January 9, 2013

The Winning Bid And Plan To Develop Folsom From Fremont To Beale

Transbay Block 6/7 Site

A Request for Proposals ("RFP") to design and develop a high-density, mixed-income residential project on Blocks 6/7 in the Transbay Redevelopment Project Area, along Folsom from Fremont to Beale, was issued in 2011 and four proposals were received.

The winning proposal by Golub Real Estate Corporation includes a 300-foot tower on the corner of Folsom and Fremont, 40-foot townhomes along the length of Clementina Alley, 50 to 85-foot mid-rise buildings along Beal and Folsom and ground floor retail as well.

In total, 545 residential units will rise on the site: 348 market-rate units, 61 below market rate, and 136 subsidized affordable units which will be developed by Mercy Housing California. The average unit size will be 715 square feet. And in terms of parking, 136 spaces in total, a ratio of .25 spaces per unit, less than half the ratio of any other proposal.

Golub will be paying $30,000,000 for the market-rate site with a projected return on cost of around 6% per year for the project, a little below the 13% annual rate of return City is offering the Warriors for the rehabilitation of Piers 30-32.

Final approval of the terms and transfer of title to Golub is on the Agenda for the Transbay Citizens Advisory Committee this week.

Four Teams Compete For 450 Units On Folsom At Fremont And Beale [SocketSite]
Are Parking Spots A Disincentive To Walk Or Take Public Transport? [SocketSite]
All The Devilish Details For The Development Of Piers 30-32 [SocketSite]

First Published: January 9, 2013 12:00 PM

Comments from "Plugged In" Readers

That's a lot of BMR/Subsidized housing for one project. It will ultimately limit the values of the market-rate portion.

Posted by: Ivan at January 9, 2013 12:40 PM

Very interesting that developers now seem to be the ones pushing for less and less parking. A dramatic change over just five years ago. Hopefully folks will allow this market dynamic to play out naturally.

Posted by: anon at January 9, 2013 12:40 PM

The editor seems to have a real anti-warriors slant. Why bring up the Warrior on this thread, for someone who calls out when something isn't an apple it seems strange to bring up a very different deal. Lakers fan???

Posted by: sparky*b at January 9, 2013 12:45 PM

That's not enough parking. I think they will regret it in the near future. Buyers want a parking space or the ability to buy one.

Posted by: futurist at January 9, 2013 12:51 PM

What's with all of the subsidized housing??? What SF really needs is market-rate housing. Not an even bigger gap between high and low-income housing.

Posted by: MichaelG at January 9, 2013 1:52 PM

When this area is built out in a few years with 10-20,000 new residents, will there be any sense of neighborhood? Is there any smaller scale center that is in the works? Along the lines of Mission Bay's planned 4th Street?

Would seem it risks being a blank and sterile area in which to live otherwise. (notwithstanding the Bay, Transbay Park and such).

Posted by: Invented at January 9, 2013 1:57 PM

Invented, from what I understand, the plan is to turn that stretch of Folsom from Essex down to the waterfront as the "High Street" of Rincon Hill - shops, cafes, restaurants, etc.

Posted by: Fishchum at January 9, 2013 2:02 PM

Ivan and MichaelG: Yes, there is a bit of below market rate housing here, and I for one applaud it being undertaken. The 'free market' can take care of producing market rate housing, and to the extent it hasn't produced enough over the space of the last ten to twelve years, well that's what economists call "market failure". Yes, it happens and it's part and parcel of capitalism.

The land underlying a lot of the Transbay Redevelopment Project Area was publically owned in one way or another before the redevelopment project was proposed, and the various government agencies that provided that land required BMR housing be built in exchange for it's transfer. So fair is fair.

I don't see at all how building more BMR housing is going to increase "the gap between high and low-income housing".

BMR housing is not the same thing as "low-income housing". Even if it was, the place to put "low-income housing" is in the immediate vicinity of mass transit, which this area is.

Posted by: Brahma (incensed renter) at January 9, 2013 2:39 PM

The reason the 'free market' hasn't produced enough market-rate housing is because of all of the growth restrictions the city places on developers. Since supply has never been able to meet the strong demand in the city, the 'free market' will cause any new units to naturally be more expensive since demand will never be met. The best way to take care of this problem is to allow denser taller developments.

Posted by: MichaelG at January 9, 2013 3:34 PM

Market failure does happen but in SF its not the market causing a shortage of housing. SF's market failure is due to the excessive restrictions regulations that reduce the supply of available units and drive up those prices of those units. When units are sold below market that expense will be rolled over into the market rate housing making them more expensive. The developer will not simply eat the cost and develop at a loss.

