San Francisco voters on Tuesday will decide whether officials should begin detailed reviews of a Miami developer’s $1 billion mixed-use plan for the city’s last undeveloped expanse — the Hunters Point Shipyard, a former Navy outpost on San Francisco Bay, a few miles north of the home field of the city’s National Football League franchise.
The plan would include at least 2 million and possibly up to 5 million square feet of space for life sciences employers and “green” technology businesses focused on solving environmental problems, from alternative energy sources to alternative transportation modes.
Exactly how much space biotechs could occupy within a redeveloped Hunters Point Shipyard would depend on the city’s ability to attract to the project the San Francisco 49ers football team.
The 49ers have long sought a new home field to use once their lease expires in 2013 at their current stadium, set this month to be renamed from Monster Park to its original Candlestick Park. In 2006, team owner John York said the 49ers had shifted their sights from San Francisco to the nearby city of Santa Clara, where their headquarters and training facility are located.
Santa Clara — which is considering $136 million in subsidies for the project — and the 49ers have set July 22 as a soft deadline for coming to terms on a new stadium, with residents set to vote on any agreement this November.
Conceptual plans by developer Lennar call for between 2 million and 3 million square feet of green-tech space at the Hunters Point site. That range assumes that San Francisco will sign the 49ers to an agreement for a new stadium on 25 acres of Lennar’s 770-acre project site.
But if San Francisco loses out to Santa Clara, the stadium site within the Lennar project would instead be transformed into “probably another  million or 2 [million]” additional square feet of R&D and other commercial space suitable for biotechs and other greentech businesses, Michael Cohen, director of San Francisco’s Office of Economic and Workforce Development, told BioRegion News last week.
That space would be in addition to “up to about 2 million square feet of research and development space oriented toward digital arts, green technology and biotechnology uses” already called for under a 17-page Conceptual Framework for Development adopted in May 2007 by the city Board of Supervisors.
While the market will ultimately decide how much of that space will be occupied by life sciences users, Cohen said, “we suspect the intersection of life sciences and clean and green technology are fast approaching.”
One key factor in including biotech businesses within the shipyard redevelopment plan, Cohen said in an interview, is the city’s desire to continue attracting life sciences employers once the nearby Mission Bay campus completes its eight-building development program.
To date, developer Alexandria Real Estate Equities has completed one Mission Bay building — the 158,000-square-foot 1700 Owens St. — and is constructing another two buildings. Also within Mission Bay, developer Shorenstein Properties is completing the 450,000-square-foot 409 and 499 Illinois St., and FibroGen of South San Francisco is expected later this year to move its headquarters and its R&D operations to 239,000 square feet it has agreed to lease at 409 Illinois.
“San Francisco is a land-constrained city, and the opportunity to offer that campus-style setting — albeit at greater density than you would see at many other locations with a San Francisco address — is a potent combination. This is a prime location for us to encourage economic development and growth,” Cohen said. “The shipyard is extremely well situated — literally halfway between downtown and [San Francisco International] airport.”
Up for Debate
The prospect of additional biotech space has not generated as much debate, however, as other aspects of Lennar’s redevelopment — from the support showered on the developer’s project by Mayor Gavin Newsom’s administration, to Lennar’s ability to complete the project given the housing market slump, to the amount of below-market “affordable” housing that should be built.
The public debate touched off by Lennar’s plan explains why voters have two referenda on the redevelopment project to decide this week.
Proposition G, favored by Lennar and the city government, would allow the city to begin detailed reviews of the redevelopment once Lennar submits formal site plans. In addition to the green-tech space and possible new football stadium, Lennar would redevelop the former Hunters Point Shipyard with between 8,500 and 10,000 housing units, about 700,000 square feet of retail space, over 300 acres of public parkland and open space, and possibly an arena or other public performance site.
“If Lennar was not able to meet our schedules of performance and not able to deliver, we’d say, ‘Thank you very much,’ and we’d get someone else to pick up the pieces and move forward.”
