In the early hours of Tuesday, June 16, the San Francisco Giants emerged from a marathon negotiation session with the unanimous support of the Board of Supervisors and the city's affordable housing advocates for a planned development of a new neighborhood next door to AT&T Park. In a city where a market-rate housing moratorium in the Mission garnered seven votes at a board meeting, where a privately funded waterfront development at 8 Washington Street was defeated at the ballot box, and where real estate developer offices have become targets for protest, achieving consensus support for a massive mixed-use development like Mission Rock is a remarkable feat.
Garnering that support came at a cost. Since 2013, when the Giants first took a term sheet for the project to the Board of Supervisors, the team has increased the amount of affordable housing in the new development from 15 to 33 to 40 percent. The first jump was a self-imposed commitment to more below-market rate units prompted by the team's need to win voter support for the project. (The 2014 passage of Proposition B requires developers to pass a ballot measure to increase height limits on the waterfront). The second jump was wrested from the team by Supervisor Jane Kim and her progressive colleagues (Supervisors Eric Mar, David Campos, and John Avalos) who played affordable-housing hardball by threatening a competing ballot measure. That play forced the negotiations that resulted in the final deal for 40 percent affordable.
But what's odder than the general goodwill toward the project is the Giants' own involvement. Over the past seven years, the Giants have transformed from a major league baseball team into a major real estate developer that also operates a baseball team. The team has moved into the ranks of real estate bigwigs like Boston Properties and Lennar while maintaining the feel-good aura of a World Series-winning ballclub.
That the Giants would control the future of development on their massive surface parking lot was not a foregone conclusion. When the Port of San Francisco began looking for proposals in 2008 to redevelop the 38-acre site, the Giants were essentially the baseball-themed window dressing for a development team led by Cordish, one of the country's largest real estate developers, and Farallon Capital Management, one of the world's largest hedge funds. The Port noted at the time that, financially, the Giants were a junior partner to those heavy hitters. Farallon and Cordish brought capital and development experience. The Giants brought a brand name that enjoys considerable community goodwill.
The Farallon-Cordish-Giants team merged with other developers competing for the rights to the project, uniting with Kenwood Investments (a major real estate developer), Stockbridge Capital (a major real estate investment firm), and Wilson Meany Sullivan (a local real estate developer) to create an all-star team worthy of winning an exclusive negotiation agreement with the Port. By May 2009, a Port memo revealed that only Stockbridge, Farallon, Cordish, and Wilson Meany Sullivan were planning to contribute equity to the deal (the lion's share from Stockbridge and Farallon). By 2010, Stockbridge and Kenwood had left the development team, and by 2011, Farallon and Wilson Meany Sullivan were no longer contributing equity. The Giants went from contributing negligible equity to accounting for 50 percent of the project's capital, with Cordish on the hook for the rest. In late 2012, Cordish departed as well, and the San Francisco Giants were the last developer standing.
The Giants were likely able to survive because they were not a real estate developer. While Farallon, Stockbridge, and Kenwood struggled to weather the crash by withdrawing from long-term public-private commitments, the Giants were not overly committed to the real estate market. As Fran Weld, the Giants' director of real estate, points out, "We weren't that affected [by the recession]. Our core work of being a baseball team continued, and we won two World Series."
Weld joined the Giants after five years with the Boston Red Sox, where she helped that team redevelop the neighborhood around Fenway Park. The breakup between Cordish and the Giants is a bit harder to account for. Weld claims the Giants remain on good terms with Cordish, and Cordish declined to comment for this article. But in 2013, the San Francisco Chronicle reported that Cordish's departure was less than amicable, and resulted in "months of behind-the-scenes negotiations and threats" before the parties reached a settlement.
Around the time of the Cordish breakup, a lawyer representing an undisclosed client appeared at the Port Commission demanding a new bidding process for the project, arguing, "Almost all of the equity, all of the experience and all of the development capability in the SWL 337 Associates LLC team's proposal was the Cordish Company, yet they appear to be out of the picture now." The lawyer now says he doesn't remember who his client was, but wouldn't reveal it anyway due to attorney-client privilege.
Allowing a baseball team to control a massive development project may seem a bit like Lou Seal batting cleanup, but the Port and the city seem happy to have the Giants in control. According to Phil Williamson, the Port's project manager for the site, the Port re-evaluated the team's wherewithal to complete the project each time the development team changed, and remain confident in the Giants' ability to go forward. Indeed, the project is structured in such a way that the developer can't lose. Every dollar that the Giants invest in procuring entitlements or building the infrastructure for the project will be refunded, plus a guaranteed 20 percent rate of return. The team has the right, but not the obligation, to build the 10 proposed office and residential high rises — the riskier and more capital-intensive part of the development. All told, the Port estimates the Giants will receive $210 million in cash and land for an initial investment of $120 million.
With the odds so much in their favor, it's no wonder the Giants want to make the investment. Why stick to baseball when real estate is the most lucrative game in town?
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