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The Deal With Treasure Island 

Tony Hall's firing casts the spotlight on a real estate mega-deal that slogs along under a veil of secrecy

Wednesday, Nov 9 2005
In July, Tony Hall went to a conference in Denver where he met the top Navy official in charge of converting former military bases to civilian use and heard something that surprised him: The Navy was no longer talking about turning over the former Treasure Island Naval Air Station to San Francisco at no cost -- as has long been the popular assumption -- but wanted to be a financial player in the ambitious plans for the island's future.

It was the first time Hall had heard such a thing, although he was then executive director of the Treasure Island Development Authority -- this occurring before his well-publicized ouster in October -- and despite the city's having been involved in negotiations with the Navy over the transfer of the 405-acre island for more than five years.

But what Hall, a former member of the San Francisco Board of Supervisors who held the Treasure Island job for barely a year, learned in Denver was nothing new.

Since at least 2001, the Navy privately has made it increasingly clear that it no longer intends to merely give away the choice piece of real estate in San Francisco Bay that it abandoned in 1997. Instead, the Navy is looking to be paid, either up front or from the revenue of a long-hoped-for island real estate development that would be among the largest and most ambitious in the city's history.

Those plans call for the man-made island, with its spectacular city skyline views -- and built to host the 1939 Golden Gate International Exposition -- to be home to perhaps 5,000 to 10,000 or more people. They would reside in a kind of urban village to include a luxury hotel or two, a new marina, restaurants, shops, and an attraction such as a museum or cultural center.

Hall's unawareness of the Navy's ambitions despite heading the agency ostensibly entrusted with overseeing the island's transfer and shepherding its redevelopment may seem unusual. But in practice, Treasure Island decision-making has long rested with Mayor Gavin Newsom and his predecessor, Willie Brown. If anything, the ex-TIDA director's being out of the loop on such a matter illustrates the secrecy surrounding not only the city's dealings with the Navy, but with the politically influential development team known as Treasure Island Community Developers, or TICD. Its principals include lobbyist Darius Anderson of Sonoma, a political supporter of the mayor, and Los Angeles grocery billionaire Ron Burkle, along with the Lennar Corp., one of the nation's largest home builders. Anderson and Burkle were both longtime political supporters of Brown, and Anderson has helped raise campaign money for Newsom since he became mayor.

Indeed, it was after Hall raised the specter of a "sweetheart deal" between Newsom and the development team that he was summarily fired "without cause" in October by the TIDA board -- which in theory is an autonomous body but all of whose seven members are appointed by the mayor. This came after the board voted in September to extend by another three years an "exclusive negotiating agreement" granted to TICD in 2003 to develop the island once the Navy turns it over even though the developer had failed to meet several deadlines for advancing the project.

The mayor's office vehemently denies any favoritism, and the mayor has personally dismissed Hall's accusation as "laughable." It also denies that Newsom had anything to do with Hall's departure, insisting that the TIDA board acted on its own after questions were raised about Hall's effectiveness. "At a certain point long ago, we thought that Tony would be able to perform the duty well, but it became increasingly clear over the past several months that that wasn't the case," insists Peter Ragone, the mayor's spokesman.

If nothing else, the brouhaha provides a glimpse into machinations involving the future of perhaps the city's last and best undeveloped urban oasis. Nearly a decade after the Navy closed up shop on the island and two years into the city's exclusive relationship with the Anderson/Burkle/Lennar team, there are more questions than answers about the island's future as it pertains to both the Navy and the nature of the project itself.

For instance, early concepts of what a future Treasure Island community might look like envisioned 2,800 housing units -- with about 30% of them being "affordable" units -- configured in low-rise buildings of three to five stories and dispersed over much of the island. But in recent months, the developers have begun to float the idea of building high-rises of up to 40 stories on the sandy, seismically vulnerable island -- apparently both to answer critics who insist that any future community there should be big enough to be self-sustaining, and, presumably, to make the project more profitable.

The idea surfaced as part of an interim report prepared by TICD in the summer that contained a conceptual drawing showing a skyscraper of 40 stories accompanied by buildings half to three-quarters as tall strung out along the length of the island from north to south -- suggesting a far greater number of housing units than the 2,800 first proposed. Yet the report made no mention of how many more units the developer may now have in mind, offering little clue as to how populous a future community there may be.

