News Clipping Arrested development Tough times have curtailed plans for a half-dozen ambitious building projects in San Francisco Dan Levy []
San Francisco Chronicle []
October 13, 2002

Remember the heady days in San Francisco, when plans for glamorous new developments seemed to appear with the frequency of dot-com IPOs?

Many of those same projects are now limping along, hobbled by lawsuits, regulatory hurdles and a historically weak commercial real estate market.

The downtown Bloomingdale’s development, the cruise ship terminal at Piers 30-32, the recreation center at Piers 27-31 and two waterfront hotels are some of the roughly $2 billion in proposed new construction that has been delayed or severely curtailed since the market cooled down.

For San Francisco, the cost of the delay can be measured in the deferred economic benefit of thousands of new construction and retail jobs and millions of dollars in annual tax revenue, transit improvements and developer fees.

“But it’s not just that,” said Lynn Sedway, a San Francisco real estate consultant who has worked for the city on numerous big projects. “There’s a huge multiplier effect. If that money comes into the economy, and those people are paid, they go out and spend money.

“I worry about this city, because we really fell off a cliff,” Sedway said. “It was so bad, there were no skid marks.”

It’s an environment far different from the days when projects were fast- tracked by Mayor Willie Brown’s administration, which aggressively tried to capitalize on the roaring, tech-driven economy.

Back then, the vision of a San Francisco dotted with sparkling new shopping, sporting and tourist attractions was part of the Gold Rush mentality that was sweeping the Bay Area.

Now, the commercial market has collapsed, corporate travel has been slashed and it’s anybody’s guess when business will come back - or when ground will be broken on the ambitious construction plans.

“We’re looking at 2004 before the economy comes back in San Francisco,” said Brian Lancaster, managing director of real estate research for Wachovia Securities, a financial services company. “Offices, the cruise ship terminal and hotels are going to have a difficult time getting financing until then.”

At a recent real estate industry luncheon in the city, the mayor, San Francisco Chamber of Commerce officials and a leading biotech executive wondered aloud how and when the commercial development slump would end.

“All of them were scratching their head for signs of recovery,” said broker Dan Mihalovich, principal at San Francisco’s Mihalovich Partners. “The chamber had no response about identifying an industry that is growing, and the fact that these projects are stalled is just more of the same sad story.”

To be fair, real estate is a long-term business, and developers factor in boom and bust cycles. Office buildings, hotels and retail centers will eventually prosper again, the thinking goes, especially in a magnetic city such as this one. And during the lull, bureaucratic fine-tuning can be done by regulatory agencies.

For the moment, though, there is little if any activity on the premium land where shiny new shopping centers, sports complexes and hotels are supposed to be built.

  • The $500 million Bloomingdale’s development, planned for a huge block of land stretching from the old Emporium store on Market street to small shops on Mission Street, is a series of abandoned and blighted buildings. The project was held up for more than a year by a preservation group’s lawsuit.
  • The $300 million cruise ship terminal site at Piers 30-32 is a vast asphalt slab, except for the Red’s Java Hut hot dog joint, which does a jaunty lunch business along the Embarcadero. Delancey Street Foundation will sell Christmas trees from the 13-acre lot in December.
  • Piers 27-31, envisioned as a vibrant $200 million sports complex near Fisherman’s Wharf, is an underutilized shed and pier. At 831,000 square feet, the Mills Corp. proposal includes a YMCA, offices, retail space and restaurants.
  • A proposed 200-room Muni hotel at Mission and Steuart streets, which for years was used for bus layovers, is still an empty lot across from the Ferry Building. The developer, Joie de Vivre Hospitality, says the project is on hold until the market improves. A planned 260-room hotel at Broadway and the Embarcadero, already scaled down from 450 rooms, is also stuck in place.
  • A center for nonprofit arts groups at Pier 70 has been canceled by the port. A $33 million environmental learning center at Pier 45’s Shed A faces a huge fund-raising challenge.

When proposed, many of those projects were counting on a rich revenue stream from office and retail rents to subsidize less profitable elements of the developments.

But with a record 15 million square feet of vacant office space in the city and prime downtown rents down to $30 per square foot from the all-time high of $80 per square foot - not to mention a drop of 25 to 30 percent in retail rents - the projects are being scrutinized anew by city officials.

“We’re taking advantage of the slowdown to reflect on our plans,” said Byron Rhett, director of developments at the Port of San Francisco, the lead city agency on many of the big projects.

With the cruise terminal, for example, the port has asked developer Lend Lease Inc. to substitute housing for a hotel that was originally proposed to be built on the city-side parcel, known as a seawall lot, across the Embarcadero from Piers 30-32.

The Board of Supervisors has also gotten into the act, requesting that Lend Lease add more environmental protections for waste treatment and the dumping of ballast water.

The office component for the Piers 27-31 sports complex may also be re- evaluated, Rhett said, although developer Mills Corp. is hoping that the office market will rebound by the time the project opens.

For his part, Supervisor Aaron Peskin, whose district includes the northern waterfront, called the idea of putting offices on the piers goofy.

“Downtown is moving south, so no matter how you dress up office space on the waterfront, it’s going to be Class B space,” Peskin said. “I have serious reservations about developers who have exclusive control over public land and who are not performing.”

All of this may be of concern to Brown, but his spokesman contended that many other projects besides the big-ticket commercial ones are on track, even if they don’t grab headlines.

“There’s no denying that a combination of events has resulted in a slowdown for retail and tourism, but the number of new housing developments alone are in the dozens,” said P.J. Johnston, Brown’s press secretary. “Glide (Methodist Church) is developing a major multiuse housing project and then there’s the Asian Art Museum and the Moscone Center expansion. A lot has happened that bodes well for the city.”

But in these plodding, worrisome times, it’s impossible not to overlook the promising vision of yesterday’s boom.

“Things will always get built in spurts, but all those buildings take huge amounts of money, and they have to pace themselves in the marketplace,” said San Francisco architect Jeffrey Heller. “When you study the great cathedrals of Europe, do you know why they took hundreds of years to build? Because it took a long time to find the money. That’s real estate.”

©2002 San Francisco Chronicle

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