IN DEPTH: OAKLAND STRUCTURES/BANKING AND FINANCE
From the November 19, 2004 print edition
Pulte follows the road less traveled by builders
Company shifts toward developing in overlooked zones
Ryan Tate
Four years ago, Pulte Homes was playing it safe, erecting average-looking houses in quiet Bay Area suburbs like Dublin, Concord, Tracy and Brentwood, just as it had been doing for the prior half century.
You'd hardly recognize Pulte now. It's out on the bleeding edge of urban redevelopment, proposing chic condominiums on an industrial wasteland in rough-and-tumble East Oakland and stylish townhouses in bleak West Oakland.
"It takes some guts to go into places like that," said Steve Kalmbach, the division president who guided Pulte into the urban market at the start of the new millennium. "Not a lot of our competitors are doing that right now."
That's probably because East and West Oakland are two of the most dangerous parts of the Bay Area. And as mean as the streets are, entitlements can be tough as well. So why bother running the gantlet? Because the poorer and more industrialized parts of Oakland present the last great opportunity for reasonably priced housing within spitting distance of Bay Area job centers like San Francisco. Oakland is swathed by each of the Bay Area's major freeways and is dotted with BART stops. It also has jobs of its own. Each morning, workers flock to the federal building -- and offices for companies like Kaiser Permanente, SBC and Clorox -- only to flee the city at night.
Yet brand-new condominiums in Oakland start at under $300,000. That's competitive with prices for homes in bland suburbs that are hours inland. Kalmbach specifically mentions Dixon, 60 miles northeast, well past Vacaville; Brentwood, 45 miles east, past Antioch; and Tracy, 51 miles east. Not only are those communities as expensive as Oakland, development opportunities there are drying up. And there is a limit to how far Bay Area workers are willing to commute.
"We see the future of the market being infill," Kalmbach said.
Pulte classifies homebuyers on an 11-point scale, with 1 being a first-time buyer who has scrounged together just enough money to buy a starter home and get out of the rental market; and an 11 being a retiree looking for an active senior community. Oakland, Kalmbach said, is one of the only communities left where Pulte can build for 2a, 3s and 4s, which includes urban professionals looking for more vibrant living opportunities and unconcerned about the quality of local schools; and middle-class couples with no children, or young children, and fewer concerns about schools than a typical family.
Around 2000, when Kalmbach joined the company, it was delivering 300 housing units per year in the Bay Area, all of them suburban detached homes. This year, it expects to deliver about 950 units, with 400 of those coming from urban infill markets like Emeryville and San Jose, and the rest from more suburban markets like Hayward and Sunnyvale.
Traditional home development is "getting tougher and tougher," Kalmbach said. So companies that jump into markets like Oakland stand to reap the benefits a few years down the road.
Mike Ghielmetti, president of competing developer Signature Properties, said Pulte has done good work in its urban infill projects so far. Though smaller than Pulte, Signature also started out as a suburban, single-family home developer before branching into urban development. And like Pulte, it has gone into some of the rougher parts of Oakland, with Durant Square, a 270-unit project on the Oakland-San Leandro border, and the Estuary, on the outskirts of Fruitvale.