"What happens at Treasure Island is incredibly important for San Francisco," says environmentalist Ruth Gravanis, who has monitored prospective plans for the island for more than a decade, "and people are understandably anxious to see how it will unfold."

From his unlikely arrival to his humiliating departure, Tony Hall's tenure at Treasure Island resembled a B-movie script, with Hall playing the dupe.

His appointment to the $160,000-a-year post as the Treasure Island Development Authority boss was part of a political triple play executed by the mayor in the summer of 2004. By appointing then-Treasure Island director Annemarie Conroy as head of the city's Office of Emergency Services and enticing the conservative Hall to give up his elected position to take her old job, the mayor was able to pick Hall's replacement on the Board of Supervisors. That gave Newsom an all-important fourth reliable vote on the 11-member board -- the magic number needed to prevent overriding a veto.

Within hours of Hall's resigning from office, Newsom swore in as his supervisor of choice one of his own staffers, Sean Elsbernd, who, ironically, cut his political teeth as a former aide to Hall in District 7, west of Twin Peaks.

But if Hall went to Treasure Island believing that he would be in charge of negotiating with the Navy over the transfer of the former base and running interference with the politically influential team entrusted with developing the island, he may have been one of the few people who thought so.

In talks with the mayor and his aides during late July and early August of 2004, Hall says that he was repeatedly assured that if he took the job, he would be in charge on Treasure Island. On the eve of his decision to take the job, Hall says Newsom personally assured him during a late-night phone call that if he came aboard he would not be expected to play second fiddle to anyone. "The mayor wanted to know if we had a deal. He said, 'You're going to run the show. You're my man,' and he even added, 'Tony, I don't micromanage.'"

Indeed, a written job description that Hall says a mayor's aide faxed to him the next day describes the executive director's role as responsible for "oversight of negotiations with U.S. Navy for conversion of former Naval Station Treasure Island" as well as "long-term planning for redevelopment of property, including overall master developer negotiations."

But neither of those things proved true in Hall's case.

Amid little fanfare in the weeks leading up to the "triple play," Newsom created the Mayor's Office of Base Reuse and Development and installed as its head Michael Cohen, a former deputy city attorney whose considerable resume includes having played a key role in hammering out the development deal for the closed Hunters Point Naval Shipyard. (Hall says that he didn't know the base reuse office existed until after taking the Treasure Island job.) Although the office was new, Cohen's role with respect to Treasure Island was not. During the administration of former mayor Willie Brown, it was Cohen -- and not Hall's predecessor, Conroy -- who handled heavy-duty negotiations with the Navy and the developers, and that would not change.

In essence, Hall had been had.

"I was hoodwinked," he says of his deal with the mayor. "There are no excuses. After all my years in public service, I should have known better. I guess sometimes the older we get, the stupider we get."

The mayor's spokesman, Peter Ragone, paints a different picture, insisting that it was Hall who approached Newsom about the job, and not the other way around. He and others close to the mayor contend that the job description Hall was provided -- a copy of which Hall shared with SF Weekly -- was an outdated document that had become irrelevant by the time Hall accepted the post. Furthermore, they say, Hall knew from the start that Cohen had been the mayor's point-man with the Navy and developers and that the mayor intended for him to remain so. "Tony Hall has not told the truth on just about everything," Ragone says, "and that should give pause to anyone who hears anything that he says."

Relegated to a figurehead role, Hall earned high marks from the island's approximately 2,000 residents who occupy city-controlled rental units that once served as Navy housing -- and who've long considered themselves as city stepchildren -- for his attention to neighborhood issues. That attentiveness even earned him the nickname "Mayor of Treasure Island," which didn't help him at City Hall once he was perceived as overstepping the limited role expected of him.

That perception grew after Hall gave an interview to the New York Times last May in which he accused the Navy of dragging its feet in negotiating the transfer of the former base, saying the military was "holding us hostage on our own lands." Shortly afterward, the Navy renewed a long-dormant demand that the city pony up the more than $1.3 million in Treasure Island maintenance fees that the Navy claims the city owes it.

Although Navy officials insisted that the push to collect the money (which the city has yet to fork over) was not in retaliation for Hall's remarks, the incident angered Newsom's camp, including several members of TIDA's board of directors. For Hall, who had long since outlived his usefulness to the mayor, it was the beginning of the end.

