SAN FRANCISCO - San Francisco Mayor Gavin Newsom this week signed a resolution endorsing the largest development project in the city's modern history.
The 770-acre, $2 billion project is a military base closure, housing development, green-tech incubator, public park creator, and economic revitalization plan for a distressed neighborhood, all rolled into one. And if that's not enough, it also includes a bid to keep the San Francisco 49ers in the city by the bay by contributing $100 million toward the construction of a new football stadium that could compete with the facility proposed by rival suitor Santa Clara, a few dozen miles to the south.
The redevelopment of the Hunters Point Shipyard and Candlestick Point is expected to tap more than $1.4 billion in bond financing over the course of build-out, which will likely take 10 to 15 years, officials said. That figure doesn't include $40 million in variable-rate debt already issued by the San Francisco Redevelopment Agency in 2005 to jump-start grading and infrastructure work on a 75-acre parcel the U.S. Navy has already turned over to the city.
Compared to other base-closure projects in cities like neighboring Alameda across the bay and Denver, the Hunters Point project, "from a dollar perspective, [is] likely to be among the biggest because it's both a very large project and it's in a high-cost real estate market," said Michael Cohen, director of San Francisco's Office of Economic Development.
The ambitious development plan, approved by San Francisco voters in June, calls for the creation of 10,500 new units of housing, 700,000 square feet of retail space, and 2.15 million square feet of space for an office and industrial park devoted to green businesses.
With the bulk of the cash bankrolling the project expected to come from land-secured financing, the plan depends on the local housing market being able to support an additional 10,000 or more units.
Although San Francisco is consistently ranked among the top real estate markets in the country, that's a lot of new housing to absorb, particularly in one of the city's most economically depressed neighborhoods, Bayview-Hunters Point.
The median home price in the San Francisco Bay Area fell by 45% in the year ending in November, according to statistics from research firm MDA DataQuick of San Diego. However, according to real estate investment and research firm Marcus & Millichap, most of those declines have taken place in lower-priced areas, while areas with housing prices between $700,000 and $1 million, such as San Francisco, saw prices fall just 2%.
About $823 million of the initial project financing is anticipated to come from tax increment finance bonds that would be issued by the San Francisco Redevelopment Agency, according to officials and the draft financing plan approved this week.
Another $597 million would come from Mello-Roos bonds that could be issued either by the Redevelopment Agency, the city, or another public agency, such as the Association of Bay Area Governments.
Mello-Roos bonds, a California financing vehicle, are typically backed by revenue from a voter-approved tax imposed on properties within a so-called community facilities district. As with tax increment financing, the expectation is that improvements funded with the bonds will prompt an increase in property values large enough to support the debt.
Miami-based developer Lennar Corp. has agreed to contribute $618 million of its own capital to the project, according to the draft financing plan. Lennar will offer to pay $100 million toward the cost of building a new football stadium. Once environmental cleanup of the current stadium site is complete in 2009, construction on a new facility could begin and be complete by 2013. If the 49ers choose not to accept the offer, the current site would be used to expand the planned green technology campus, Cohen said.
The sale of fully entitled residential parcels is expected to generate $758 million, while sales of commercial and retail land should generate about $291 million, according to the draft financing plan.
More than 3,300 of the housing units slated for inclusion in the development are expected to be built as affordable homes, targeting residents at a range of income levels, from those earning less than 50% of the area median income to households earning between 120% and 160% of the median income.
The city expects the project to receive final approvals and entitlements by late 2009, clearing the way for the first bond issues for the second phase of the project to take place sometime in 2010.
The 75-acre first phase, already underway, is anticipated to include about 1,600 units of housing, including from 218 to 250 units of affordable housing, several miles of streets and sidewalks and 26 acres of open space. Infrastructure and site work for that phase should be completed by late 2009, and homes would be built over the following two years, said Thor Kaslofsky, project manager for Hunters Point with the San Francisco Redevelopment Agency.
Overall, about 32% of the housing units to be created through the project are slated to be affordable or workforce-housing units. The development plan calls for the retail, commercial, and office space to be ringed by 300 acres of public parks. The project - which generated much local controversy from area residents who questioned how much it would benefit the economically depressed surrounding neighborhood - is expected to create 2,500 construction jobs and 7,500 permanent jobs.
"The reason we do projects like this," said Michael Cohen of the Office of Economic Development, "is we can create public benefits on an extraordinary scale without having to use any general fund money."
