Cothran

Exchange of Unpleasantries
Max and David Myers are old-fashioned guys, a curmudgeonly Jewish father-and-son team perhaps better-suited to an era when men could wear fedoras without irony. The building from which the Myerses have run their dried-goods business and real-estate partnership for several generations is an art deco throwback. So it's only fitting, then, that they have old-fashioned ideas about how to cut a deal. To them, deal-making goes this way: Two private parties get in a room and stare each other down un-til someone blinks. Whoever amasses more leverage wins.

As holders of prime South of Market property -- two parcels at Folsom and Spear streets coveted by the Pacific Stock Exchange for its new headquarters -- the Myerses would, under normal conditions, hold the balance of leverage in this sellers' real estate market.

But when it comes to big deals, the San Francisco real estate market has not operated normally since Jan. 8, 1996, when Willie Brown took office. Since then, whenever it's suited him, our mayor has called on the powers of government to unbalance the playing field on behalf of those he has deemed important.

Any day now, the stock exchange admits and the Myerses expect, the city's Redevelopment Agency could enter the picture, bringing its power to value and condemn property to bear on three private landowners who hold pieces of the exchange's desired site for a new headquarters. (The city owns the rest of the proposed site, and is also negotiating with the stock exchange.)

If the Redevelopment Agency does step in, and if its past actions can be read as prologue, the Myerses believe they will be screwed, and the stock exchange will get a very, very sweet deal.

In fact, the powers of the Redevelopment Agency are so potent, its mere presence in the wings has unbalanced the negotiations in favor of the exchange. Of course, the entry of the government into what should properly be a private negotiation would be terribly unfair.

But it's an unfairness we've come to expect in the age of Willie Brown. He with the power gets the diamonds. And the rest ... well, you can finish the axiom.

To grasp the Myerses' pessimism, you have to look at another waterfront land deal facilitated by redevelopment officials last year. In that case, the agency forced owners to sell below their desired price -- and well below anything close to market value -- by calling into play its extraordinary land-assembling powers.

In that case, the beneficiary was the Gap Inc., the hip clothing giant that also wanted to build a new San Francisco headquarters. The deal was outlined last year in an award-winning investigative piece by former SF Weekly staff writer Chuck Finnie (who now works for the San Francisco Examiner). In very short form, the deal went like this:

The owners of pieces of the proposed Gap site included the state Transportation Department, the city, and some private parties. The Redevelopment Agency bullied Caltrans into selling its land at a steep discount by claiming, disingenuously, that there were serious toxic problems at the site. The city then sold the Redevelopment Agency (and hence the Gap) another parcel of land for an insanely low price.

These below-market deals had the effect of lowering the value of the property surrounding the third and final parcel, and, therefore, the parcel itself. And that was the parcel that was owned by private individuals.

The agency began to acquire that parcel through the condemnation process, using the artificially low prices paid for nearby land as touchstones for the price of the private parcel. In the end, the owners of the parcel settled for some $150 less per square foot than the Gap had itself offered them five years earlier. And in the end, this Redevelopment Agency squeeze play cost the private owners millions upon millions of dollars.

You might be asking yourself: How in the world can a redevelopment agency -- an agency charged with sparking development in the urban war zones where development would not occur on its own -- use the condemnation process to seize waterfront real estate in a boom area of the city?

Actually it's fairly easy. The Redevelopment Agency can work its magic wherever "blight" exists. The courts have ruled that the government can consider fragmented land -- that is, land broken up into bits owned by several different owners -- to be blighted, under the theory that such fragmentation forestalls economic development. And once the Redevelopment Agency rules that property is blighted and puts it into a redevelopment project area, the government's overwhelming condemnation powers can be brought to bear.

When it condemns private property, the government is supposed to pay fair market value. But the results of condemnation are not always equitable. The owner of property the government wants to condemn has few options. He cannot refuse to sell the land, or try to sell it to someone else. He must sell to the government, and as the Gap example shows, the government has many ways of minimizing the price it eventually pays.

The Myerses' property is right across the street from where the Gap deal went down. And they are sure they and another holdout landowner will eventually be Gapped by the Redevelopment Agency.