By the time he went public with the "sweetheart deal" allegation in September, it appeared that a strategy to get rid of him was already unfolding. Before the September 14 session at which the TIDA board extended the developer team's exclusive negotiating agreement, city controller Ed Harrington announced that he had received an anonymous whistleblower complaint that Hall had removed some $173,000 "from under the control of the City and County of San Francisco."

The allegation soon fizzled. During a hearing of the Supervisors' Government Audit and Oversight Committee, a staffer from the city Treasurer's office acknowledged that the funds -- mostly security deposits and rent credits -- had been under TIDA's control all along in an account that could only be disbursed with the approval of the Treasurer's office.

Still, Newsom was livid upon returning from a trip to Ireland and being confronted with the "sweetheart deal" accusation. Even before his return, the mayor issued a terse memo making it clear that Cohen, not Hall, was the point-person in talks with the Navy and the developers. The TIDA board, meanwhile, hastily scheduled a vote to fire Hall. Three days before doing so -- in a closed session and over the raucous protests of Hall supporters and others who accused its members of doing the mayor's dirty work -- Hall received yet more bad news: The city's Ethics Commission notified him that he was being investigated for possible campaign violations stemming from his re-election as supervisor last year.

Having crossed the mayor, Hall's exit was cold and swift.

Although his contract stipulated that he remain executive director for 30 days from the time of his dismissal, the morning after he was fired his work computer was carted off, and the locks to his office door were changed. TIDA commissioner John Elberling notified Hall that he would need to go through Joanne Sakai, sent over from the Redevelopment Agency as an interim caretaker, if he wanted to retrieve his personal belongings. "You may not access that office at any time without Ms. Sakai's prior permission," Elberling wrote, adding, "and [you] must return all keys immediately."

Hall was by no means the first person to raise the specter of favoritism involving Treasure Island Community Developers, the team spearheaded by lobbyist Darius Anderson and Democratic mega-donor Ron Burkle. Back in 2002, while Willie Brown was mayor and on whose watch the city signed off on the exclusive agreement with TICD, urban planner Eve Bach of the environmental group Arc Ecology was among those who questioned the developer's financial proposals.

TICD has yet to submit a completed term sheet, the document that, among other things, spells out the financial framework of the deal, and little is publicly known about the city's negotiations related to finances. But in the run-up to its being granted the exclusive negotiating rights in 2003, TICD proposed that the city provide most of the investment capital for the redevelopment project on the island, over and above the land and buildings that would be given to TICD at no cost.

At the time, TICD suggested putting up less than $40 million of its own money and wanted a guaranteed 25 percent rate of return on its investment while proposing to finance a project -- then expected to cost hundreds of millions of dollars -- with public funds. "I saw a mismatch in that and, yes, I do think that if it were to happen, an agreement based on those kinds of terms would constitute a sweetheart deal," Bach says. If and to what extent TICD's early proposals may have changed may not be known until next June, when the developer is committed to presenting its overdue term sheet.

TICD is a limited liability partnership that was created specifically to compete for the massive Treasure Island makeover. Its two principal partners are Kenwood Investments, in which Anderson and Burkle are participants along with San Francisco attorney Jay Wallace and Lennar Corporation, the Florida-based home-building giant, through its subsidiary, Lennar Communities. Wilson Meany Sullivan, the firm responsible for renovating San Francisco's Ferry Building, was recently added as a third partner.

Anderson is the former chief fundraiser for ex-Governor Gray Davis who heads Platinum Advisors, an influential lobbying firm with offices in Sacramento and San Francisco. Anderson has a long association with Burkle, the one-time grocery magnate (Ralph's, Jurgenson's, Food-4-Less) and heavyweight political donor. Anderson was the former chief of staff of Yucaipa Companies, the privately held entity Burkle founded and on whose board of directors sits former President Bill Clinton.

Anderson and Burkle are also the principals in Treasure Island Enterprises, which separately in 2000 was awarded exclusive negotiating rights to develop a new marina on Treasure Island, a project that -- like the overall development plans for the former navy base -- has been slow to unfold.

TICD's choice as the island's master developer was not without controversy. Only two entities applied. And only TICD -- whose Lennar partners had won a fierce and controversial battle for the redevelopment rights to the former Hunter's Point Naval Shipyard -- was deemed qualified. "The general assumption was that considering who [TICD's] players were and what happened at Hunter's Point, other big developers who might have been interested in Treasure Island more or less knew to stay away," says Ruth Gravanis, the environmentalist.

