The debacle surrounding the City’s sale of Transbay Parcel F continues to grow as Crescent Heights, which had committed to paying $165 million for the parcel which is zoned for development up to 750-feet in height, failed to make a required $10 million deposit and has now backed out of the deal.
While the purchase agreement for the parcel had committed Crescent Heights to offering 35 percent of any residential units built on the site at below market rates, over the past two weeks Crescent had begun to inquire as to the feasibility of building the required affordable units off-site, according to the Chronicle. And when the City confirmed that the affordable units could be built off-site, but would still need to be built within the Transbay District, “Crescent Heights indicated they were unable to meet that requirement” and walked away.
The Transbay Joint Powers Authority was planning to auction the parcel with a minimum bid of $160 million in September, but was forced to cancel the auction at the eleventh hour, as we first reported the day before the live bidding was to begin.
Funds from the sale of Parcel F have already been earmarked to finance the first phase of the adjacent $2.1 billion (and growing) Transbay Transit Center project.
What did they “walk away” from? How much skin did they actually have in the game?
The “walked away” from the right to purchase – even if they didn’t have money down yet, they had the right to ink a deal (which they now do not have).
All I sought was info. related to deposits or other nonrefundable security/collateral that Crescent was required to put up to “win” the “right to purchase” in the first place? Does anyone know the answer to that question?
Just listened to Fetkke’s 2015/2016 real estate analysis and it was all the US and global economies. The stats presented were not that great.
Apparently Brazil and Australia are in recessions and Russia is having its problems to. Not to mention China.
Could this be Crescent looking at numbers and deciding it was not a wise investment at this time? And using the BMR build location as an excuse to walk away?
Why would they need an excuse if they apparently could just walk away anyhow?
I dunno. Looks better than just walking away for no expressed reason.
Seems more likely the off-site BMR pencils
Why do we want BMR on-site anyway? Really dumb policy
Yup, as soon as I saw the headline, I came on here to say “that sound you hear is the sound of the bubble popping.” An exaggeration, of course; it hasn’t been a bubble, and I think it’s more deflating slowly than popping, but I do think people are looking at the economic cycle, the length of this recovery, the state of the world economy, etc., and deciding that maybe paying top-dollar for every parcel in San Francisco isn’t the most sensible thing to do right now.
or maybe 35% + $165m land residual simply can’t work, any time, anywhere.
Exactly.
There’s no bubble.
The in-district requirement for affordable housing is completely ridiculous, given the very small size of the district, and this outcome does not surprise me. There are areas of the city (some very close by, and with excellent transit access) with much lower land values where the affordable housing dollars would go much further. Sad.
I think we have tipped past the top of the building cycle and developers are beginning to realize projects beginning the entitlement process now may come to completion in a much less attractive market. Because of this, they are going to be a lot choosier about what projects they actually do move forward with.
Combine that with the new BOS majority’s demands for much higher levels of subsidized units, demands which make projects much less likely to pencil out, and you get even more readons to put the breaks on a lot of planned construction.
So Parcel F may not have any buyers and niether may the Van Ness/Market site. What will the city do then about its own projects these sales are intended to pay for?
AGREED! When the market cools the city is going to realize it’s shooting itself in the foot with this deal and the 30 Van Ness failure.
A city sane enough to realize it shot itself in the foot would not be the kind of city to have those problems in the first place.
Without debating the merits of the in-district requirement, keep in mind that every other project within the district, with a negotiated exception for 181 Fremont, is moving forward under the terms of the Area Plan.
“Moving forward” does not necessarily mean shovels in the ground to completion. Recall 10th /Market in 2008 and final realization of NEMA.
Or 535 Mission–they dug the foundation, then filled it in and let it sit for years.
But my comment above specified projects just beginning the entitlement process. These other TransBay projects are well along in it. And they don’t have issues of Prop. M office limitations to deal with (the reason Parcel F was conceived as residential and not office as it should be at this site).
On the contrary, Parcel F was supposed to be mixed office and residential. (And of course, the ever-bewildering decision to build the Park Tower parcel at Beale and Howard as office when it was zoned for residential.)
totally agree.