Thus those purchasing at market in the building are subsidizing it for those who purchase below market. This drives out the middle class who might otherwise have enough money for a unit, but not enough for a unit and the money to subsidize the a BMR unit for another person. Thus if you make too much to qualify for a BMR but enough to subsidize someone else's housing you will be priced out, widening the gap. This is more true the higher the proportion of BMR units in the building and the greater the discount from market rate for those units.

Posted by: GL at January 9, 2013 5:03 PM

GL, the developer will sell the market rate products at precisely the price the market will bear. Strictly speaking, the buyers of these market rate units are not directly subsidizing the BMR units.

If it is the developer's responsibility to produce the Below Market units, then they will not undertake the entire development unless they have sufficient profit in the market rate units to make the development feasible. Similarly, they may well be no connection at all with the non-profit developer portion of the develpment, which undoubtedly has numerous sources of subsidy. Moreover, given that they knew the requirements for affordable housing production from the start, their land purchase price should have reflected these requirements. So it SHOULD be the City (as seller of the land) who "loses" in this deal.

However, you are right that in aggregate, BMR requirements probably boost the price of housing, because they make it more difficult for developers to make a return on housing, and therefore suppress a certain amount of development, and assuming the laws of supply and demand hold, will increase the price of housing. They should also hold down the land value of high density residential parcels.

Posted by: curmudgeon at January 9, 2013 5:43 PM

To MichaelG: What "all of the growth restrictions the city places on developers"? To GL: What "excessive restrictions regulations that reduce the supply of available units"?

Can either of you point to a specific policy or set of policies?

I acknowledge that people besides yourselves have been saying this forever, but I don't quite buy it (yet) because the people saying this have never pointed to a set of policies that have been put in place reasonably before, during or after housing started skyrocketing in price past affordability and therefore could be pointed to as restricting supply and conceivably causing, even in part, the rise in price.

Instead, what I've seen is that supply-siders acknowledge that something is causing prices to skyrocket and supply to not quite match up with demand and then, post facto, decide that the problem is with regulation. Because they ASSUME that the market is perfect, and so what's left over to blame is regulation.

But they never can tell us what policy they deem "restrictive" or "excessive" that was put in place recently. The best argument I've read is they say that it's easier to build lots of units in Texas or Arizona. They can point to policies in Texas that make it easy to develop, or some other locality that's not even close to comparable in density to San Francisco, and then call the corresponding policies that have been on the books in S.F. since forever "restrictive" or "excessive".

Keep in mind the context of what we're talking about is residential, here. The anti-Manhattanization battles of the late seventies and early eighties were almost exclusively about commercial. If someone wants to call some of the ballot measures that limited development in that era "restrictive" or "excessive", okay, but that would be a legitimate gripe about office building, (or later chronologically, lofts in SOMA), not residential, strictly speaking.

If the relevant policies in San Francisco haven't changed recently, then they can't be called "restrictions", now can they? Or are we deeming any rule that developers don't like to deal with "restrictions"? Because that's what it seems is going on.

Posted by: Brahma (incensed renter) at January 9, 2013 6:45 PM

The simpler point to consider is this: if city regulation and/or policies are the cause of supply being "restricted", then we'd expect project approvals to decrease and housing starts to go down after those policies were/are put into place, no?

But that isn't the case. The City is approving more development, and has been for the last two to four years, than can be successfully financed and started.

Posted by: Brahma (incensed renter) at January 9, 2013 7:11 PM

Here is an article about the inclusionary change:

http://www.sfgate.com/realestate/article/SAN-FRANCISCO-City-poised-to-require-more-2492281.php

a higher percentage on a lower number of units. That is the important part. Making you have 20% inclusionary on a 5 unit building.

After that some of the new neighborhood plans created an even higher percentage.

The historic preservation commission is new and adds to the time and difficulty of getting a project through.

The amount of glass near bird areas is new.

The pre-application meeting with neighbors and the mailer to those neighbors is newish.

The new SOMA plan just designated not housing south of Harrison or something.

I also think that although it is old the shadow/sunshine ordinance is excessive as new parks are built.

Beisdes the petition for 8 Washington, after getting all the way to BOS approval.

I could go on and on.

Posted by: sparky**b at January 9, 2013 7:42 PM

"The simpler point to consider is this: if city regulation and/or policies are the cause of supply being "restricted", then we'd expect project approvals to decrease and housing starts to go down after those policies were/are put into place, no?

But that isn't the case. The City is approving more development, and has been for the last two to four years, than can be successfully financed and started.

"

City regulation and policies have been around a lot longer than two years, though.