At Hunter's Point, a financial services firm that the city hired to evaluate the bids recommended another developer. But in 1999 the city's Redevelopment Commission effectively ignored its own consultant and picked Lennar, inciting suspicions that then-Mayor Brown, whose supporters had orchestrated a last-minute campaign for Lennar, had intervened on the company's behalf. (As SF Weekly disclosed, Brown later assumed a financial interest in a Sacramento-area real estate development controlled by a Lennar subsidiary.)

There was a similar cloud over the Treasure Island process. In the summer of 2001 the city's redevelopment staff expressed interest in re-bidding the project to encourage more bidding after only the Anderson/Burkle/Lennar group and the one other entity chose to participate. A consultant hired by the city submitted a report saying that at least two additional firms, which it did not identify, had expressed enthusiasm for entering the competition as part of any second round. But that September the redevelopment staff did an about face, recommending that the TIDA board dispense with expanding the competition and focus instead on dealing solely with TICD.

"It was really amazing," recalls attorney Eugene Brodsky, who serves on a citizens' advisory panel for Treasure Island. "One minute the talk [out of the Brown administration] was we need more competition, and then someone just mysteriously pulled the plug."

Anderson had been a fundraiser in Brown's 1995 mayoral campaign. Burkle, for whom Brown had done legal work after leaving office as Assembly Speaker, had pumped $59,000 into Brown's legislative campaigns and had donated $100,000 to underwrite his U.S. Conference of Mayors meeting in San Francisco in 1997.

Those things occurred long before Newsom became mayor.

But the decision by the Newsom-appointed TIDA board to extend TICD's exclusive agreement another three years despite the firm's failure to meet key deadlines in relation to the project -- and Hall's ouster after being critical of it -- has inevitably rekindled questions about Newsom's own reliance upon Anderson for help in raising political donations since becoming mayor.

In March of 2004, facing a campaign debt of $400,000 after his runoff victory over former Board of Supervisors President Matt Gonzalez, Newsom was the guest of honor at a fundraising reception hosted by Anderson at the lobbyist's Sacramento office. Anderson invited lobbyists, state Democrats, and others to make contributions of up to $750 apiece. Although about 30 people, including Lt. Gov. Cruz Bustamante and Oakland Mayor Jerry Brown, are said to have attended, Newsom spokesman Ragone says that the mayor raised only about $4,000 at the event.

(Hall has acknowledged that he, too, raised about $4,000 from a fundraiser sponsored by Anderson at the lobbyist's office in the Ferry Building in June 2004 while he was still a supervisor and before he had been approached about accepting the Treasure Island job. He said that $500 of the money had come from Anderson and that he later returned it.)

One of Anderson's partners at Platinum Advisors is Chris Grewell, who was Newsom's chief fundraiser in his campaign for mayor.

Ragone, the mayor's spokesman, dismissed the suggestion that Newsom acted improperly, declaring, "Gavin Newsom has not done anything inappropriate for a contributor in his career and he never will."

City voters in 1995 passed a law prohibiting campaign contributions from anyone bidding or negotiating for a city contract or development lease if the recipient has a say in the outcome. When the fundraiser was first reported last year, a Newsom campaign lawyer insisted that the law didn't apply to the mayor since the Treasure Island Development Authority, the entity that must approve any dealings involving TICD, is technically a state agency. Besides, the lawyer declared, TICD hadn't contributed to Newsom. (Although TIDA is chartered by the state, the mayor not only appoints its board members but four of those members answer directly to the mayor as city department heads. Other than the executive director, TIDA's entire 11-member staff consists of personnel attached to the city's Redevelopment Agency.)

Others, however, see a potential conflict.

"This is the kind of politics as usual that undermines the public's faith in the system," says Kathay Feng, executive director of California Common Cause. The notion that the mayor could accept campaign help from Anderson, a principal in TICD, and justify it in part because TIDA is a state agency "is a technicality without a real distinction," Feng says. "The larger question is, 'What is the public's interest and is it being served?'"

Whether the public's interest is best served by the Navy's apparent reluctance to give up the former base at no cost may depend on which taxpayer is being asked. "We have to get what's called fair compensation," says Navy realignment manager Doug Gilkey. He declined to elaborate, citing ongoing talks with San Francisco. Although those talks are in their fifth year, Gilkey says they haven't stalled, insisting that "with the complexity of a negotiation of this kind things do not ordinarily happen fast."

