Feds poised to lift building moratorium in Natomas

A jack rabbit pauses in an undeveloped lot in the Natomas area of Sacramento last year. Development could restart as early as June with the lifting of an federal flood moratorium in Natomas.
A jack rabbit pauses in an undeveloped lot in the Natomas area of Sacramento last year. Development could restart as early as June with the lifting of an federal flood moratorium in Natomas. Sacramento Bee file

Housing and commercial development could resume in Sacramento’s Natomas region as soon as June, more than six years after flood risks prompted the federal government to shut down construction.

The Federal Emergency Management Agency is poised to lift the building restrictions it imposed in December 2008. Those limits resulted from the discovery that water could seep through the levees protecting Natomas, a large basin just north of downtown that’s ringed by the Sacramento and American rivers and two creeks.

The FEMA limits require any new construction to be raised above likely flood depths. In many areas of Natomas, that means elevating new structures more than 20 feet, a costly requirement that resulted in a de facto building moratorium over the past six years.

“We’re very hopeful the resumption of building will bring prosperity back to the city,” said Scot Mende, a principal planner with the city of Sacramento.

Prior to the recession, Natomas was Sacramento’s fastest-growing region, supporting thousands of construction jobs and generating hundreds of new homes every year. The building restrictions, together with the economic downturn, essentially killed one of the city’s major economic engines.

Mende said there are about 5,000 housing units poised for construction once the development limits are lifted. These units received their city development permits before the FEMA regulations were imposed and have been dormant ever since.

There is sure to be demand for new homes in Natomas, but no one is sure how strong that demand will be.

“Builders will just have to put their toes in the water and see what happens,” said David Ragland, a senior project manager in Roseville for GBD Communities, which owns 630 existing lots in a subdivision called Natomas Meadows.

There is also one important caveat for residents and homebuyers: Despite the end of development restrictions, flood insurance will remain a requirement in Natomas.

FEMA regulations allow development restrictions to be lifted once a levee project is at least half finished and the remaining work is approved by Congress. But flood insurance remains a federal requirement until all levee construction is complete.

“The Natomas Basin will remain a high risk flood zone, while the ongoing work on the levees may reduce but not eliminate flood risks,” FEMA spokeswoman Olivia Humilde said via email.

The Sacramento Area Flood Control Agency completed 18 miles of levee upgrades in 2012 at a cost of about $410 million, funded by local taxpayers and state bonds. This work consisted of massively widening the existing levees, and raising them or adding seepage barriers deep within at some locations.

Another 24 miles of levees still need upgrading. This work, estimated to cost $760 million, is the responsibility of the U.S. Army Corps of Engineers.

President Barack Obama signed legislation in June authorizing the Corps to complete the remaining work, but Congress must still allocate the money to pay for it. The Corps has part of the money it needs to finish design and planning, and expects to break ground on the first phase in 2017.

“We’re doing everything we can to get there as soon as possible,” Corps spokesman Chris Gray-Garcia said via email.

It seems apparent that lifting of the moratorium will not cause a building boom like the super-heated Natomas market in the early 2000s, when thousands of houses shot up practically overnight and were snapped up by hungry buyers interested in living near downtown.

Developers and builders say they have been working with city officials for six months readying for the day when construction can start. But several said they will take a cautious approach as they try to figure out what the new home-buying market in the area looks like.

One developer estimated there may be construction quickly in as many as 15 Natomas sub-communities.

“The question on everybody’s mind is, how much demand is going to exist?” said Ragland, of GBD Communities, which is planning to sell its Natomas homesites to building companies. “We know there is some pent-up demand. We may see a significant buying spree right away, the question is how deep is it, and what will the home values be?”

Developers say they are not sure exactly what the initial housing price points will be. Ragland estimated that houses could sell anywhere from $250,000 to $450,000, depending on house and lot size. Several developers say they are tweaking their home designs with small updates to meet modern standards, such as adding more energy efficiency.

Jeff Pemstein is local division president for Homes by Towne, a Milwaukee-based builder that owns 124 lots in a subdivision called Sky Park, near Sleep Train Arena. He said he is pleased to finally have the chance to make a return on the millions of dollars his company spent in the mid-2000s cleaning and preparing the site for development. The company’s lots are ready for construction.

“We invested millions putting in sewers and streets, and then the moratorium hit,” he said. But, he added, his company is likely to take it slowly.

“Our company takes a conservative view,” he said. “I would be happy to be building and selling two a month.”

He predicts a similar go-slow approach among Natomas developers in general. “I don’t think you are going to see a huge rush. I think you will see a measured approached.”

Technically speaking, the process of reopening Natomas to development involves FEMA publishing new flood-risk maps of the region. On Dec. 28, the agency closed a public comment period on the process without a single objection or appeal, signaling a smooth path toward completing the process.

Humilde said FEMA expects to publish the new maps in mid-March. Typically, a six-month compliance period follows before development can resume. But FEMA and local governments have been working closely to shrink that to 90 days, which means development could resume as soon as mid-June.

Mende said the city plans a phased approach to reopening development in Natomas.

In the first phase, construction could begin on government buildings, fire-damaged private structures, and new residential and commercial buildings that have site work and utilities completed and parcel maps approved prior to December 2008, the date the restrictions took effect.

In the housing category, Mende said there are about 5,000 units that could be eligible to start building in June. But he does not expect that many to move forward right away.

“It wouldn’t be a complete surprise if we got a total of 1,000 new units built within a year,” Mende said. “But it may start out maybe tiptoeing a little bit at first. For commercial, there are millions of square feet that could potentially go forward.”

The city’s second phase of approvals would open the way for construction of projects that don’t have previously completed site work or approved parcel maps. These would be allowed to move forward once Congress approves funding for levee construction. Mende estimated there may be another 4,000 housing units in this category.

Finally, the third phase would permit construction outside of existing developed areas in the Natomas basin.

The lifting of building restrictions in North Natomas also could make it easier for the Sacramento Kings to find partners to redevelop the land now occupied by Sleep Train Arena, which the basketball team will leave in 2016 for a new arena under construction downtown. The team has promised to redevelop the Sleep Train arena site and has done some analysis of potential re-use possibilities for the site.

“The end of the moratorium now positions us to accelerate ongoing efforts to engage the city, community, and other partners in determining the best redevelopment strategy for the site and for Natomas overall,” Kings President Chris Granger said.

The team offered no timeline for redevelopment of the site.

Call The Bee’s Matt Weiser at (916) 321-1264. Follow him on Twitter @matt_weiser.

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