Sonoma State University-owned Marina Crossing Apartments sat mostly empty for years

Three years after Sonoma State University bought a Petaluma apartment complex to house university employees, meager demand for the units has forced university officials to open the development to the general public and raised new questions about the vision behind the $40 million investment.

The university’s 2018 decision to buy the 90-unit Marina Crossing Apartments with public money came as home prices continued to rise in the wake of the Great Recession, and as the Rohnert Park campus, 10 miles to the north, was struggling to attract faculty.

But the move, once billed as a game-changer for workforce housing regionally, has so far failed to get much buy-in from faculty and staff members, records show.

From the time the complex opened in June 2019, it took nearly two years before half of its units were rented, according to occupancy data obtained through a public records request. And even then, fewer than half of the occupied apartments at Marina Crossing housed SSU faculty or staff, records show, reflecting a sustained lack of employee interest that has surprised university officials.

“We all hoped we would have more people there by now,” said Neil Markley, associate vice president of administration and finance. “I think there are some factors (that explain the lack of demand). The other thing we didn’t want to do was in any way jeopardize our financial situation.”

The five-story, white and blue apartment complex sits on the north end of the Petaluma Marina, and serves as a landmark on the city’s southern gateway for northbound Highway 101 motorists.

But, for at least the first two years since it was purchased in late 2018, the building sat largely vacant, its dozens of unrented rooms looming over a Sonoma County landscape riven by an escalating housing crisis.

The university records obtained by the Argus-Courier show fewer than 15% of the building’s units were rented during any month in 2019. During its first full year of operation, in 2020, the average occupancy rate was 25%, leaving dozens of units empty, according to the records.

Although numbers have risen steadily, most of the occupancy gains have come in the wake of the university’s decision to open units to the general public, which began October 2020, according to the records.

For Lauren Morimoto, chair of the SSU Academic Senate, the lack of success wasn’t a total surprise, even if she wasn’t fully comfortable second-guessing the decision she called “an example of good intentions poorly executed.”

When SSU President Judy Sakaki in 2018 convened the university’s housing working group, comprised of faculty, staff and students, construction of the Marina Crossing Apartments by Petaluma-based Basin Street Properties was already underway.

JLL, the global real estate investment consultant SSU hired to guide the university’s push toward greater employee housing options, connected school officials with Basin Street Properties, a leading south county commercial real estate developer. And with an extensive, JLL-managed survey showing the need for 118 units for university employees, the 90-unit apartment building seemed like a good fit, officials said in public meetings and interviews at the time

Sakaki at the time cited Sonoma County’s housing crisis, exacerbated by the deadly 2017 wildfires, which destroyed more than 5,300 Sonoma County homes, including hers, as a key reason for the investment. Further, during a Nov. 14, 2018, California State University Board of Trustees meeting, Sakaki said 20% of SSU employee candidates declined job offers due to housing concerns.

Trustees praised SSU leadership and approved the project, including the university’s plan to finance the $42 million purchase in part through $5.5 million in reserve spending. The rest would come via bonded debt issued by the Cal State system.

A California State University spokesperson said university-provided faculty housing is fairly common, but she could not provide a system-wide list showing participating campuses.

Still, in 2018, there were questions about the investment, including from one unnamed SSU lecturer who told the Press Democrat in 2018 that many employees would balk at the price point of the proposed faculty housing.

Market-based prices at the complex range from $1,960 to $3,095, with a slight discount for SSU employees. For Morimoto, the way SSU marketed its investment didn’t match the needs of faculty and staff.

“SSU’s own language showed its lack of clarity on who this housing would actually serve,” she said. “(Administrators) pointed to SSU providing affordable housing for its staff by having lower than market rates. When the apartments were close to opening, I saw the prices and I would have struggled to afford it.”

SSU employs about 1,400 people throughout its 269-acre campus.

The campus-wide survey suggested the university needed nearly 300 units for faculty and staff - 118 rental units and 174 units for sale, according to the survey.

