Falling for the Gap

San Francisco gave away the store to help The Gap Inc. and its politically connected chairman build an upscale headquarters with a bay view. But more than $18 million in subsidies apparently won't bring the city anything it couldn't have had free.

Quite simply, the agency forced owners who had declined The Gap's $368-per-square-foot offer to sell for $207 -- and then flipped the land to The Gap at no additional cost.

The Gap will be allowed to snap up the rest of the two-acre-plus parcel at even lower rates. The Gap would get the land made available by the scrapping of CalTrans' freeway project -- approximately 43,000 square feet -- at $163 a square foot. The last piece making up the site for the new Gap headquarters is a 35,000-square-foot parcel that the city got for free when the Embarcadero Freeway was razed after the Loma Prieta earthquake. The Gap would get that piece of land for $111 a square foot.

In all, The Gap will pay about $13.9 million for the site.
If the firm had to purchase all of the property at the rate offered in 1991 for part of it, the cost would be about $32.6 million.

The intricacies of this redevelopment deal seem to give The Gap a benefit at every turn. In addition to the land subsidy of $18 million (plus or minus), the deal will route $4 million of the $13.9 million The Gap does pay for the property to a mid-Embarcadero transit improvement and roadway beautification project that runs in front of, and would improve and beautify, The Gap's potential new home.

There is one payment the Redevelopment Agency will require of The Gap that could be considered a legitimate offset to the multimillion real estate subsidy the firm received. If it goes forward with the project, The Gap will have to pay an extra $1 million over the usual development fees for the landscaping of a narrow park across the Embarcadero from the development, and another $100,000 annually for maintenance of what will be called Rincon Park.

This amenity will enhance the Embarcadero's already stunning scenery -- but even the park will give The Gap a benefit. By agreeing to build the park, The Gap acquires a say in the Port of San Francisco's plans to build a restaurant at the south end of the port-owned Rincon Park -- a restaurant that could, or could not, obscure views from the potential Gap headquarters out to San Francisco Bay.

Despite all the benefits given to The Gap, there is nothing in the deal that binds the company to that headquarters -- for any period of time.

Public records show that The Gap would be perfectly within its legal rights to take the entire two-plus-acre parcel that the firm obtained at such discounted rates, resell it to a third-party developer -- and keep the profits. That developer would have to agree to build an office tower, and some "major" company or partnership must agree to establish a headquarters inside the building. But that company doesn't need to be The Gap.

There are indications that The Gap will cede control of the new building to such a third-party developer.

Houston-based developer Gerald D. Hines has been at the bargaining table on The Gap's behalf since very early in its drive to control the waterfront site.

And a "major" tenant already has been lined up to occupy a large part of the office tower. Montgomery Securities, the San Francisco-based investment banking firm, has been negotiating to move into the so-called Gap building for months.

This redevelopment deal contains one other amazing potential giveaway for The Gap.

If The Gap decides not to buy the property assembled by the Redevelopment Agency, the agency's contract with The Gap requires the government to sell the publicly owned waterfront land on the open market and hand the profits over to -- no, not the public, but The Gap Inc.

So, when Michael Kaplan, the Redevelopment Agency senior project manager, testified before the Board of Supervisors that the deal "has many benefits," he was correct. The Gap and Donald Fisher really can't lose.

A paper trail of correspondence, appraisals, and contracts lays bare a simple fact: The San Francisco Redevelopment Agency cut a sweetheart deal with Fisher and The Gap, and forgot to attach any strings. When pressed, public officials are unable to provide a satisfactory -- or even reasonable -- explanation for their actions.

In support of the Gap redevelopment deal, agency officials and city supervisors continue to point to approximately $8 million in one-time levies the project's developer will have to pay to the city. Those levies would be used to fund affordable housing, parks, schools, and public art. But by law, every developer of commercial office space in San Francisco pays these very same levies. By definition, they are not compensation for the extraordinary incentives the city has extended to The Gap.

Supervisor Michael Yaki's Economic Development, Transportation, and Technology Committee reviewed the final pieces of the Gap agreement before it went to the Board of Supervisors. Yaki offers this defense of the agreement:

"I have no doubt for a moment there was a good deal on the land. But, if we want to entice people to stay, and remain, we might have to spend a little. This is a strategy of retention."

Nowhere in the agreement, however, did the agency or the Board of Supervisors ask for any such assurance -- that The Gap Inc. would, in fact, build, move in, or even stay in town.

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