Hundreds of millions of dollars in lost opportunities, bungled projects, and out-right featherbedding.
By John E. McNellis, Principal at McNellis Partners, for The Registry:
Last week, the city of Berkeley sued the University of California over its proposed redevelopment of the worn-out Upper Hearst parking garage at the campus’s northeast corner, citing the usual suspect: an inadequate environmental impact report (EIR). This story—development gets sued over EIR—is such an everyday yawner, it should have run in the obits section.
The project’s backstory, however, is fascinating and—for the moment at least—approaching tragic for the University.
In 2013, then U.C. Vice Chancellor Administration & Finance John Wilton realized the obvious: Everything the University owned—its lecture halls, laboratories, office buildings, power plants—was falling apart and that it was thousands of beds short of its housing mandate for its undergraduate students. He also knew the University was sitting upon amazing real estate that would never be successfully redeveloped by the myriad of committees and factions then controlling the campus, committees and sub-groups working without real world knowledge of development and often at cross-purposes with one another.
At Wilton’s urging, Chancellor Nicholas Dirks created a new office—Vice Chancellor of Real Estate—and appointed Bob Lalanne as its first vice chancellor. A U.C. grad, long-time University volunteer and a very generous donor, Bob shut down his highly successful development company to accept the VCRE position for an annual salary of one dollar. Yes, one dollar a year.
With the chancellor’s backing, Bob and his team began a remarkable rebuilding program and for three years (2014-2016) the cement trucks were flying. Among other projects, they opened 1,000 new beds for undergraduates and built the new Stadium Garage at a cost of—please note—$35,000 per stall. In all, his team implemented eight projects and had another ten waiting on the flight deck.
Then the wheels fell off.
Chancellor Dirks departed and the new chancellor, buckling under to pressure from those sidestepped committees and factions—let’s call them the “deep university”—elected to shut down the VCRE, stripping Lalanne of control, asking him to remain in an advisory capacity. Declining, he resigned in the fall of 2016. Wilton had previously resigned in late 2015.
And the deep university retrieved its power.
With that background, let’s return to the present, to the Upper Hearst garage’s proposed redevelopment. The existing garage is an ill-designed eyesore that nominally has 350 parking spaces. It leaks so badly in winter storms its ground floor is often flooded and unusable. Its floors do not connect with one another; it’s true: If you cannot find a space on the second floor, you have to exit the building and ascend a separate ramp to hunt on the third floor.
Three years ago, the VCRE team proposed an elegant project for the site: Three levels of garage parking that, in taking up the site’s entire footprint, would have provided about 350 actual parking spaces; and, on top of that garage, three floors divided between the Goldman School of Public Policy (GSPP) and undergraduate housing. The GSPP was to have 20,000 square feet, while the dorm would have 120,000 feet, providing 500 new beds. At the time, this project would have cost $95 million.
This project died along with the office of the VCRE. Before describing how the deep university mangled its replacement proposal, a few facts are worth bearing in mind: UCLA is the same size as U.C. but has 17,000 beds for its undergraduates compared to U.C.’s 7,000; student housing requires no parking; and finally, for the Stanford grads, it is cheaper to build one building rather than two.
The deep university proposal for this site, the one that has thus far engendered two lawsuits, is vastly under-parked. It has only 180 parking spaces and, by eliminating the badly needed student housing in favor of 150 subsidized faculty apartments, loses over half of its parking spaces to satisfy the arguably unnecessary faculty housing. Moreover, the misguided plan creates a faculty housing lounge of about 4,000 feet on the ground floor thereby wrecking the parking lot’s efficiency. Finally, the plan moves the GSPP to a separate, but adjoining building, which means the added cost of two roofs, two mechanical systems and so on.
The cost for this project is estimated today at $138 million, or $43 million more than the VCRE project. Contrasted with the $35,000 per-stall cost at which the VCRE built the Stadium Garage, the per-stall estimate for Upper Hearst is now over $100,000.
A book rather than an essay should be written about the special interests—the teachers, the unions, the turf-protecting bureaucracy, even the students—that are costing one of the greatest universities in the world hundreds of millions of dollars in lost opportunities, bungled projects and out-right featherbedding. One small example: The AFSCME union prevented the University from automating its parking garages, insisting upon full-time, dues-paying unionized attendants at a time when simple apps and readers have rendered these positions not only redundant, but ridiculous.
The ancient joke about the definition of a camel—a horse designed by committee—springs to mind when considering the present Upper Hearst project.
