Page 3 of 5
That's not to mention the methane gas that continues to migrate underground from an old landfill located in the southern part of the shipyard. State and federal regulators will not sign off on the transfer of even the cleanest parcel of land -- a hilltop and hillside overlooking the bay where Lennar plans to build homes -- while there are problems like migrating gas in the land around it.
Perhaps more troubling for the project's immediate future, though, is the Navy's most recent schedule for transfer of the land. This first phase of development -- the subject of the present deal heading to the Redevelopment Commission -- is planned for land known as Parcels A and B. Parcel A is composed of a hilltop and hillside overlooking the base and the bay, while Parcel B is the northernmost section of the shipyard.
But the Navy's transfer schedule is based on when it will complete environmental cleanup of the land, not when the city wants to develop it. And the Navy plans to transfer Parcel D, an area in the center of the shipyard, before it completes Parcel B. According to the shipyard general plan, Parcel D is designated for unspecified commercial or industrial use, but is not included in the present deal between the city and Lennar. The end result may well be that the Lennar group cannot complete its scheduled development for years, while the city has vacant land that it cannot develop until the shipyard cleanup is more complete.
Most of the stated community benefits of the project -- public facilities, some 300,000 square feet of retail space, more than a third of the housing designated as affordable, and a significant stretch of open space -- are in Parcel B, which, under the Navy's present cleanup schedule, will not be ready for development until sometime after 2008.
The redevelopment of a former military base tends to be a unique undertaking, driven largely by the circumstances surrounding each base's closure; it is, therefore, all but impossible to compare one such redevelopment effort to the next. The deal between Lennar/BVHP and San Francisco is a complicated tangle that includes numerous different profit splits along the way. But in the end, the developer is set to make a handsome profit, despite having invested literally for years without any return.
Rather than sell the shipyard property outright or hire a developer to build out the shipyard for civilian use, the San Francisco Redevelopment Agency has, in effect, created a partnership with Lennar/BVHP. After shipyard land is cleaned and transferred to San Francisco, the city will, in turn, transfer it to the Lennar group. The developer will build infrastructure, creating streets, utilities, and so forth, and then sell the improved land. Proceeds from the land sale are then divided between city and developer through a multi-layered plan. Lennar has the option of selling the land to itself at market rate, or to another developer who would build on it.
The city's investment in the first phase of the development is its 93 acres of land, valued in the deal (even though it was never appraised) at $30 million. Under the terms of its contract with Lennar, San Francisco will likely receive the $30 million land value, plus an additional $6.3 million. Because the project is designated as a redevelopment zone, that total $36.3 million must be reinvested within the area. The money will go into a community benefits fund that the Citizens Advisory Committee will determine how to spend, whether it be to build a community center, to lower housing prices, or for some other use. The city also will get six acres of land for a community use that has yet to be determined.
Lennar's investment in the first phase are its predevelopment costs – including paying the city's redevelopment bills for some four years – valued at $20 million. The developer is scheduled to make back that investment, plus another $14.2 million in profit. City officials have repeatedly said that the developer's profit is based on the risk Lennar took in paying out predevelopment costs before the land was even available. "Lennar has taken a risk for property that is not owned by the city and has really shown a commitment to the city and the people of Bayview-Hunters Point by putting up money," says Lennar spokesman Sam Singer, whose firm represents the developer in San Francisco.
But Lennar is developing land it did not have to buy. And more than half of construction costs for infrastructure in the project's first phase will be financed through public bond sales, according to city officials involved in the deal. More than $13 million of Lennar's $20 million investment in the project was generated at Lennar's discretion, and $10 million will be refunded to Lennar/BVHP from bond funds before construction ever starts. Meanwhile, Lennar holds an exclusive right to develop the city's property – a potentially lucrative right that has not been assigned a monetary value during consideration of the deal.
Under the first-phase contract now under consideration, Lennar will also be protected from liability for any unforeseen environmental problem that may arise during or after building at the shipyard. Federal law dictates that the Navy is required to clean up any environmental problems on the property before it's transferred, as well as anything found later. But Lennar/BVHP's deal with the city also includes a $150 million private environmental insurance policy, to cover interim costs, should there be a toxic surprise, with the Navy not immediately responsive. The nearly $700,000 premium for the insurance is to be paid for out of proceeds from the sale of shipyard land before the profits are dispersed.
