W.L. Brown: A Public/Private Partnership

Brown responded to the criticism in a variety of ways, at times suggesting he would refrain from mayoral action that would affect former clients, out of concern about the appearance of conflict of interest. At other times, he indicated he would recuse himself only when the law required it. But once elected, Brown demolished any notion he would abstain from matters relating to Catellus by fiercely advocating for a new plan for Mission Bay.

In an interview just days before Brown's mayoral inauguration, the Examiner quoted the mayor-elect as saying that building Mission Bay would be one of his top priorities, and that he'd be calling Catellus the day after he was sworn in as mayor. Brown also suggested the development could move more quickly with encouragement from Catellus' largest shareholder -- CalPERS, which then owned more than 40 percent of Catellus.

"I'll place a call to the people who actually own Mission Bay," Brown was quoted as saying. "We're not talking about a profit-seeking organization, we're talking about an entity under public control that simply must protect the beneficiaries' investment. That's a different agenda."

Catellus' hopes of developing Mission Bay had been bottled up for years. The city approved a development plan for the area in 1991, but Catellus found the plan so restrictive that it wasn't profitable to build. In 1995, the company walked away from the plan, and wrote off $84.8 million in losses.

But a reversal of fortunes followed quickly after Brown took office. Catellus gained approval of a new Mission Bay plan calling for construction of millions of square feet of office space and thousands of residential units. Approval came in October 1998 with the strong support of Brown, who actively and successfully campaigned for the University of California, San Francisco to locate a new biotech-oriented campus in Mission Bay. Some of the land for the new campus was, in fact, donated by the city.

Approval to move forward on Mission Bay removed a longtime thorn from Catellus' side. After 15 years of defeat at the hands of slow-growth activists, Catellus now had a centerpiece project -- involving hundreds of acres of prime San Francisco real estate -- ready for development.

As the fortunes of Catellus rose, so did the fortunes of the California Public Employees' Retirement System. The system had bought a huge chunk of Catellus stock in 1989, owning as much as 46 percent of the firm at one time. As a real estate recession took hold and then deepened in the early 1990s, however, the stock plummeted in value, drawing intense criticism of the investment.

Catellus' own annual reports indicate that the approval of Mission Bay -- an approval championed by Willie Brown -- improved the firm's financial position. Of course, other factors were also involved in the improvement in Catellus' fortunes, including other real estate investments in Illinois, Oregon, Colorado, and California.

Still, the trend is clear: When Brown took office, Catellus stock was hovering in the $6.50-per-share range. Early in December 1997, as Catellus' new plans for Mission Bay were sliding toward city approval, CalPERS sold nearly 19 million shares of its stake in Catellus at slightly more than $17 a share, reducing its percentage of ownership from more than 40 percent to about 18 percent. In effect, the retirement fund made some $200 million from the rise in stock prices between early 1996 and the time it sold its shares.

Somewhat paradoxically, it is this run of good fortune that helps create a two-step appearance of conflict of interest involving Willie Brown and the state retirement system:

1) Brown aids Mission Bay -- and Catellus, and, therefore, CalPERS -- in San Francisco, helping CalPERS recoup much of the paper loss it had suffered through its investment in Catellus.

2) CalPERS backs the Whitney Oaks venture and, consequently, aids Live Oak Associates III, which just happens to count San Francisco Mayor Willie Brown among its investors.

Next to Mission Bay and the Presidio, the Hunters Point Naval Shipyard is one of the most valuable pieces of soon-to-be-developed real estate in San Francisco. To be sure, sections of the former naval base have massive environmental problems. But the area also boasts some of the city's best bay views. The contract to develop the decommissioned shipyard, which is in the process of being returned to city ownership, is truly a one-of-a-kind opportunity.

The Lennar Corp. is the lead partner in a group that was recently awarded a San Francisco Redevelopment Agency contract to oversee the conversion of the shipyard to civilian use. The redevelopment contract became politically controversial in 1998 because some of Mayor Brown's close associates -- including Yber-lobbyist Billy Rutland, trucking contractor Charlie Walker (known sometimes as "The Mayor of Hunters Point"), and local Democratic Party insider Natalie Berg -- had been hired as consultants by the companies competing for the contract.