Given this may be the start of a down cycle and given the difficulty they had in getting this bid, how does this impact the Transit Center? If the money was to be used for the first phase and this thing gets delayed from moving forward for 2/3 years. Could the whole Transit Center project collapse or be re-thought and significantly modified?
Perhaps another unintended consequence of the BMR boondoogle?
Here’s a thought: Given that whatever is built on Parcel F will shade the open space atop the Transit Center, I suspect if the parcel is not sold and 750′ plans approved now, the height limit there may be drastically reduced making the site a lot less valuable whenever it is eventually sold.
yeah lets torpedo the development for 45 min of shade a day. Smart.
45 min? Whether you think shadows are important to consider or not – at least be honest about the duration – give yourself some respect. It would be South of the park, directly adjacent to the park – it will cast shadows on the park nearly all day long.
oh FFS, it’s a *new* park being created *because of* the surrounding development. The park doesn’t magically appear and get paid for by unicorn tears; the Transbay Terminal, rooftop park and all, are paid for in large part by development fees paid from the surrounding parcels.
It would be the height of lunacy (i.e., San Francisco reasoning at its finest) to turn right around and say “Oh Noes, that new building will cast shadows on our beloved [artificial, not even yet existing] park – the building must be shorter!”
I was shocked when I first learned of Parcel F and its zoning. Obviously, the thinking was to maximize revenue. However, this is one instance where the shadowing impact is very significant and very negative to the entire idea of a park on the roof. I’m not sure it balances out. Either do something else such as retail or find some other source of funding.
Of course that’s crazy, agreed. My point is STK’s 45 min. comment is ridiculous – non factual – undermines that ability to have serious discussions.
But as the district has filled up, it gets more difficult for each subsequent project to meet the criteria. I agree that it is probably a convenient excuse for the walkaway, but it’s also bad public policy.
exactly bad public policy, developers need to step up and not step away…
The parcel could easily pencil with 35 percent on-site affordable housing, although perhaps not with a $165 million land cost basis. And there’s the real rub and policy conundrum.
the BMR requirement is too high and the requirement to build within the area is ridiculous. all these policies are doing is raising the cost of housing and pushing more people out of the city.
It is exactly their purpose to push gentrifiers out of the city. The city only want homeless and low income people. Anyone who is not homeless nor low income should move out of the city.
Let’s not be toooooo hysterical here.
Stop looking at the penciling of numbers, and spreadsheets, and realize the human impact of developments.
We need housing, if you have not looked at the freeways the underpasses, and the homeless encampments. The number of homeless families, and the need to stop displacing and start placing people in housing.
Housing is a human right, not glossy towers and lounge facilities with uber/lyft rides to and from everything.
To make a city work the developments have to pay to play, they need to get a backbone and buy in philanthropically to the issue of development for the people not just the profits and tax breaks.
time to get real SF, and learn to help those below, at the street level.
Not sure if you are aware of this, but developers are not operating charities. Penciling out numbers is the bottom line.
We should require all developers to become non-profit. They can hire people and pay the workers, but they are not allowed to make a profit in San Francisco.
Tells you what a fantasy land SF has become, I can’t tell if you’re serious or not. There are people in SF who honestly believe this kind of drivel.
In the same way, I’d like a 100% tax on homeowners’ capital gains. Why should housing profit the owner?
With all the facts you just stated, with SF having a homeless as well as a housing crisis, and SF being the most far left place in the country and world, doesn’t that tell you that leftist policies don’t work?
“With all the facts you just stated, with SF having a homeless as well as a housing crisis, and SF consuming the most Fernet Branca in the world, doesn’t that tell you that Fernet Branca shouldn’t be cosnumed?”
Come on everyone, this is a fun game, its the correlation/causation game!
“With all the facts you just stated, with SF having a homeless as well as a housing crisis, and SF [INSERT], doesn’t that tell you that [INSERT IS BAD]?”
Sam, you are my hero. Sorry, skyscraperluvr, you been bested by logical fluency.
that doesn’t hold up. fernet is correlation and leftists policies are causation. they directly effect the homeless population in the city. things like not enforcing camping bans or not having camping bans, etc. make it a welcoming city for a transient population.
