Arrested Development

Mayor Brown is pushing for quick approval of a Hunters Point Shipyard redevelopment plan that gives a lot to homebuilding giant Lennar, and not nearly enough to the city or the shipyard's neighbors

One afternoon in late September, Mayor Willie Brown broke into his out-of-town schedule to conduct a conference call with a group of citizens from southeast San Francisco. For some weeks, the group -- which includes residents, environmental activists, and artists from the Bayview neighborhood and is known as the Hunters Point Shipyard Citizens Advisory Committee -- had been reviewing a plan for the first phase of development at the former Hunters Point Shipyard.

For the past 10 years or so, the 500-acre shipyard, a federal Superfund site, has been the subject of a massive, still incomplete environmental cleanup by the U.S. Navy. After completing the cleanup, the Navy is to transfer the shipyard land to the San Francisco Redevelopment Agency, which plans to remake the area as a mixed-use community.

In his call, the mayor urged members of the advisory committee to work quickly in reviewing the first phase of the project, which the Redevelopment Commission is expected to consider -- and most likely approve -- as early as next month. This development deal would be the largest in recent city history, an agreement to build out what is often jokingly referred to as "the last 500 acres in San Francisco." The first phase of development includes the improvement and sale of 93 acres of that land. If the plan gains approval, a group led by the Lennar Corporation, America's largest homebuilder, would eventually turn the acreage into improved land for some 1,600 houses and 300,000 square feet of commercial space.

The San Francisco Redevelopment Agency 
plans housing and commercial development 
in the first phase of shipyard construction.
The San Francisco Redevelopment Agency plans housing and commercial development in the first phase of shipyard construction.
Roy Willis, operations director for 
Lennar/BVHP, shows plans for the new 
shipyard development.
James Sanders
Roy Willis, operations director for Lennar/BVHP, shows plans for the new shipyard development.
Hunters Point Shipyard is broken into six 
parcels for transfer to the city, starting with 
Parcel A.
Hunters Point Shipyard is broken into six parcels for transfer to the city, starting with Parcel A.
ARC Ecology Director Saul Bloom (left) 
talks to the city's Jesse Blout at a 
community workshop on the shipyard 
project.
James Sanders
ARC Ecology Director Saul Bloom (left) talks to the city's Jesse Blout at a community workshop on the shipyard project.
Lennar/BVHP's Willis and District 10 
Supervisor Sophie Maxwell talk after a 
presentation on shipyard development 
plans.
James Sanders
Lennar/BVHP's Willis and District 10 Supervisor Sophie Maxwell talk after a presentation on shipyard development plans.
Bayview citizens listen to plans for the 
shipyard's development.
James Sanders
Bayview citizens listen to plans for the shipyard's development.

Those present for the mayor's call say he suggested the advisory group spend only a short time -- perhaps 30 days -- reviewing the first-phase deal. And it's no secret that Mayor Brown wants the Lennar deal done before he leaves office at the end of the year; it would be a permanent part of Brown's mayoral legacy. Later, though, some committee members harrumphed, saying that the deal has taken 30 years to get to this point, and the mayor should cool his heels while they look at what City Hall has in store for them.

A good, long look at the first phase of shipyard redevelopment may well be in order. A review of documents related to the project, supplemented by interviews with a wide variety of interested parties and experts, reveals potentially serious problems in a deal that seems generous to its developer and less than fully advantageous to the city of San Francisco or residents of the Bayview.

If the Phase 1 agreement is signed, the city will have hired a developer to build out a Superfund site where the full extent of toxic pollution is not yet known. Navy contractors have yet to complete significant portions of an environmental assessment of the property, which has been the subject of one toxic surprise after another. State and federal environmental regulators have not yet approved any of the property for transfer. And the Navy has yet to sign an agreement specifying how the land will be transferred to the city.

On the financial front, the group that would develop the first phase -- a partnership among Lennar and two local firms -- stands to benefit significantly if redevelopment commissioners approve the deal. To be sure, Lennar has spent millions of dollars on planning for, and meeting with the community about, the project. Still, the deal seems to all but guarantee Lennar repayment of its predevelopment costs and a large profit, while insulating the developer from almost all risk.

