SF Apartment : January 2017

FEATURE

Evolution of a City

by Chris Foley

News of the development boom in San Francisco has made its way out of the Bay Area, landing front and center in both national and international headlines from the Wall Street Journal to the Financial Times. While the sentiment vacillates from overtly voyeuristic, focusing on the fantastic luxury amenities available in the city’s tallest high-rises for the tech elite, to the more worrisome stories on how to best tackle rising rents throughout San Francisco’s most beloved neighborhoods, what is certain is there is now a global audience that is more attuned to the trends driving development in the Bay Area than ever before.

The San Francisco development cycle is certainly in a more mature position than it was when I last contributed to San Francisco Apartment Magazine in mid-2015. As most developers in the city understand, the process of building a metropolis worthy of international attention that also remains richly San Franciscan is a delicate balancing act fraught with challenges at every turn.

Large-Scale Mixed-Used Development
While other cities are rushing to urbanize and manufacture viable city centers, San Francisco has always been defined as a truly walkable city. The emergence of a variety of large-scale mixed-use projects coming to fruition around the Mid-Market and SoMa neighborhoods brings to life the notion of “live, work, play” in a single project. Diversity of land uses under the umbrella of a single project encapsulates contemporary notions of what makes a vibrant urban space: walkability, proximity, variety, and choice.

Development of mixed-use projects is challenging and time-consuming. Each project faces difficulty in assembling multiple parcels, requesting zoning changes, and integrating land-use types that are in different places in their respective real estate cycles, while often requiring costly and time-consuming environmental remediation.

At the same time, the value of such projects is unmistakable. While a set of luxury condominiums that arguably benefit only future owners might not matter to most, a dynamic mixed-use development that incorporates open space and convenient retail solutions offers something for everyone. A prime example is 5M. Developed by Forest City, 5M will encompass four acres in Mid-Market to include 846 apartments (40 percent reserved as affordable housing) complemented by over 800,000 square feet of office space, and nearly 50,000 square feet of public open space.

Other standout projects with a distinct offering to the community include the Mexican Museum Tower, developed by Millennium Partners, which will include 190 market-rate condos and a 52,000-square-foot Mexican Museum in the Yerba Buena neighborhood; and the Flower Mart site with 2.1 million square feet of office space and over 100,000 square feet of retail, including a potential market hall. The development will also retain the existing flower mart vendors, creating an eclectic mix and enhancing the existing property.

Beyond office, retail, and residential components, many new projects are also incorporating hospitality into their masterplans, with the San Francisco Business Times reporting that there is a proposed 10 percent increase in the city’s overall hotel inventory in the works.

Rise of Hotel Development
While San Francisco continues to attract more and more permanent residents, the city’s allure to passing guests and travelers has remained strong. According to the San Francisco Business Times, however, “For the past few years, San Francisco’s limited hotel room inventory has been at capacity, effectively blocking many would-be business and leisure travelers from the city.”

From a development standpoint, continued growth in tourism and business travel, along with a strong convention presence in San Francisco, will make hotels a lucrative prospect and solid investment opportunity. Increased affordability requirements are coming into play in the residential real estate realm, raising questions of feasibility and profitability for market-rate developers who are often required to set aside up to 25 percent of their units for onsite affordable housing. In fact, some projects that were originally slated for residential units have shifted plans and are now pursuing hotel rooms, including 824 Hyde, previously approved for 15 residential units, now pursuing 33-room boutique hotel or 369 - 399 5th St., previously slated for 89 condo units, now proposing 197 hotel rooms.

As with many of the multi-use developments, the concentration of new hotel rooms are cropping up in SoMa and Mid-Market, a small sample of which include 300 Fifth (proposed, 120 rooms), 350 Second St. (proposed, 480 rooms), 974 Market (proposed, 232 rooms) and 744 Harrison (proposed, 50 rooms). Combining these first two trends, mega developments like Oceanwide Center in the Yerba Buena neighborhood or 400 2nd will see some combination of residential units and 
hotel rooms.

Waterfront Development
In the coming years, waterfront development will play a crucial role in providing housing, office, retail, and recreational space to San Francisco’s ever-growing population. These projects are essentially creating new neighborhoods, and include a variety of uses, while helping to expand the boundaries of the city, which is crucial to accommodate density and make the best use of San Francisco’s limited space.

In addition, by developing on the edge of the city, developers are able to mitigate some of the obstacles of creating new housing stock in pre-existing neighborhoods, including avoiding concerns of displacement and changing neighborhood character.

The Treasure Island project is one such development that is working to define a new area of the city. Developed in partnership between Lennar Urban, Kenwood Investments, Stockbridge Capital, and Wilson Meany, the full build-out of Treasure Island will bring 8,000 residential units (25% reserved as affordable housing), 300 acres of parkland, up to 100,000 square feet of office space, and three hotels with up to 500 rooms. Currently undergoing infrastructure improvements, the entire project sits on 45 acres of land on Yerba Buena Island and Treasure Island’s western shoreline.