U.C. can successfully develop its real estate. Or rather, it could, but not by letting its inmates run the asylum. In short, the University should bring back the office of the VCRE. By John E. McNellis, for The Registry.
The practice of renegotiating rent is older than selling Thanksgiving turkeys as loss leaders, but there is a relatively new, ugly wrinkle to the game. Read… This Is What Happens When Retailer Asks Landlord for a Rent Reduction
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If the university workers were required to invest their pension money in the university you would be telling a different story. The really sad part is that their pension money is probably building housing and parking at another university, and they don’t even know it.
Well said. None of the folks who are involved in these decisions have “skin in the game”. They are not affected in the least by the success or failure of the project.
Well said and don’t get me started on the UCB. In some old drive I have a list that leaked in the 00s with the workers’ salaries and pensions. And they have the nerve to ask for money every year to their alumni. Politicians get a lot of flak for their shenanigans but I’d say that the deepest financial black holes in the US are at the universities and health insurance companies.
The fish rots from the head down.
Student loan reforms during bush and Obama admins are funding this craziness.
“for the Stanford grads, it is cheaper to build one building rather than two”
Hey, don’t beat up on the Standford Grads. They are the ones that had the brilliant idea to automate all the blood tests done in a giant sophisticated lab and squeeze them in to a little box the size of a laser printer filled with tiny robot arms and little bitty plastic vials ( Theranos ). Anybody who thought that was a good idea might think you can build two buildings for the price of one.
Yeah, she didn’t grad from Stanford if I recall. The next female Steve Jobs indeed.
That was a very strange paragraph, as he is comparing the UC-Berkely to UC-LA and there is no real explanation how the spoiled rich kids from the private university entered into the equation.
Inside joke: You need to live in the Bay Area and see the rivalry between Cal & Stanford.
You take a whack at Stanford because you can.
You mean Stanford kids are mostly privileged and trying to be liberal to fit in, while the Berkeley kids are just liberal for the sake of being different? Heheh
Believe it’s only the “Anderson” (consulting?) Bidness School that’s private at UCLA.
Would be interested to know the McNellis/Lalanne connection. Just to commercial RE guys trying to make a buck?
Full disclosure: I live a few blocks from that ugly garage. The public policy school, renamed some years back has been on a pac-man like march with its expansion. Agree that the University should use more of it’s open land to house their ever increasing student population, not sure that corner is the best solution. Likely the courts will decide (and the Goldman school will get what they want.) As an acquaintance put it, we need more flying cement mixers in the ‘hood.
John McNellis, the author, told me that he has two degrees from the university of California, that he is a major donor to Berkeley, and has known Lalanne for 30 years. John said, “I knew Lalanne had taken this position and knew it didn’t work out, but didn’t know the details until I ran into him at a social event a couple weeks ago. He told me the whole story, I said whoa, can I run with it?”
“Wny build one, when you could build TWO for twice the price !”
H. R. Haddon
An obviously biased and slanted article that ends before it actually gets into any meat that would back up the constant name calling and sneering tone throughout. Calculating the cost of a multipurpose building which includes parking on a per-stall basis is obviously a crooked and misleading basis. There are built-in assumptions, like the fact that all faculty are multi-millionaires who don’t need housing assistance. As someone who has an Associate Professor (at another school) in the family, I know very well that subsidized faculty housing is usually needed. Especially in an area where the wolves and vultures are obviously circling the university property and where commutes are horrendous.
Subsidized faculty housing aims at either favoritism or for more adjuncts who work for pittance. Of course, kickbacks from your favorite builders are always there.
Grad students make much less than postdocs. Postdocs make much less than faculty of any sort. But by all means, let’s start near the top and subsidize the professors. Color me disgusted.
[EDIT] should have been one level up.
Is this article really relevant to investing and markets? I used to park in that parking structure; I have two degrees from Berkeley. The construction and development of that campus have been ceaseless for decades – new buildings, new dorms go up constantly, at the expense of what remained of Berkeley’s pedestrian charms. I find the notion that the faculty and staff have no idea what’s going on around them to be rather laughable. Much, if not all, of the development in recent years has been on behalf of paying customers – i.e. corporate “sponsors” whose intellectual interests consist of brand-building philanthropy and the relentless conversion of university life into an exercise in corporate job-market credentialing. One notes that the late Mario Savio famously stood atop a police car in 1964 and urged the community to refuse to become part of a soulless machine. One notes also that some things never change.
Also a UC grad who knows this place well.