For starters, if the deal is approved, Lennar will be developing land it did not have to buy. (The military is under a congressional mandate to clean up the land and turn it over to the city.) More than half of the cost of building basic infrastructure for the land -- streets and sewers, among other things -- will be financed through public bond sales. Once the infrastructure is in place, Lennar will be in line to receive a huge chunk of the profits from the sale of land -- or it could sell the land to itself. And Lennar would be relieved of the largest risk involved in developing the shipyard -- the risk of future lawsuits over environmental problems -- through environmental insurance paid for from proceeds of the land sale.

The proposed deal would also seem to lock Lennar into a position of almost complete control of the shipyard. For more than four years, Lennar has held an exclusive right to develop the property that prevents the city from dealing with any other developers and precludes Lennar from having to compete. If redevelopment commissioners approve the first-phase deal, Lennar would continue to enjoy that exclusive concession.

At the same time, nothing in the Phase 1 agreement would prevent the Lennar consortium from developing the cleanest, most profitable parts of the shipyard land -- and leaving the more polluted parts of the shipyard for less fortunate developers to deal with when the Navy transfers property in the future. And because the Navy's schedule to transfer property is not the same as the proposed development plan, the areas of the shipyard that would host commercial and light industrial development -- the development that would bring the jobs that have been the main goal of residents near the shipyard -- might not come under city control for many years.

The Hunters Point Shipyard was closed in 1974, leaving 8,000 people unemployed. In the politically turbulent era toward the end of the Vietnam War, San Francisco public opinion did not favor the military, so the shipyard was a fairly easy target for closure. But the move left deep resentment among blue-collar workers who felt sacrificed for the city's left-leaning politics.

For years, the former shipyard just sat, with the occasional promise of future development. Under federal law, the Navy is responsible for cleaning up the property, which is polluted in some form or fashion by most of the chemicals used in 20th-century industry. The shipyard was also home to a major nuclear research laboratory, and an assessment of possible radiation contamination is scheduled for completion early next year.

Environmental cleanup at Hunters Point has started and stalled repeatedly over the years, alternately plagued by budget fluctuations and prodded by activist lawsuits. Finally, with a shove from San Francisco's congressional delegation, the military began a serious effort to clean up its mess in the mid-1990s, in anticipation of transferring the property to the city.

The deal to develop the former shipyard property was struck a few years later, when two things happened. In 1997, the San Francisco Redevelopment Commission, whose members are appointed by the mayor, decided to convert the shipyard property to civilian use by hiring a master developer, meaning that the agency would hand off the property to one developer to plan and create a new community. Later, the commission selected Lennar, under what might be called curious circumstances.

Lennar Communities is a part of the Miami-based Lennar Corporation, one of the nation's largest homebuilders. In recent years, the company has also ventured into the military base rehabilitation business, building new communities on former Department of Defense land.

In 1998, the San Francisco Redevelopment Agency invited developers to bid on the Hunters Point project, and then hired the financial services firm of KPMG, LLP to review the bids. Lennar partnered with Mariposa Management, a San Francisco developer, and Luster Inc., a local construction management firm, to form Lennar/BVHP Partners. (Mariposa and Luster had bid on the project as a separate entity before combining with Lennar.) KPMG recommended another bidder, Forest City Enterprises Inc., which had partnered with Oakland-based developer Em Johnson Interest, as the best choice for the job. (Another group led by Mission Bay Developer Catellus Corp. also was a finalist.) "Forest City has the most relevant urban, large-scale mixed-use experience and an established track record of economic revitalization of blighted areas," KPMG stated in its recommendation.

But the San Francisco Redevelopment Commission, citing the supposed wishes of the community adjacent to the shipyard, chose the Lennar group, effectively ignoring its own consultant. The 1999 vote followed a parade of Bayview residents -- many of them well known as supporters of Mayor Brown -- to the commission's microphone, where they extolled the virtues of Lennar, which had spent many hours and much money wooing certain members of the community. The Redevelopment Commission's decision to go against its own consultant's recommendation caught the attention of the FBI, which was investigating city contracting abuses at the time. According to the San Francisco Examiner, FBI agents requested records related to the Lennar deal from the city's Human Rights Commission, but no charges were ever filed.

The Redevelopment Agency entered into an exclusive negotiating agreement with Lennar/BVHP, meaning that the city could no longer talk to any other developer about the shipyard. In exchange, Lennar began reimbursing San Francisco for its costs, including the time that city attorneys and staff members spent negotiating with the Navy for cleanup and transfer of the land and planning the development deal. This meant that the city was off the hook for much of the expense of the shipyard transfer -- and that Lennar was paying the salaries of the people who were representing the city in the deal.