With the facts he stated- that SF has a horrible homeless population and that SF has a housing crisis- he wants to implement more leftist policies- the leftist policies that got SF into the homeless problem and housing crisis that he wants to remedy with more leftist policies. If leftist policies worked so well, there wouldn’t be a housing or homeless crisis. But in fact, SF has the worst homelessness and the worst housing crisis in the country. Should I simplify it even more for you?
Reagan (post-leftist days) is the wellspring of our homeless problems.
Ummmmm, I think you’re actually serious, so I’ll give a serious answer.
Half of the cause of our housing crisis is our fabulous economy. Do the leftists get the credit for that too?
I love when people move here from BFE and complain about the liberal politics. Why don’t you move to Houston?
…and even taking all you said as true – so? Crescent was willing to build *35%* of the residential units as BMR. They just didn’t want to have to do it *here*. What part of that jibes with your assertions that it’s the developer at fault here?
Except the purchase agreement to which Crescent agreed required the BMR units to be built *here* (with here being within the Transbay District). We’ll put the odds of Crescent not having fully understood the terms of their agreement and Area Plan at 0.5 percent.
0.5 percent is generous. Having said that, they also understood that they could walk away whenever they wanted so they did this as a negotiation tactic that did not pan out. I applaud them for trying.
The requirement that BMR be onsite or in-district is dumb and hurtful policy and there is always hope people in City Hall or the “housing advocates” will finally realize this. But as it has been pointed out elsewhere on this thread, on this site, on the wider internet and countless academic studies ‘social progressive’ seem afflicted with a basic inability to understand economics or utility.
Contractors don’t work for free. Some of them even expect to turn a profit.
it is only by looking at “number, and spreadsheets” that we can actually maximize our public welfare dollars to best address the needed housing. developers already pay to play. the question is how much?
set the costs too high and watch development slow and existing housing and evictions and ellis acts go up. same with current costs in a down market.
we do need to keep in mind the cost of construction and to work at finding ways to lessen it.
philanthropy is important, but it is a choice, not a right. not sure you understand the definition of “getting real”.
“housing is a human right” LOL! … no, it’s not my right to have someone else pay to house me.
I agree with you, but given the way we have set up the economy, the land tenure system, the entitlement system, etc. what is really going on is someone else is effectively preventing me from housing myself.
(NIMBYism, onerous planning permitting processes, every more specific zoning and building codes).
There are reasons for all of these factors, but they do have impacts. Since the United States has moved increasingly to a 90-10 economy, where are the 90% going to house themselves? We need favelas and informal settlements, no matter how distasteful our elites find them.
There is tons of affordable housing in Stockton, Modesto and Atlanta. What people are saying is that you don’t have a right to live wherever you want.
Think of it another way. An ‘economic right’ – be it to food, to lodging or to an XBox 360 is guaranteed by the government. The government only has so much money. The market on the other hand is much better suited at making sure that it makes these things available to the greatest number at an optimal price. And so there will always be locales with reasonable cost. Like Atlanta. It’s the beauty of competition.
We are currently in a low oil price point, but even given that, it costs a ton of money to commute 90 miles each way for your job in the central Bay Area.
In addition, given how taxation is structured in California, lower middle end tract housing doesn’t pay for the services and infrastructure in Modesto anyway.
So your “solution” doesn’t work very well over the long run.
you do realize that you live in America right? the purpose of a for-profit business is to make profit. developers set prices at what the market will bear, not based on their own wants and desires.
I think maybe you need to get real. the homeless camps under the freeways that are constantly removed and swept away, keep coming back more and bigger. Many homeless CHOOSE this way of living, not all, but quite frankly, I think many do.
They come here to SF because of all the free handouts and our essential non solutions to helping the truly needy.
And for the weather! Nice n warm in the winter compared to say Chitown or NYC.
“Affordable” requirements are making SF a city of the wealthy and the impoverished. The devlopers don’t subsidize the affordable component, the market rate buyers do. Their units cost more to cover the subsidy to the affordable units which raises the average cost of market rate housing in the city. So what you end up with is those wealthy enough to afford even inflated market rate properties and the lower middle and poor people dependent on city largesse in subsidized housing. Pretty soon gates will go up in the hallways of these buildings (except the ones with “poor doors” that won’t need them) to protect the rich from the others–internal gated communities if you will. It’s an ugly scenario we are creating.
it’s a human right for people to live for free wherever they want? like in the most expesnive city in the nation? well then, I want a condo in midtown manhattan please. thanks taxpayers!