I think it's entirely possible that the city is approving more development than before (I'm no expert) but that's just not a high bar.

It's sort of like the shale oil business, if you've read about that. It's economical if and only if oil (rent) prices become and stay extremely high.

The financing issue is a symptom-- more restrictions = higher costs/lower returns = harder to get financing (because the project isn't profitable/is too risky as designed, despite the astronomical market rents).

If those projects were guaranteed moneymakers, they would presumably have a much easier time getting funding.

Posted by: Alai at January 9, 2013 8:00 PM

The idea that because there's economic activity going on there must not be too many regulations is absurd. That's like saying that clearly the airline industry in the US wasn't regulated prior to 1978 because people were still flying places and airline companies existed.

Posted by: anon at January 10, 2013 8:24 AM

Brahma, you may find Edward Glaeser's Triumph of the City interesting. He devotes a chapter of the book to the Bay Area, and how we could lose our economic edge based on the expense of housing. The essence of it is that over the last several decades we (regionally) have not been building near enough units relative to the strength of our economy (duh), but unlike this message board it is thick with metrics that you may find interesting. I recall that Marin and San Mateo counties have an absurdly low # of people per acre, relative to similarly situated counties in or near other major cities.

My point is that it is easy to ask "what exact policy is this exact neighborhood is restricting supply and pushing up prices?" But realizing that every little fiefdom in SF and surrounding counties has similar restrictions, and on the whole they make developing here a PITA, and expensive.

Simply put, our housing stock has not grown enough over the last several decades to service the needs of our economy. When this becomes a major problem I am not sure. Maybe it is already.

Posted by: rabbits at January 10, 2013 9:26 AM

Posted by: SocketSite at January 10, 2013 10:03 AM

The idea that because there's economic activity going on there must not be too many regulations is absurd.
But we're not talking about the simple existence of economic activity, we're talking about its level and whether or not that level of activity is adequate.

The idea that because a certain type of economic activity isn't reaching some arbitrary level the cause must be government regulation is equally absurd. Can't there be some other cause? Even conceivably?

I posted this before, but even so…from the Planning Dept.'s 2011 Housing Inventory report, pg 02 (pg. 10 of the .pdf file):

• In 2011, 1,625 new condominiums were recorded — a 121% increase over 2010. Some 89% of those units were in buildings with 20 units or more.
Emphasis mine.

Doesn't sound to me like development is being "restricted" or that regulations are "excessive". From the same document, pg. 05 (pg. 13 of the .pdf file):

• In 2011, the Department of Building Inspection (DBI) authorized 1,998 units for construction according to building permit data. That number represents 61% over permits authorized in 2009 (752).
Again, emphasis added. I'm just not seeing the causal connection.

Posted by: Brahma (incensed renter) at January 10, 2013 10:32 AM

Brahma - you should be looking at permits or starts compared to other similar regions or political entities with fewer regulations, not over different timespans in the same region.

If you only look at 2009 and 2010 within SF, of course there are going to be more in the year with better overall economic conditions, with the regulatory scheme not particularly mattering unless there are major changes year-to-year.

I've never argued that regulation within SF has recently gotten worse - on the contrary, it's recently gotten less cumbersome. That doesn't mean that the current scheme is ideal OR better than other similar regions.

Posted by: anon at January 10, 2013 11:36 AM

Just because bid has won that doesn't mean a thing. the coty has armed NIMBYS to an alarming level. On the residential side of things, Planning has gotten much, much worse over the past several years. The inclusionary "let the nutjob neighbor pay a paltry fee to couch his ridiculous objections in the tactical language we've armed him with" is a sick joke. Historic this. Light and air that. Discretionary review based upon nothing more than wanting to stall. It has become a shame. Do your jobs. Stop placating squeaky wheels, already. If it isn't historic, and there's no light and air issue, exclude the objecting party from participating, by ruling. It is a very simple fix. But they don't care. Their job is to be bureaucrats, and SF's Planning policy is badly broken.

Posted by: Rick Szcezin at January 10, 2013 1:07 PM

Example?
Our garage addition project:
Sept'11 - Feb'12 - Historical preservation
Feb'12 - May'12 - Planning
Over the summer 2012: various DPW permits + tree removal permit
Oct'12 - still going - DBI review.

No end in sight. Every application/review/permit issue costs tons of money...

Posted by: grove_cole at January 10, 2013 1:29 PM

the lack of parking is really a shame. this will attract more and more people buying these types of condos are a 2nd or 3rd property for their jaunts to the city

Posted by: spencer at January 10, 2013 4:58 PM

Posted by: SocketSite at November 1, 2013 9:01 AM

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