Lennar’s up-to-10,000 units include the 1,600 units within the 63-acre Phase 1, which has begun construction since that portion of the former shipyard has been cleaned. The Navy has spent $500 million on site remediation carried out by a consultant, including $82 millionsecured this year by US House of Representatives Speaker Nancy Pelosi (D-San Francisco) and US Sen. Diane Feinstein (D-Calif.).
“We need about 100 acres every three years. We’ve got the first parcel a couple of years ago. We expect to get B and about half of D in another year and a half, and that is almost 100 acres,” Cohen said. “And then we’ll continue on a pace that, as the Navy cleans it up, all the regulatory agencies sign off on the cleanup being adequate, and we can come in right behind them to get our development.”
San Francisco placed Prop G on the ballot to fulfill a legal requirement that voters approve any plan to use recreation and park land for non-park uses. Lennar’s project site includes some 70 acres now used as part of the parking lot for 49ers home games played at Candlestick.
“The measure actually does three things: It addresses the charter requirement. It repeals the 1997 measures, which contemplated among other things public financing for the stadium, which no one has expressed an appetite for at this point in time. And third, it establishes as a matter of policy that this project is headed in the right direction,” Cohen said.
Even if Prop G is approved, Lennar still has to win city approval for detailed site plans stemming from its conceptual project before it can advance the rest of its mixed-use plan.
Lennar is about a year away from completing a detailed study of its project and how environmental impacts would be mitigated.
However, some opponents of the redevelopment plan have formed the coalition “F is for Fairness,” which is urging residents to vote ‘No’ on Proposition G and instead approve a parallel ballot question, Proposition F, that would impose certain constraints on the plan. Coalition members range from labor and community groups, to six of the city’s 11 supervisors, including 6th District Supervisor Chris Daly, a longtime critic of Newsom.
Proposition F would require Lennar to abide by a series of stipulations in return for redeveloping the shipyard site. They include requirements that:
- Half the project’s housing units be affordable.
- The 256-unit Alice Griffith Housing Project, also called Double Rock and located halfway between Candlestick Park and the former shipyard, be rebuilt with no residents displaced.
- Preferences be given for Hunters Point Shipyard’s affordable units to residents previously displaced from a redevelopment area, residents who pay more than 50 percent of their income on housing, to people eligible for and currently residing in public housing, and San Francisco residents and unspecified others.
The 50 percent affordability standard is designed to prevent a recurrence of what happened a few years back. Lennar initially committed to a 30 percent affordable unit set-aside in 2003, then sought to backtrack two years later by asking city officials for approval to remove all below-market housing from Phase 1. The developer citeda delay by the Navy in turning over part of the project site, as well as the downturn in the housing market.
Late last month, however, a Lennar spokesman told BRN that the developer will market 30 percent of the first phase units as affordable, as originally planned. The first phase will also include 9,000 square feet of retail/commercial space, and 20 acres of new parks.
One key argument by shipyard redevelopment foes is whether Lennar will be able to deliver on its promised project.
Lennar is among residential developers hardest hit by the national downturn in the residential real estate market. The company finished the first quarter of 2008 with a net loss of $88.2 million, compared with net earnings of $68.6 million in the first three months of 2007. Lennar ended its previous fiscal year, which ended Nov. 30, 2007, with a $1.9 billion loss, compared with $593.9 million in profits the previous fiscal year. The company’s per-share stock price had tumbled to $17.22 as of May 29 from $46.59 a year ago and about $56 at its peak — though the price rebounded from a 52-week low of $11.98 per share.
Hoping to stem the losses and rebound, Lennar laid off almost half its workforce — 6,066 employees — last year, leaving 6,934 still with the company as of Jan. 11, according to the company’s 2007 annual report, available here.
The developer also slowed down the pace of its carrying out previously approved projects elsewhere in California. Last November, Lennar cited the market woes in halting sales of homes at its 1,380-unit, eight-enclave Central Park West project in Irvine, Calif., where the company and two joint venture partners had constructed some 500 homes set to finish this year. Also in Irvine is the former El Toro Marine Corps Air Station, where Lennar has held off earlier plans for a 1,347-acre “Great Park” within the 4,639-acre air station, and is now building a much smaller 27.5-acre “Preview Park” set for a July 12 grand opening.