The overall joke of how this place is managed is well known to anybody who wants the information.
For example, the protests/riots that happen are quite well choreographed with the university taking the damage so the taxpayers pay and local businesses across the street don’t get damage.
Go look at the videos if you don’t believe me.
People who went there and write blogs have actually disagreed with me about this, and when they checked it out they got very silent.
The UC constructed a new “door” a few years ago, that the student newspaper said was an escape hatch for a chancellor that got a lot of protestors in his building. I don’t know what’s true, but this doesn’t have a good look either.
I don’t send them any $ when they ask for it, believe me.
Alternative1: $190k per dorm bed? That is crazy. (95e16/500 rough estimate)
Alternative2: 920k per subsidized faculty apartment. Equally crazy. (138e6/150 rough estimate)
>>The existing garage is an ill-designed eyesore
No it is not. That’s just an excuse. It looked fine the last time I drove by there.
>>the worn-out Upper Hearst parking garage at the campus’s northeast corner,
Worn out? That’s just more propaganda.
<>In short, the University should bring back the office of the VCRE.
It does not look to me like the VCRE plan was much better than the non-VCRE plan. Both are bad plans, and much too costly relative to the benefit. Both the projects are at least 2X as costly as they should be.
A university with a world-class Civil Engineering department ought to be able to do much better. But of course they are hamstrung by bureaucrats and profiteers.
Why not build a faculty high-rise on Lawrence Berkeley Lab land a little above campus (maybe a 1/4-1/2 mile)? There’s a lot more space up there.
Very likely the University types screwed up, but this is so obviously one-sided and written by a friend of the man whose project was scrapped that its credibility is in question.
NOTE: as someone who was before he got a full-time appointment, and is again at this time, an Adjunct, having subsidized housing for people on short-term contracts and with visiting professorships (there are loads of such people today in academia) makes perfect sense in the Bay Area, where rents are out of sight. As for having an attendant rather than an “App”, I say “bravo!”. Americans need jobs–period. Taking them all away in the name of efficiency has done terrible damage to a working class that used to be a middle class. Conservatives love to thump those guys on the back and kiss their fannies in public, but give them half a chance and they’ll happily stick a shiv in their backs in the name of efficiency and profitability; Clintonite Democrats will stick it to them in the name of globalization and “progress”.
Yeah, those rascally conservatives jacked the Bay area real estate market and caused the whole mess.
Meanwhile, Mr. Adjunct Professor thinks minimum wage enslavement to run elevators and parking decks is good thing…
Wolf, can you do an article on how UC leadership has converted the UC system from a state school system to a private/international school system leaving the tax payers out in the cold?
As an employer I gave up employing graduates with pointless unversity degrees that have no problem solving skills, no logic and poor basic mathematic skills, little work ethic but have some kind of entitlement because they possess an A4 sheet of paper with a bit of toner on it that tells them they have suceeded in their subject.
I see more and more company owner/bosses opting for 50 year plus unqualified but experienced and enthusiastic staff.
Training on the job (like Germany) is much more beneficial to student and employer than graduates in most situations.
University Education in recent times has been a dream for governments.
It has kept people that may have been unemployed off the dole for 5 years (high school plus 3 years university degree).
It created teacher posts and all the administration positions that goes along with it.
It created student landlords.
And of course created jobs for the bankers creating student loans.
And of course reading this article, construction jobs and all those “professionals” implementing the construction.
A five-minute conversation with a prospective employee can tell you more than most resumes.
Also, notice that not all smart people have the best degrees, perhaps because they were inexperienced to make the right choice as young people, when they opted for a degree.
Moreover, as you need to look for mature people among those close to 40, your hiring process is anything but easy, especially when you consider that many of the currently used parameters have little use in predicting who your best candidate is.
II looked into Miami university in Ohio
Their alumni money gathering and the endowment fund that they continually hounded my father to pay into. The honor and glory fund. They needed 500million because they had lost that investing in South American cdo s
They pay them selves very well these hustlers . Get huge tax breaks. Use the money not for scholarships but to build a new baseball stadium and the donors get the right to buy those bonds with a 4% yield. Tax free bonds to boot and they get stuff named after them. My father who gave way to generously to this shark tank was never offered that. A true and deep expos’e needs to done with these tax exempt endowment funds.
Scam scam greedy scam
Training on the job (like Germany) is much more beneficial to student and employer than graduates in most situations.
“Like Germany” means “Fachschule”, which is 3-4 years of vocational training interspersed with practical work at an employer. This is not a bad education to have at all.