But as of August 2021, the Marina Crossing Apartments had never housed more than 25 SSU employees, a level it hit in July 2021. Two years earlier, in June 2019, just four university employees had moved into Marina Crossing during the development’s opening month. It would take six more months before the complex housed more than eight employees, records show.

Along with a lack of demand from faculty and staff, officials say a steep drop in housing revenue was at least partly responsible for university’s January 2021 decision to begin renting apartments to the general public.

The university earned about $26 million in rental income annually in 2018 and 2019, according to the records it released to Argus-Courier. But when the COVID-19 pandemic led school leaders to largely clear out the campus in 2020, that revenue dropped to $4.4 million.

A contract with Sonoma County for hospital overflow space, quarantine housing and temporary shelter for vulnerable homeless residents amid the pandemic generated about $900,000 for the university.

At the Marina Crossing Apartments, operating expenses have so far outpaced rental revenues, although the university made progress on that front in 2020.

And as the pandemic dragged into the fall of 2020, officials said it was financially prudent for the university to scuttle original plans for the Marina Crossing Apartments and open those units to the public.

“When we opened it up to the general public, we didn’t necessarily see a light at the end of the tunnel for COVID to end,” Markley said. “We didn’t know how long that was going to last. We definitely lost a significant amount of rental income when the students weren’t here.”

The move to open the faculty housing to the general public became a matter of policy in January 2021, Markley said, and by April of 2021, the number of apartments rented out to the general public surpassed the number rented to Sonoma State University faculty and staff. By August 2021, when the Marina Crossing Apartments reached an 89% occupancy rate, 55 of the 80 occupied dwellings were rented out to the general public.

Although the deal was structured in such a way as to allow SSU to rent units to the general public – or through agreement with other colleges and universities – Markley said the university’s goal of addressing workforce housing was key to gaining approval for the purchase from California State University Trustees.

“If I was going to pitch an apartment project that was 100% market rate, they probably wouldn’t approve it. It’s not core to our mission,” Markley said.

The Petaluma City Council approved Basin Street Properties’ plans to develop the Marina Crossing Apartments in late 2017. But the 5-2 vote came before any requirements for affordable housing, and well before SSU swooped in to purchase the property during construction.

At the time, Sonoma County was still reeling from devastating October 2017 wildfires.

By late 2020, the county was still more than 5,400 units short of meeting demand, and projections showed the gap would grow to 7,400 in the next three years, according to a 2020 housing market gap analysis prepared for Sonoma County by the Austin, Texas, housing firm Focus Strategies.

Petaluma Mayor Teresa Barrett said the Marina Crossing Apartments, at the time, seemed like an opportunity to bring needed units online.

But throughout its first year of existence, monthly occupancy failed to top 15%, records show.

Gains came at a slow drip, with occupancy topping 25% after 14 months of operation, and less than 40% of apartments rented at the start of 2021, a year that featured a much steadier climb as the general public began to snap up the units.

With that occupancy rate growth largely attributable to easing restrictions against renting to the general public, Mike Healy, the senior incumbent on the Petaluma City Council, said the university’s decision to buy the apartments could be second-guessed.

“In retrospect, it probably wasn’t a great idea for them to buy it,” Healy said. “I guess they could sell it if they wanted to.”

Markley said the university recently reconvened its housing working group to mull the Marina Crossing Apartments, among other initiatives.

But he said it still may be too early to gauge the success of the university’s investment.

The apartments opened in June 2019, which Markley said came a little late for the 2020-21 faculty recruiting cycle. And the coronavirus pandemic, which has shuttered large swaths of civic life much of the past two years, has likely also impacted demand, he said.

“I think the real proof will be after we come out of COVID, and we start to see a more normalized period,” Markley said.

Tyler Silvy is editor of the Petaluma Argus-Courier. Reach him at tyler.silvy@arguscourier.com, 707-776-8458, or @tylersilvy on Twitter.