By Tim Redmond
The Warriors arena – that giant spaceship on the Bay – is getting most if the attention in the fight over the future of San Francisco’s waterfront. But there’s another project in the works, involving another local sports team. And it’s every bit as massive – and, by in some ways, even more of a giveaway of public assets.
The San Francisco Giants want to develop a 16-acre site known as Seawall Lot 337, across Mission Creek from AT&T Park, into a new center for offices and high-end housing that could include several towers 200 feet tall and one that could reach 400 feet.
The total office, residential, and retail space – 3.5 million square feet – would create another mini downtown on the edge of Mission Bay, putting increased stress on transit in a part of the city that’s already feeling the pressures of intensive development.
And while critics say the city is offering the Warriors a sweetheart deal, this one makes the basketball arena look like a public boon.
Among other thing, the city wants to guarantee the Giants a 20 percent return on the team’s investment in new infrastructure. In exchange for putting up $120 million for the build-out, the team will receive cash and land valued at $210 million.
And while other developments using public land have offered to build more than 20 percent affordable housing, the Giants will get away with the legal minimum of 15 percent.
It makes the notion of shifting the Warriors arena to that site all the more attractive.
I have been trying for weeks to get someone at the Port to talk to me about this project. Nobody will respond to my queries. But Port documents show that the deal started back in 2007, when the Port – always looking for ways to make money off its real estate – went looking for someone to build something on the seawall lot, which is now used primarily for parking.
The Giants, along with Cordish Company and Farrallon Investments, submitted a bid and won the development rights.
Since then, Port and team officials have been negotiating a deal, which was finalized in the spring of 2013.
The terms sheets show there are several different configurations of buildings and three options for the housing-office mix, but all of them would profoundly change the southern skyline and the look and feel of the area.
All of the designs include a fair amount of open space, including a new park and bikeways. They look grand in the architectural drawings, as all these things do.
But on the ground, and in the financial details, it’s not so pretty.
For starters, the two investment and development partners (the folks who have actually done this sort of project before) have dropped out. The Port insists that the Giants still have the financial capability and skills do develop what will certainly be a multibillion-dollar project.
Among the most complicated parts of the job: The site has none of the infrastructure that you need for intensive residential and commercial development. So the first step – and it won’t be cheap – is to do the water, sewer, electrical, and road work. The price tag: $120 million.
Now, in most cases where public works need to be upgraded, the city takes on the task – that’s why we have a Department of Public Works. Under the traditional model, public agencies charge taxes on developers that pay for. This time, though, that work is being handed privately – by the Giants.
The team, of course, should be paying for the work that’s needed to develop the site. But it’s odd that the city is in effect hiring a private developer to do public works – and then paying a premium for the service.
Under the terms of the deal, San Francisco will use a combination of sources including rent credits and bond money (that is, borrowed money) to repay the Giants not only for the work that’s been done, but for a 20 percent guaranteed profit – on public-works infrastructure to serve a private development.
There’s no cap on how much the city would have to pay – so if the costs of the build-out exceed $120 million, the city’s tab for the 20 percent return will also go up.
Some of that won’t be cash – the first $20 million would be covered by 75-year no-rent leases on two development parcels. That means the Giants get those two parcels essentially free.
Part of the reimbursement will come from the sale of other parcels of Port land, but the documents show that $140 million of it would come from Infrastructure Finance Bonds – in essence, bonds backed by the expected increase in property taxes once the land is built out.
“The Developer is reimbursed by Port for its entitlement and infrastructure costs from a combination of payments received in connection with the execution of a parcel lease and public financing. In return, Developer receives a market-based return on its investment in entitlement and infrastructure for the Site and a share in ongoing economic benefits from developed parcels,” a 2013 memo from Port Director Monique Moyer to the Port Commission states.
“Fair Market Value” is, apparently, a minimum 20 percent return on investment. The Warriors’ deal only calls for a 13 percent return – which many advocates say is still too rich.
The Giants also get 20 percent of the rent on the parcel from any tenants that yield more than $4.5 million a year.
The developer’s affordable housing requirement is at 15 percent – the minimum allowed for any market-rate housing development in the city. Typically deals involving giant projects on public land yield much more housing: The Mission Bay deal in 1999 called for 28 percent, and the Hunters Point Shipyard between 27 and 40 percent.
The other issue is the tax revenue. Since this is Port land, and will be financed with Infrastructure Development Bonds, most of the new tax money that comes in from the development will go to the Port and the bond interest, and not to the city’s General Fund.
And of course, the new residents and workers will need city services. The Giants propose to build new parks and open space, but won’t be paying for police, fire, schools – or Muni. And the answer the Port has to the cost of transportation is that the area is already “well served” by transit.
Well, that may be true today (although many would argue otherwise) – but the T-Third Muni line is already overcrowded far beyond capacity on the 81 days that the Giants play at home, and adding a full-scale new neighborhood with limited parking will require a considerable investment in new Muni equipment and operators.
And there has never been a major development in San Francisco that fully paid the cost of the Muni demand it generated.
The Giants are funding the lawsuit and will pour money into the campaign against the waterfront height limit measure. The Warriors aren’t fighting Prop. B, in part because they know they’ll have to sell a waterfront arena to the voters anyway. The Giants, it appears, aren’t as interested in subjecting this deal to a citywide vote.
That, alone, is a powerful message.