A German-, Swiss- or Austrian- ‘Technician’ will usually be on-par with what most other countries will call an Engineer (the Batchelor of Science, and not the oily-rag kind, which is the UK-version of ‘Engineer’).
The Anglo-sphere does not have the stability and the will to invest in people for this system to work though, here it’s all ‘loot, loot, loot’!
An ‘Engineer’ from Germany, Swiss or Austria will be ‘Masters of Science’ from ‘Fachhochschule’ or ‘Dr.-Ing’., ‘Doktor der Ingenieurwissenschaften’ from a technical university. This takes 5-7 years of study and research. It is very hard to get in to the “Universität-” structure so there are not many of these ‘in the wild’.
Those that can do> Do.
those that cant.
Or university lecturers or university paid staff and moonlight as leftist politicians or even worse become leftist politicians and diversity politically correct obsessives.
Who get their income from universities by holding a position a there.
This observation came after attending university as a late adult to obtain a graduate diploma that gave me a piece of paper that said I actually did know what i had been doing for over 25 Years. The piece of paper( Gdip OHAS) in question became mandatory, to get a license, to continue what I had been doing for some years ( More leftist BS).
It taught me several stupid thing’s, like.
it dosent matter if every word and thing the lecturer said was wrong, write about it and reference the incorrect facts she/it cited, presenting the rubbish in the prescribed page format, and you will get good marks for your paper no matte. That it is completely incorrect rubbish.
Writing the truth, speaking reality, questioning, let alone disagreeing with a lecturer will get you and F.
Diversity, Gender Equality, Political correctness, Far left politics, support for the LBGT and minorities, plus disdain, if not outwright opposition and hostility, to Israel and wall street. These are the only thing’s that matter at many university’s, in such institutions they will get you an Honors graduation. Even if you do not know how to tie you sneaker laces. (thats why so many lecturers and graduate students, wear slip-on’s).
Building administration, development, maintenance, general finance and investment, these are all areas that should be handled by contracted professionals in now way bound to the education department or those in university’s who claim to be lecturers or heaven forbid professors.
The nepotistic cronyism,and incompetence, Cited in the article, is all to sadly familiar.
Those, who can, are not even hired anymore. Some of them might be welcome as contractors in the name of profitability, but that depends on the company. As Wolf came up with several examples in recent years (Sears is perhaps the most prominent one), these days, it’s more lucrative to drive a successful company to the ground than to work with it, as long as a select few are making the decisions.
I cant speak to this story, but when I worked at UC many years ago it struck me as a “tragedy of the commons” situation – most people didnt feel much of a stake in the larger organization. Academics are emotionally stunted people that were only nice when they needed something from someone. Union labor for construction/remodeling was very expensive and new buildings were often found to have many defects; the designs were often more fanciful than practical so perhaps that was the source of some of these defects.
I know a person who recently retired from a UC and had daily horror stories about its accounting and staffing practices. That person said if UC was a stock it would be a good short candidate.
As a UC alumnus, I saw my campus get transformed from a bare bones division 3 school focused on academics to a division 1 country club consumed with virtue signaling. I havent gotten a call asking for donations in many years – I red pilled too many of them by pointing out that they were getting paid by an institution that had over a billion dollars in the bank to beg me for $5.
Sounds like the joy of socialism in action!
Those that are in charge of socialism benefit greatly, the social masses not.
Reminds me of the joy of living and working in Russia in 1983!
Executive row for party members, frost heaved log houses for everybody else!
The marginal cost to supply a University education (4 year course of 500 one–three hour lectures per annum plus say 40 examinations) is near zero when delivered in the digital age:
1) Undergrads can watch lectures via the internet on the bus going to and from classes or at home or at class, and
2) Exams delivered online are just as effective and can be instantly marked.
Question: why then does the market price exceed $50,000 and in some cases $100K?
IMO, at some point in the future the brand value of a univertity education will drop to near zero, and we will put it down to another market disruption of the digital age.
To wit: two of the big 4 accounting firms now no longer require an university degree to get a job, rather, aspiring entrants have to demonstrate otherwise effective useful experience.
When you can buy all the inputs for a university degree from a recognised provider for $500, not $50K or $100K, we might see financial prudence in the sector again.
“The marginal cost to supply a University education (4 year course of 500 one–three hour lectures per annum plus say 40 examinations) is near zero when delivered in the digital age:
1) Undergrads can watch lectures via the internet on the bus going to and from classes or at home or at class,”
Ben advocating that for years although some attended classes for each paper in each semester should be mandatory as the interaction between students and the occasional good lecturer can be very beneficial to students.
