Parkmerced Project Might Not Pencil Out, Forecaster Says

Categories: Housing, Politics
brokenhouse.jpg
Hey, wait a second: how'd I get upside-down?
Parkmerced, the 1940s suburban tract near San Francisco State University that's slated to double in density, might not produce enough investment return to attract financial backing, according to a city-commissioned report obtained by The Bay Citizen.

Developers might earn less than 18 percent return on their investment in part because of the $360 million payments they must make to spruce up the neighborhood and subsidize new rent-controlled units.

That's slightly below the 20 percent return needed to attract capital to a typical housing project, according to a report drafted by CBRE Consulting.


At first glance, Fortress Investment Group, which took over the project last fall, would seem to be suffering through the middle stages of San Francisco developer grief. Rents in this city are preposterously high, despite the fact we're as beaten down by the recession as most other U.S. cities. Developers are lured by the fantastic income potential here. They buy into what would seem, in almost any other city in America, a relatively simple proposition to build some apartments and make big money.

This stage is called "denial."

Next come delays in the form of multiple hearings with neighborhood activists, meetings with politicians bent on extracting concessions, and multiple redesigns intended to ameliorate local concerns.

Parkmerced has moved at an unusual steady pace through this phase because of concessions it's offered the city in return for development rights. Developers have pledged to maintain thousands of new apartments under leases equivalent to their current rent-controlled agreements, pay for a light-rail spur, and other community improvements.

 But last month a reported 150 residents showed up at a developer meeting to protest what they believe is a flimsy promise --  that they'll get to keep their low-rent units.

This stage is called "anger."

The project is headed for hearings at the city Planning Commission over the next few weeks, and local groups committed to fighting development can be expected to be heard. Given that this always happens when new apartments are proposed, the economic analysis commissioned by the mayor's office can be viewed as an element in the traditional phase of developer's grief called "bargaining."

From the economic analysis text:

"There is little ability from a financial standpoint for the project sponsor to provide for additional public benefits - either in the form of one-time capital expenditures or ongoing operational support - without engaging in a trade-off among the public benefits already proposed."

Next, expect "depression," as a slow economic comeback produces worst-case investment scenarios.

And then there is "acceptance," when, like legions of of other San Francisco developers, Fortress Investment Group resigns itself to losing money on a dream-turned-nightmare real estate deal.

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5 comments
Marionbanks
Marionbanks

I have been watching closely for the outcome of this crazy demolition project; however I watched the Planning Commission make a Capitalist decision on residenance lives it's interesting many who are for this project don't understand the political underhandedness. Many section 8 residents and rent control tenants are at jeopardy of losing their housing. I came from a situation like this in Diamond Heights Vista Del Monte Apartments, where I was the President of the tenant association and currently I'm working on a None Profit focusing on housing issues; in addition I'm a student at Poor Magazine journalism department. I believe this a horrible decision and will affect the current families all because of money, the high rises look like old Sunnydale Projects which is horrible, the townhouses need renovation rather than demolition.The funny thing when I moved in management never stated oh by the way we will demo your townhouse in the next couple of years. Just by that dishonesty how can residents support a project from a management team ; residenance don't understand they will be at a lost if the construction stops right in the middle due to funding or just horrible project planning.

I hope the Action Coalition has obtained Attorneys to put a halt to this disaster waiting to happen project. If the coalition need any help or give this letter to your Attorney please don't hesitate on contacting me.

Marion Banks

A VOICE WITHOUT A VOICE

h. brown
h. brown

Matt,

It's not like you to miss a red flag like 'CBRE'!!!

That's the outfit run by Dianne Feinstein's hubby, Dick Blum. It's starting to look like no major real estate transaction in the State takes place without him getting apiece of the pie. Am I wrong about this, Matt. Is this another Blum shady deal and you're not ID'ing him?

Go Giants!

h.

MrEricSir
MrEricSir

Is there some reason it really has to be redeveloped in the first place? If so, why does it have to be redeveloped in one big block rather than chopped up into parcels and solved off, like a normal city?

Chris
Chris

Because Forest City owns the entire property. I am not sure why they should be obligated to "chop off" their own private property into separate parcels???? I think you are confusing public redevelopment agencies selling off publicly owned land for redevelopment purposes; however, in this case this private entity wants to redevelop its own private property.

MrEricSir
MrEricSir

They're redeveloping parts of Parcmerced into condos, as I understand it. Since there's strict rules about converting rentals into condos, the city can require pretty much anything they want.

I've yet to see a "community" built by a single developer that actually works. Contrast this to organically-built neighborhoods like North Beach, the Mission, the Castro, etc. where there's actually a vibrant community in the same amount of space.

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