Lennar has built none of the 3,625 homes approved for the El Toro site, let alone the 5,800 additional units it proposed two years ago in return for giving Irvine another 402 acres for the park. More recently, the developer has pursued plans for a mixed housing-commercial-educational project on 1,000 acres of the campus, to be redubbed a “Lifelong Learning District.”
And in Anaheim, Calif., Lennar halted construction of its A-Town Metro project — approved for 2,681 homes within 11 high-rise buildings — as well as its A-Town Stadium development, which it scaled back from 1,132 lofts in three towers to 878 lofts in two towers.
Despite these difficulties, Lennar says its balance sheet shows it is in a strong position to weather the downturn and bounce back with the housing market.
“At the end of the first quarter of 2008, we had approximately $3.7 billion of equity, more than $1 billion in cash on hand and zero outstanding borrowings on a $1.5 billion line of credit. Lennar has carefully managed our inventory. We have no significant debt maturities due in the near term,” the company said in a statement to BRN.
“Lennar has been in business since 1954 and has been through many significant up and down housing cycles. Our management team, led by CEO Stuart Miller who has been with the company for 26 years, has ample experience in successfully dealing with housing downturns,” the company’s statement added.
Cohen said he and San Francisco officials remain confident Lennar can carry out the entire redevelopment at Hunters Point Shipyard, based on its proceeding with infrastructure work for Phase 1 of the project and the strength of the city’s housing market.
“Home construction is expected to begin some time next year,” Lennar said in its statement.
In the San Francisco-Oakland-Fremont, Calif., region, the median price of a single-family house was $701,700, down 6.1 percent from $747,300 in the year-ago quarter. Yet the San Francisco region remains the nation’s second highest-priced market behind San Jose-Sunnyvale-Santa Clara, Calif., according to a national survey released last month by the National Association of Realtors.
Cohen also noted that Lennar has teamed up with other national development partners — one of which, Scala Real Estate Group, took a 30 percent equity interest in the shipyard redevelopment earlier this year. Another partner, publicly traded Kimco Realty, will team up with Lennar to develop the retail space. Another partner in the project is Mactec, the Atlanta-based engineering giant.
“If Lennar was not able to meet our schedules of performance and not able to deliver, we’d say, ‘Thank you very much,’ and we’d get someone else to pick up the pieces and move forward,” Cohen said.
Billion Dollar Poison Pill?
Lennar and Newsom’s administration have denounced Proposition F as a proverbial poison pill that would effectively kill the shipyard project.
In a memorandum submitted to Cohen’s office in March, Lennar consultant CBRE Consulting/Sedway Group sought to flesh out that argument. CBRE/Sedway — an entity of the commercial real estate brokerage giant CB Richard Ellis, which has marketed several of Lennar’s projects nationwide — said Proposition F would cost Lennar more than $1 billion if an additional 2,400 housing units were required to be affordable, on top of the 2,400 affordable units already planned.
In addition to $500 million Lennar would lose in property sales to homebuyers, the memo stated, the developer would also have to spend $300 million to $400 million to fill the gap between the cost of constructing the affordable units and the amount lenders would be willing to finance them. CBRE/Sedway estimated that each affordable unit would require a subsidy of $125,000.
“The way we can build the biggest park in San Francisco since Golden Gate Park was built, and deliver 3,000 below-market affordable housing units, and all the other things without using general fund money is by leveraging that private capital. That capital is paid back principally through the sale of the market-rate housing. If you cut that in half, you’re cutting the economic profit out of the project,” Cohen said.
California also allows San Francisco and other municipalities to impose additional tax liens on affordable-housing developers to pay for infrastructure for their projects through bonds issued under the Mello-Roos Community Facilities Act of 1982. Taxes are based on use of the property, square footage of the structure, and lot size, though not on property value. In addition, Lennar would have to give free to San Francisco the portion of its project where the affordable housing would rise. The city, in return, can access for the project state tax credits that supplement federal tax credits of 4 percent and 9 percent.