Then don’t complain when the people who work the lovely delis or keep the hallways clean in your pristine condos decide they are tired of two hour commutes and set up camps near your yuppie playgrounds. Free market at work!
Yep, it takes 2 hours to travel on BART from South SF or San Mateo to The City. Nice, non-relevant response to seriously’s point.
Are you really claiming people are commuting from San Mateo from the massive stock of affordable housing on the Peninsula? Because the prices and vacancy rates are so much more tenant-friendly! Really?
ROFLOL.
yeah because that’s happening… where? and please! I wish I had a pristine condo. I’m one of the people who will have to probably move soon bc I can’t afford to live here bc idiots expect free housing and try and block new construction. i’m living in reality with real solutions (build more housing please). this whole magical rainbow let’s build housing for free stuff can’t cut it in a city as dense and expensive as SF. it’s a nice thought, but it’s not a realistic solution.
Tragic, I am sure. But your own situation proves my point: SF is an unbalanced place.
I don’t even have a solution. I thin k it is probably unsolvable.
I am just responding to the statements from many here that just reek of blithe privilege.
Most of the people working in these jobs are college students or new immigrants, both groups that already commonly have roommates (sometimes 3 or 4 or 5). This idea that everyone needs their own place or will end up homeless is absurd.
BTW, the service job workers and the huge immigration over the coming years is why the rental real estate market will boom. As homeownership declines. At a 40 or so year low now and that won’t turn around till the millennial bubble hits mid-30s. 7 plus years from now.
True, but given the obscene prices, we are not talking only about college student jobs.
But yes, people do make do. Through roommates and the like.
Food is even more of a human right than housing, and yet how many starving people do we have in this nation and around the world? Just thinking something should be so does not pay for it, nor does merely having the money for something magically make it so. Housing costs money and it takes effort to build. Money does not fall from Heaven and buildings do not construct themselves. So, as mundane as you may think it is, we MUST look at numbers and spreadsheets and think about logistics and land acquisition, etc. We already impose taxes and significant development fees to help subsidize affordable housing, in addition to requiring affordable housing set asides, but SF still has perhaps the worst housing crisis in the nation.
The problem is not “glossy towers.” It is a lack of real desire for affordable housing to be built, even among many of the residents who clamor the loudest for it.
Just see what happened to Supervisor Weiner’s proposal to bypass the conditional use review part of the planning process for 100% affordable housing projects (such projects would still be subject to zoning, permitting, as well as discretionary review requests). One would think this proposed legistation would have 100% support from the community, Aaron, and yet many of the city residents who echo statements similar to yours about housing being a “human right” suddenly decided it is not really a right for others to have housing NEAR THEM. Some of the same people who routinely decrying the lack of affordable housing spoke out against this proposal because it might actually mean an affordable housing project in THEIR neighborhood.
So, yes, it is time for SF to “get real,” and that includes the current residents who love to pay lip service to the need for affordable housing but who do not really want any affordable housing (or any housing period) built near them.
Yes! My original point that many people who burble about the magic of “the market (pbin) are eager to use non-market methods to protect their own privileges.
I reread the article. Seems the reason is the requirement to build 35% BMR with the Transbay District. Aaron Goodman, why is it so important to house homeless people and low income families in the prime location? Is this requirement reasonable?
It’s a forward-thinking (if not completely effective) consideration–an integrative strategy. If we house all low-income in the same area, we will create concentrated class homogeneity, which has broad economic and social consequences in the long-term. While problematic, at least the city is trying to learn from historical civic mistakes in planning.
Yet housing low income earners in high income neighborhoods does not benefit the low income earners, when all of the nearby services cater to higher incomes. The low incomers will need to travel out of their neighborhoods for everyday things like groceries. Or do you think a Grocery Outlet is going to open up in the ground floor of Salesforce Tower?
Not entirely true. They have access to cleaner streets, better schools, more shops (including more affordable groceries). You are assuming the low income neighborhoods have better access to affordable food and that is not even a good assumption.
national public radio did a news report on this over the summer and claimed that research showed it did not benefit the parents in these situations – BUT it does benefit THEIR CHILDREN. low income children in middle and high income environments are more aspirational and class mobile than most of the US population. the npr segment on this claimed that it outperformed many of our programs geared to grouped services.