Another highly visible example is the work being done at Shipyard and Candlestick Park. At full buildout, FivePoint Holdings (a spinoff of Lennar Urban) will deliver 12,000 housing units, over five million square feet of office, and one million square feet of retail. The first phase of the Shipyard has already delivered 400 homes and will deliver another 500 by 2020. Architect David Adjaye was recently named as the master architect for Phase 2.

Near AT&T Park, the San Francisco Giants have proposed 1,500 apartments with 40% reserved affordable housing, plus 1.3 million square feet of retail and office, and eight acres of green space known as Mission Rock. The existing site serves as a parking lot for the stadium, and would encompass 28 acres in Mission Bay.

A few challenges that have emerged in the development of waterfront property have been the careful scrutiny of environmental impact as well as the restoration of historic buildings. The site of the former Potrero Power Plant, which was recently purchased by Associate Capital from District Development, is a prime example. While plans remain in flux for the project, potential use could bring up to 1,000 residential units and one million square feet of commercial space. Another project that has been thoughtfully overseen has been Pier 70. Developed by Forest City and approved for 1,000 apartment units with 30% onsite affordable housing, the project also includes construction of a nine-acre park, an event space and playground, and the rehabilitation of over 260,000 square feet of historic buildings for office, retail, and PDR. The whole site is 28 acres in the Dogpatch.

Efforts in Density: Upzoning and In-Law Units
While pushing the boundaries of San Francisco to the waterfront is one solution to density issues, the city is also exploring other measures in upzoning, or the process of changing zoning laws to increase residential use, as well as in-law units. 
One such effort includes plans to upzone the Central SoMa neighborhood, defined as the 230 acres bounded by Howard, Townsend, and 2nd to 6th Streets. The proposal would allow increased heights of certain blocks, with a variety of buildings zoned between 200 and 300 feet (and the Creamery site rezoned up to 400 feet). The city has stated their plan aims to “accommodate growth, provide public benefits, [and] respect and enhance neighborhood character.” Upzoning of this neighborhood promises the potential for another 7,800 housing units and office space to accommodate another 45,000 jobs. The plan is estimated to be adopted this year.

Related to increased density in Central SoMa, Muni will complete an extension of their T Third line in 2019, adding four stops (Fourth and Brannan, Fourth and Folsom, Stockton and Union Square, and Stockton and Washington), connecting previously inaccessible neighborhoods and further cementing the significance of Central SoMa.

Another area that could benefit from upzoning efforts is “The Hub,” or more precisely, the area around Market and Van Ness, where new plans are expected to be adopted by 2018. As detailed plans continue to be fine-tuned, it is likely that zoning would include public realm improvements, major height increases, and transit improvements.

Most recently, San Francisco also legalized the creation of in-law units (also known as Accessory Dwelling Units) in July 2016. ADUs are defined as turning a space within an existing building or structure, for example a garage, basement, or attic, into a dwelling space by adding windows, doors, and other required necessities for dwelling. ADUs show an increased endeavor on the part of the city to find creative solutions to the city’s affordability crisis. (For more information on ADUs, see “In-Law Alley”.)

Starchitects in the City
As more people become aware of the development boom in San Francisco, the city is seeing a rise in boundary-pushing buildings designed by world-renowned architects. Viewed as an opportunity to create a lasting impact on the skyline of one of the world’s most important cities, “starchitects” are designing awe-inspiring cityscapes. This is particularly true of the new high-rise Transbay Terminal neighborhood, which promises to be a hub of architectural innovation.

One such visionary is Renzo Piano, perhaps best-known for his design of the California Academy of Sciences, and his plans for 555 Howard. The project is set to include a 37-story hotel and condo tower with 127 condos and 223 hotel units, just one block from the $4.7 billion Transbay Terminal. Another nearby sky-altering design is that of Rem Koolhaus’s OMA and the Transbay Block 8 tower, in collaboration with local firm Fougeron Architecture, which will bring 118 condos, 280 luxury apartments, and 150 affordable apartments to the Transbay. Norman Foster of Foster + Partners is designing the Oceanwide Center towers with local firm Heller Manus, which will bring 265 condos, a 169-room Waldorf Astoria hotel, and 1.1 million square feet of office space to the Transbay. While much of the focus remains on housing, Cesar Pelli of Pelli Clarke Pelli will also design the Salesforce Tower at 415 Mission St., bringing 1.4 million square feet of office space to the largest transportation hub ever planned on the West Coast. While Transbay is at the forefront of the starchitect trend, more traditional neighborhoods have taken note. 875 California by Grosvenor Americas, a 44-unit condominium project in Nob Hill that recently won approval, has enlisted Robert AM Stern to helm the design of the mid-rise development, slated for completion in 2019.

Moving Ahead
As land use continues to shape the future of San Francisco for years to come, the significance of today’s developments cannot be understated. Developers and city officials move toward finding inspired solutions for San Francisco’s current and future residents and guests, and there will be plenty to watch amid the dust of development. 

Chris Foley specializes in entitlement, financial analysis, and land acquisition. Chris works with some of the largest clients in Northern and Southern California including Tishman Speyer, Lennar Urban, TMG Partners, Morgan Stanley, The Pauls Corporation, CIM Group, and Trumark Urban. Over the past decade, Chris has brokered and consulted on land transactions involving over 10,000 condominium residences and apartments.