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S.F. housing projects emerge from deep freeze

Submitted by News Desk on Thu, 08/14/2008 - 10:00pm
City lifts 2-year condo ‘moratorium’


A 2-year-old Planning Department moratorium that put some 2,000 proposed housing units indefinitely on hold in the eastern neighborhoods of San Francisco has been lifted, giving developers hope that dozens of condo and apartment projects that have been stuck in political limbo will finally be revived.

On July 31, the Planning Commission passed a new “loss and replacement policy” for light industrial uses known as production, distribution and repair, or PDR. The ruling establishes a legal definition for what does and does not constitute PDR, which in turn will allow builders to move forward on housing projects that include some light industrial uses, even before the Board of Supervisors approves the larger eastern neighborhoods rezoning, which is expected by Thanksgiving.

The ruling could allow as many as 2,000 housing units to go forward in some 102 pipeline projects filed between 2004 and 2007, none of which required a zoning change when filed. In all the eastern neighborhoods, rezoning is expected to generate some 7,500 housing units while creating zones where light industry is allowed but housing and retail are not.

In a compromise with property owners, the final PDR definition is broader than originally proposed. In some cases, it allows some design and digital media businesses alongside the more traditional PDR uses like auto repair, manufacturing, printing, storage and shipping. While some housing developers have not been overly enthusiastic about building light industrial space they fear will sit empty for lack of demand, those concerns are outweighed by the relief that the rules are finally becoming clear.

“The words ‘certainty’ and ‘fairness’ are two huge words in our vocabulary,” said builder Richie Hart, whose 20-unit project at 129 Ninth St. was freed up by the ruling. “We play by the rules, we live by the rules, and when the rules change in mid-stream it throws us off.”

For builder Sean Keighran, president of the Residential Builders Association, the decision means he can go forward with entitling his 41-unit condo project at 1717 17th St., a development that will include 10,000 square feet of PDR. The project was filed in 2004 and Keighran hopes he will have a building permit in 2009, a five-year wait.

“Now at least you can figure out what it takes to meet the definition,” said Keighran. “Justice was done here. We’ve been working toward this for a while. It’s a relief that it’s over.”
The 2660 Harrison decision

The de facto moratorium had its roots in a Board of Supervisors decision in February 2006 that blocked a 68-unit condo project at 2660 Harrison St. in the Mission District, a project that the Planning Commission had approved in August 2005. In its decision, the board argued that the proposed project should be analyzed within the context of the ongoing eastern neighborhoods rezoning and the “cumulative impact” of some 80 proposed housing developments on existing PDR.

For developers with projects in the pipeline, that allowed three options: Undertake a full environmental impact report, a costly and time-consuming exercise usually done only for major projects; wait until the eastern neighborhoods EIR is complete; or offer to include PDR as part of the housing project. But because the definition of the PDR was unclear, projects choosing the third option were shelved, according to Ken Rich, who oversees the eastern neighborhood planning process for the city. “All the commission did on July 31st was clarify exactly what replacing PDR means,” Rich said.

“Basically you are still subject to the same three choices,’ said Rich. “You wait for the eastern neighborhood EIR to go through the board. You can do your own EIR. Or you replace the PDR on the site based on the rules adopted on the 31st.”

Other mixed-use PDR/housing projects impacted by the ruling include 26 units at 1174 Folsom St., 100 units at 1415 16th St., 557 units at 801 Brannan St., 27 units at 1240 Minnesota St., and 100 units at 25 Division St.
A shifting housing market

The long delay has taken its toll on builders. Many have been paying taxes and mortgages on non-income-producing land for years while waiting to restart planning work. Others have switched attention to Oakland, which has more relaxed land use policies but has also been hit much harder than San Francisco by the national housing recession.

“When there is trouble at home, you look to other areas,” said Dave O’Keefe, who has developed projects in SoMa but more recently has been working in Oakland.

O’Keefe said the new realities of the credit markets and weakness in housing market means that many of the projects that would have been long built and housing residents will now be tough to finance.

“Now there is finally certainty in terms of the fees and benefits, but there is no certainty as far as the marketplace,” said O’Keefe. “A lot of these projects will be put on ice anyway because the lending climate is not there right now. The mom and pop lenders have shut their doors. You’re holding the property, making payments, and suddenly the financial markets are not good and the sales market isn’t good.”

While many developers had one existing project under construction when the 2660 Harrison decision was passed, those have long been completed.

“In a perfect world, a developer has one under construction and one or two in the entitlement pipeline,” Keighran said. “The industry is coming to a halt and the work out there is coming to a halt.”

Based on 1,500 proposed housing units selling at an average of $700,000, the city is losing out on $10.8 million in property taxes a year due to the delay, Keighran estimated.

“By the time I have a building permit, it will be five years,” said Keighran.

George Hauser, the developer and architect whose 2660 Harrison St. project became the poster child for the projects put on hold, said he is waiting for the eastern neighborhood EIR. He said he would take another look at the 2660 Harrison St. project once the plan is passed.

“You can spend a lot of time drawing when it’s not something the zoning will allow,” he said. “That was one of the big promises, that by waiting for the rezoning we could have more certain entitlement environment in which to operate.”

Still, developers cautioned that the eastern neighborhood plan would not be law until the Board of Supervisors approves it, and the definitions could change significantly.

jkdineen@bizjournals.com / (415) 288-4971
jkdineen@bizjournals.com