This is generally true, but I’d argue it goes too far when you concentrate it in such a small geography (transbay), due mostly to the incredible expense of devoting very high value land, for which the highest and best use is very expensive to build towers, to affordable housing. Either you have to deeply deeply subsidize tower construction, or you need to underbuild with podium/wood frame construction. If you just move the construction 1/2 mile you can find locations where that kind of land value/construction type is much more feasible. Perfect mixing of everyone would be wonderful, but locations adjacent to downtown jobs and retail and transit (like Western SOMA for instance). In this case I think pursuit of the perfect is defeating the good.
I’m guessing it’s just a negotiating tactic. The city is playing a weak hand and Crescent Heights knows it.
The developer owns the site next to those two low rise buildings and my guess is that they were unable to buy those two buildings. If they were able to control all that land they could build a mega project like NEMA.
Or maybe they just want to focus on their plans near Market & Van Ness. I believe Crescent is building one or more towers there.
If the reason Crescent walked was because of the BMR requirement, then good for Crescent. The BMR owners would only get ostracized by the market-rate owners–that’s the reality and a fact of life. The city can’t force these two very different worlds to MIX.
oh duh, you obviously don’t know that SF has been supporting both on site and off site affordable housing development for years, and no one has been ostracized yet.
It was state law (that created the TJPA, gave the City land from the former Embarcadero Fwy and called for the Redevelopment Plan) that mandated the 35% BMR requirement within the Redevelopment Area. It was definitively not the City’s doing.
While this doesn’t technically apply to every parcel, it applies to the whole district, and so the City can’t permit buildings that would cause that balance to go below 35%.
The City has the public parcels at its disposal to keep that balance in check, but there’s only so much 100% affordable housing you can squeeze on those parcels. Hence the conundrum that Parcel F faces, as well as any other parcel in the area that was not previously thought would be developed for large amounts of housing, instead of hotel or office. The only way to change this is by act of the state legislature.
Bottom line Crescent knew the location for the BMR units when they signed. That was part of the deal.
its a nice way to walk away as the economy stall for a number of years and projects like this no longer make sense.
Its what is maybe happening with the Market/Van ness parcel.
If indeed there is a prolonged down-cycle (let’s just hope China does not go into recession as that will make it worse) the Van Ness apartment/condo towers will not get built anytime soon. And maybe never get built. Plans changes, political power structure changes.
Folks don’t want to believe it but maybe SF has reached its glass ceiling in terms of rel estate prices and the kind of return developers can expect.
How will this impact the two towers at Mission/Fremont. Planned and approved, I think<. Will their construction be delayed. As someone mentioned above holes were dug for towers that did not get to actual building until years later.
The developer could already get a feeling on how the planning process will be with Peskin on the board. I think we will have a lot less development with Peskin in office.
What’s the impact from less development? Will it slow down or accelerate gentrification?
Bayview could get a boost from less development in other districts though. More gentrifiers will move to Bayview because of this.
IMO Peskin is coming on board at the start of the down-cycle. So I don’t think he will have the impact he could have had in boom times – demanding concessions that he can’t get now.
Hi-tech is not recession proof. Folks forget the dot-com episode. VC funding dropped significantly then and rents in SF dropped after a lag. VC funding is falling off now. Will rents drop after a lag this time?
This is way beyond Peskin. The booming Australian mining towns are now turning into ghost towns with the big drop off in demand from China. China has stopped building this “new” cities that sit basically empty.
The sky is falling? No, as an investor there is always money to be made. The best time is in the troughs as in 2008. There will be less development in the next half decade or more but not because of Peskin. IMO.
I read that there are massive, almost new Caterpillar mining trucks being dumped on the market for $10 grand. They are well over $150 new.
Luckily, SF is NOT Peoria, but….
Had not read that (maybe related to Australia, Russia and Brazil falling into recession as demand from China for mineral products drops off sharply.
One needs to use common sense. The huge real estate price increase in the Bay Area over the last 5 years. And rents. It can’t be sustained.
Nor, for that matter the 96% increase in the S&P over the last 5 years fueled by “funny money”. The 4 trillion in QE. Got that from Fetkke but it is spot on..