“2) Exams delivered online are just as effective and can be instantly marked.” too open to abuse especially in America and india, let alone the rest of Asia.
“When you can buy all the inputs for a university degree from a recognised provider for $500, not $50K or $100K, ”
Be a long time before the self-interested lefties that run the majority of universities allow that to happen. As it will be the end of their gravy train, let alone the damage it will do to leftist political “conform to leftist politics or fail your degree” indoctrinated support.
Without the Captive Herd’s of gullible young mediocre mind’s to indoctrinate in universities, the left would be seriously struggling.
As a politician I like her, but warren is a screaming example, of the regular path in many countries. Student, Lecturer, Professor, Leftist Politician.
Warren is also another of those political figure that lacks the leadership electability appeal/feature, JFK and Bill Clinton, both had it. P 44 had it in his group.
“As a politician” you like her.
The “Brick-and-Mortar Education Meltdown” is going to be a new category on WOLF STREET when that starts happening :-]
I’ve been waiting for years to see signs of it, but for some reasons, universities have managed to hang on to their privileges of being able to extract huge amounts of money for what could be done online for much less.
Some of it is already done online by these universities, but they charge the same. Other things, like labs, you can’t do online. In other settings, it also helps to have people in a room together. But a good part of the learning could be moved online and should be much cheaper.
Wolf, it may already be happening. Link:
This article reminds me of the notion I’ve always had that the UC is a system to move money from the public to private interests through construction projects and education is just the cover.
Not just construction, but big dollars in research then get rolled into private companies. A great example is Irwin Jacobs, founder of Qualcomm and I believe the principle architect of CDMA. He worked on that at UCSD as a professor and when it started to boom he left the university with the technology that in reality belonged to the UC – billions of dollars from patents. Anyway, the chancellor at the time, Dick Atkinson, was bribed with Qualcomm stock options that eventually came to be worth a quarter billion dollars – and magically upon review it was found that there were no policies in place regarding intellectual property at that time.
At many universities you have professors running side businesses leveraging not only their faculty positions but the research facilities and personnel as well, so much so that many of them barely spend any time doing actual work for their universities. I know of one Professor who tried to leave the university with millions of dollars of nasa funded equipment and start his own company with several of his university employees – he was tired of seeing everyone strike it rich around him. The employees, who did the lions share of the work had no interest in hitching their wagons to this megalomaniac and in one case started his own company which is still going some 10+ years later, although that was built on some other technology developed elsewhere at the university – he partnered with some guys from the San Diego Supercomputer. Just shady stuff all around.
Sounds like it’s time to build a new UCal site in a less pricey location, then sell off Berkeley.
I suggest that any of you go to the city of Berkeley and ask them whom they are backing for President in 2020.They will answer ,any Democrat who can beat Trump.That type of answer means that those voting in Berkeley do not care about the nuts and bolts of governing a country, so why should anyone be surprised that UC can not get practical projects finished at reasonable costs and in an acceptable timetable.
I checked Mr. McNellis’s Wolf Street curriculum vitae, and he is no lover of shysters in real estate, and especially no lover of private equity. His use of “special interests” is more problematic. That’s often right-wing code for any arena in which the left-wing has an advantage, inherent or otherwise.
Even if I disagree with some of his underlying assumptions though, the level of impracticality of left-leaning folk from Berkeley and its nearby environs can be breathtaking. There could hardly be a better example than KPFA and its parent Pacifica Radio. They’ve been financially strapped for years on end, and are dancing with complete insolvency. Their weakest station is WBAI in New York City. It has no constituency in its vicinity large enough to support it. All it has is Amy Goodman’s “Democracy Now” show. Selling WBAI and putting their finances on some rational basis would solve a significant part of Pacific’s problems. Mention that to most KPFA-Pacifica people, and you’ll be reaching for sound-deadening headphones. Talking intelligent finance to the many of the left-wing types Mr. McNellis is excoriating produces a similar effect. Practical people dealing with them often throw their hands up in the air and walk away.
I’d be looking for that “slush” fund that UC Davis has “discovered”! LOL!! Shrinking everything down to “on line classes” would in my opinion obviate the main reason for university education: the sometimes outright rude exposure of individuals to in most cases outside international students. It’s an exposure of lifestyles, objectives and different thinking. It’s working out how to live with others besides yourself and your “norms”. That to me is a good part of getting university “education”.