The Navy moved onto Treasure Island and part of neighboring Yerba Buena Island (through which the Bay Bridge passes) during World War II, using the facility for radar training. The island's art deco Administration Building, built for the 1939 exposition and intended as the terminal for what was to have been San Francisco's airport, was pressed into wartime service as headquarters for the Pacific Fleet. The fleet's commander, Admiral Chester Nimitz, occupied a spacious corner office on the second floor -- the same office used by Hall and his predecessor, Conroy.

The naval station was targeted for closure in 1993, during the first round of military base closings. The last naval personnel left the island in 1997. The following year, the state legislature created TIDA as the local agency for conversion of the island to civilian use. At one point, city leaders envisioned an amusement park on the island. Former Mayor Brown had wanted to see a casino there.

As with many military installations, there is considerable environmental pollution at Treasure Island. By law, the Navy is required to clean up the property before it is transferred to civilian ownership. Thus far, Gilkey says the Navy has spent $100 million on cleanup and intends to spend another $7 million. But there's likely to be disagreement between the Navy and state environmental regulators as to how much more cleanup will be needed before anything new is permitted to be built there -- especially something on the scale of the TICD project.

The cost of the cleanup, whatever it turns out to be, is of critical importance, since that cost is certain to become part of the equation as the Navy determines what its compensation should be in surrendering ownership of the island.

Indeed, of all the issues surrounding the future of Treasure Island, the transfer of ownership is perhaps the murkiest and most misunderstood. Even though media reports have continued to routinely portray the anticipated transfer as "no cost," there is little, if any, reason to conclude that the Navy may still be considering giving Treasure Island away.

Over the years, news accounts have helped fuel the widespread perception that the delay in the handover was somehow related to satisfying the complexities of federal law mandating that the property be cleaned up before it could fall under civilian governance.

But that is only partly true.

In June 2000, the city, or more specifically, TIDA, submitted the application to have the Navy turn over Treasure Island at no cost. "No cost" transfers of military property originated in the Bill Clinton Administration. A 1999 change in the law governing base conversions decreed that such conveyances "shall be without consideration." But in 2001, after the Bush Administration came into office, the word "shall" was changed to "may," leaving the Armed Forces with discretion as to whether to seek remuneration.

"If you're San Francisco, you don't want the Navy using its discretion, and the last thing you want is to have the Navy or any other branch of the military as a development partner," says former Clinton White House Chief of Staff Leon Panetta, who heads a bipartisan commission on base retention appointed by Gov. Arnold Schwarzenegger. "The bureaucracy will just drown you."

The Navy has never issued a formal response to TIDA's no-cost request to procure the island, and despite the paradigm shift with regard to surrendering former bases, Navy officials, including Gilkey, have remained reluctant to say outright that getting the property for free is no longer in the cards. Asked about the matter, Gilkey says only that "the Navy remains committed to a fair and equitable transfer supporting redevelopment of Treasure Island."

Privately, however, Navy officials have let it be known for quite a while that the no-cost option is obsolete.

Long before Hall's trip to the Denver conference, the Navy's top official on base reuse, Wayne Arney, had made similar remarks suggesting a shift in terms with respect to surrendering Treasure Island. Michael Cohen, the mayor's base reuse office chief, recalls attending a military base conversion conference in Arizona in 2003 at which Arney openly stated that he "didn't like" no-cost conveyances, Cohen says.

In 2002, with the no-cost scenario having already faded, TIDA submitted a bid for an "early transfer" of Treasure Island, which would allow it to claim ownership while the Navy continues environmental cleanup and monitoring, which could last years. That application and the negotiations stemming from it have been kept in the strictest of secrecy. Asked by SF Weekly for a copy of the 2002 application, Gilkey, the Navy official, declined, saying that the documents "are still under sensitive business negotiations with TIDA, [and] we do not feel it would be appropriate to release them at this time," and added, "TIDA concurs."

Pressed to say who at TIDA he consulted, since, technically at least, Hall is still on the payroll as executive director until the middle of November, Gilkey said that he had meant to say "the TIDA board." Asked who on the board had not wanted the documents released, he conceded that it was Cohen, the mayor's base reuse office chief, who had concurred in not releasing them.

San Francisco's getting the island for free "is a thing of the past," concludes Eve Bach, the Arc Ecology urban planner and long-time island watchdog. "How much it costs and what role the Navy intends to play is just one more thing about Treasure Island that we don't know yet."

About The Author

Ron Russell

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