Hi-tech is not recession proof. These development back-offs we are seeing in SF may be the forerunner.
Not the end of the world but a back that could last a number of years.
Dave, you should definitely be shorting everything right now. Think of the money you’ll make!!
“VC funding is falling off now” Link please.
Early stage VC funding is slowing down.
Do a search on Smart Money VC Early Stage Activity.
Anon, not a market guy. That is/has become a Ponzi scheme IMO. I have my 401K stock stuff which I have to have – 401Ks can’t be invested in real estate. Gee, wonder why. Look back at their creation and see who wanted this.
Fine to invest in stocks but why restrict the investment option to that?
Shorting everything? No. There are great investment opportunities out there – as always.
my 401K has REITs and also stocks for developers. that is RE.
why wouldoen want to invest heavily in RE througha 401K anyway as the S&P has always outperformed RE over any significant period of time
401ks can absolutely invest in real estate, through REITs. There are REITs specific to regions too.
I’m internally glad they walked away as I’d rather see this site developed for a tall office tower of the striking architectural variety (I think it’s easier to get great architecture and height with office rather than residential).
To highlight a few points made I agree with:
1) The developer had to know all the deets about affordable housing here – they were willing to plunk $165M into the land alone and build a huge project, and that is just not a detail that gets overlooked. If it is a detail that was overlooked, someone lost their job for sure.
2) I don’t proforma out these projects for a living, but I can imagine that there’s a very fine line between both what the city wants wants for the land and for affordable housing, and what the developers are actually able to do. I don’t doubt that something needs to be tapered down, either price for the land, or affordability requirement. And so city must choose what is more important to it (and both answers will be “wrong” for many citizens): transit fix and to get Transbay done, or to build more affordable units.
3) That we are potentially on the brink of a cool down, or are in fact in one already, and developers are a little more tepid going into these deals (especially with these requirements and at these bases) than before, as they should be. Perfect excuse to cite complications with BMR – plays into developer strategy to let the public and the city know that it only makes these deals more difficult and not necessarily worth it; potentially forces us to rethink.
Ironically city/mayor on brink of signing into a new law a larger BMR requirement, ironically. Their reasoning: strike while the iron is hot! I think they were a few years too late and even so, are asking too much.
It’s stupid that we force buyers of new homes in SF to be the only, and small group of people that subsidize the working class and poor. What if there were just a flat tax baked in, or they somehow worked these subsidies into their budget as opposed to relying on new development and then penalizing new development?
No one is going to buy this site for office space with cash up front (that the TJPA desperately needs to build the Terminal, and required of the developer) when Prop M is going to stop any office space from being developed here for years; projects way ahead of Parcel F in the cue will take up all the allowable in the cap. That is among the reasons there were no bona fide office bidders on this site for the “auction”.
Good point. One of many such posted above.
The TJPA is in trouble. Especially if we head into recession. The “park” totally shadowed by the towers around it has already been VE’d down. Will it be eventually eliminated?
Where does the Fremont/Mission project stand in terms of construction and its funding of the TJPA?
I think its not a given that the HSR project comes up the Peninsula to SF. Opposition by moneyed folk in the Silicon Valley who don’t want their pristine PA or Hillsborough disturbed.
Yes, voters approved it but the courts could throw that out and a new initiative could supersede it, the original.
Not a fan of HSR but if it has to be, coming up the East Bay from San Jose to Oakland makes common sense. Something lacking in too many folk.
Market has peaked. Either plateau or down curve now. several land deals bear this out; see Related’s insider deal with city owned land on van ness.
City is trying to overreach at a time that’s too late.
Transbay always was in trouble, beginning with Hines renegoitiation over $100 MIL down. Just a matter of time till TJPA and Mayor must acknowledge this publicly.
Could the City simply develop the property on their own? They could secure a construction loan, using the value of the parcel and also the future rents as collateral. They could hire a construction firm to construct the building. Once construction is complete, they could lease or sell the building, or the City could continue to own the building, directing the profits after financing and operating costs towards the construction of the Transbay Terminal.
Admittedly very complicated than a simple sale to a private developer, but if the City has policy goals that they want to achieve – like 35% BMR – they always have the ability to pursue them on their own and cut out the private sector ownership of the parcel.