“The overall impact from this initiative is a $1.1 [billion] to $1.2 billion loss of project revenues from the latest developer pro forma — the very same revenues necessary to fund infrastructure and community improvements,” the report concluded. “No private sector developer will make the necessary investment in the project if the project is so overwhelmingly infeasible.”
Limiting the number of affordable units to 2,400, as allowed under Prop G, would result in a profitable project, CBRE/Sedway concluded — but with a 17 percent to 18 percent profit margin for Lennar, which the report called a “minimally acceptable return.”
The losses projected by Lennar assume the developer would pursue a project with “slightly over” 9,500 total housing units. Of the affordable 2,400 units, 68 percent or 1,632 units would be set aside for households earning 80 percent of the San Francisco’s area median income, or $75,450 for a family of four; the remaining 768 units would go to households making 50 percent of AMI, or $47,150. Both income figures are based on a regional AMI of $94,300 for a household that size, according to US Department of Housing and Urban Development figures used by the city Office of Housing, and available here.
Backers of Proposition F, however, say the stipulations offer the best prospect of balancing Lennar’s interests with those of the city and especially neighborhood residents.
Bloggers supporting the Proposition F effort have circulated local news reports playing up Lennar’s record-high spending in its campaign to pass Prop G and defeat Prop F, including contributions to consultants who previously held City Hall jobs.
According to San Francisco’s database of Major Donor and Independent Expenditure Committee Campaign Statements, available here, Lennar Homes of California Inc. spent nearly $3 million on its campaigns in 2008 through May 28. The funds paid for a variety of expenses, from legal and public relations services to TV advertisements.
Prop F supporters also contend that Prop G would gentrify San Francisco’s working-class Bayview neighborhood for the benefit of Lennar and city officials — at the expense, they argue, of its longtime residents, most of them black. At $18,080, the neighborhood’s per-capita income is just over half the $34,946 per-capita income for all of San Francisco.
Cohen said San Francisco officials would “absolutely” hold Lennar to the 35-percent affordable-housing share the developer promised to build under an agreement it announced May 20 with the San Francisco Labor Council, the city’s local AFL-CIO organization; the low-income housing advocacy group Association of Community Organizations for Reform Now, or ACORN; and the San Francisco Organizing Project, a federation of 40 congregations and schools throughout 14 San Francisco neighborhoods, representing 40,000 city residents.
That percentage includes 32 percent of the homes to be built by Lennar, plus another 3 percent to be funded by Lennar setting aside $27 million over the next nine years in a new affordable housing fund.
That agreement goes beyond the 25 percent affordable housing set-aside agreed to by Lennar and the city for the entire project — as well as the 30 percent affordable housing proportion Lennar agreed to as a condition of winning approval to build the project’s first phase, before reversing itself in 2005.
Critics of Hunters Point Shipyard redevelopment, however, questioned whether the affordable housing and other promises contained in the seven-page Core Community Benefits Agreement would ever be realized since the agreement had not been formalized at the time of the announcement.
“Lennar certainly got what they want out of the smoke-filled room — headlines lauding their ‘historic’ levels of ‘affordability’ and political support from some big time political players. But what did the people of San Francisco and Bayview Hunters Point receive?” Daly asked on his blog, available here.
What the people of San Francisco and Bayview Hunters Point receive is an opportunity to live in better-quality housing and work in higher-paying jobs within the redeveloped neighborhood promised by Lennar and supported by the city government, two community leaders argued in a May 30 opinion column in the San Francisco Chronicle.
“Now, there is an opportunity for real economic development and opportunity to bring our neighborhood back up to standards we once enjoyed,” ACORN member Jackie Phillips, a 57-year neighborhood resident, and San Francisco Organizing Project Co-president Eleanor Williams wrote. “We hope the dreams and the vision for the economic revitalization of our community doesn't get lost in the politics.”