-term projects such as Pederson Hill. Chaney frequently points out that bigger projects come with efficiencies of scale, making them tougher to compete with. The city also has a risk horizon far beyond that of the private sector.

When private developers buy land, they lose money in the form of property taxes every year that land goes unsold. The city doesn’t have to worry about paying property taxes on its own land.

For these reasons and others, the city represents a sizable threat to private developers as it plans to move further into their territory than ever before.

“To me, it’s like if the city opened a gas station or a grocery store,” Coogan said. “Can you imagine how disheartening it is for developers to see the very entity that is regulating them and collecting taxes from them going out and competing with them in the market?”

It’s disheartening enough to reduce the number of developers in the community, either by out-competing existing developers or by scaring aspiring builders away from the industry, Coogan said. Bicknell and other developers share the concern.

“I think the City and Borough of Juneau is looking at the small picture, not the big picture,” Bicknell said. “If they go forward with this, it may help some people, but it’s going to hurt some people, too, and they need to think about that.”

And he’s going to do all he can to make them think. There are still a lot of steps to go before Pederson Hill is ready to build. The first one is getting the city to adopt the Lands Management Plan, a guiding document that recommends the disposal and development of Pederson Hill. The LMP will be before the Assembly at its meeting Monday night. Bicknell said he’ll be there to raise his concerns about Pederson Hill. Duran said he’ll be there, too.

Coogan and Watt both said they hope all of the developers who are aren’t happy about the project come to the meeting and make their worries known.

“I think it’s our job at the city to frame the question,” Watt said. “We elect politicians to decide things like this, and in order for them to do it, we need to make sure that we’re having the right debate. Even then, people may not like the answer.”

Editor’s note: An earlier version of this article said that developer Marciano Duran owed more than $46,000 in city property taxes. Though this was true at the time of publication, Duran has since paid his property taxes. 

• Contact reporter Sam DeGrave at 523-2279 or at sam.degrave@juneauempire.com.

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