While the Navy's cleanup dragged on long beyond any of its initial time estimates for transferring the shipyard property to city control (mostly because of unexpected environmental problems) city officials worked on the development plan with Lennar. So, now, the city has a plan, but no shipyard. Lennar has paid the city some $6.5 million, and spent another $13 million or so creating the deal.

And, it's fair to say, the developer wants to make its money back.

Years ago, the Hunters Point Shipyard was divided into six parcels for the purposes of transfer from Navy to city. Before the first shovel of dirt can be turned for development at the former base, the Navy has to finish cleaning up the property, and state and federal environmental regulators must approve the cleanup. But there's a problem: The Navy's cleanup plan is not necessarily in sync with the city and Lennar's development plans.

And that's only one of several basic development hurdles that still hinder any attempt to civilianize the shipyard.

As far as the Navy is concerned, a deal to transfer any shipyard property to the city hasn't been struck yet, according to Lee Saunders, environmental public affairs officer for the Navy's Southwest Division, which oversees the Hunters Point cleanup. The agreement that governs the transfer of base property, hammered out by city and federal lawyers, staffers, and community representatives, has not been signed, Saunders says, and the Navy still considers itself in negotiation with the city over such transfers.

Even when the transfer agreement is signed, the shipyard land where community facilities and retail space would be built -- the facilities and space that would bring the permanent jobs promised to the Bayview community in the first phase of development -- will not be available until Lennar builds and sells the houses that compose most of the project's first phase. Commercial and industrial space -- a more important source of future jobs -- is not included in this phase of development at all. And the Bayview Hunters Point Center for Arts and Technology -- a replica of a successful education, job training, and arts center in Pittsburgh that was once the crown jewel of the shipyard redevelopment plan -- tired of waiting for the Navy's cleanup to be finished and found a new home elsewhere.

Meanwhile, significant environmental questions remain unresolved, including those surrounding radiation contamination. Between 1946 and 1969, the shipyard was home to an applied radiological research laboratory involved in numerous experiments on the base, as well as every nuclear weapons test the U.S. military performed during that time. The Navy has not yet completed its Historical Radiation Assessment of the shipyard, which comprises years of research into possible locations and sources of contamination. A draft of the report in 2002 identified more than 100 radioactive substances -- from those whose effects last only seconds to those that remain poisonous for thousands of years -- used at Hunters Point Shipyard. Since then, Navy officials have found several areas where radioactive material was stored or used, information that will likely be included in the new report.

That's not to mention the methane gas that continues to migrate underground from an old landfill located in the southern part of the shipyard. State and federal regulators will not sign off on the transfer of even the cleanest parcel of land -- a hilltop and hillside overlooking the bay where Lennar plans to build homes -- while there are problems like migrating gas in the land around it.

Perhaps more troubling for the project's immediate future, though, is the Navy's most recent schedule for transfer of the land. This first phase of development -- the subject of the present deal heading to the Redevelopment Commission -- is planned for land known as Parcels A and B. Parcel A is composed of a hilltop and hillside overlooking the base and the bay, while Parcel B is the northernmost section of the shipyard.

But the Navy's transfer schedule is based on when it will complete environmental cleanup of the land, not when the city wants to develop it. And the Navy plans to transfer Parcel D, an area in the center of the shipyard, before it completes Parcel B. According to the shipyard general plan, Parcel D is designated for unspecified commercial or industrial use, but is not included in the present deal between the city and Lennar. The end result may well be that the Lennar group cannot complete its scheduled development for years, while the city has vacant land that it cannot develop until the shipyard cleanup is more complete.

Most of the stated community benefits of the project -- public facilities, some 300,000 square feet of retail space, more than a third of the housing designated as affordable, and a significant stretch of open space -- are in Parcel B, which, under the Navy's present cleanup schedule, will not be ready for development until sometime after 2008.

The redevelopment of a former military base tends to be a unique undertaking, driven largely by the circumstances surrounding each base's closure; it is, therefore, all but impossible to compare one such redevelopment effort to the next. The deal between Lennar/BVHP and San Francisco is a complicated tangle that includes numerous different profit splits along the way. But in the end, the developer is set to make a handsome profit, despite having invested literally for years without any return.

Rather than sell the shipyard property outright or hire a developer to build out the shipyard for civilian use, the San Francisco Redevelopment Agency has, in effect, created a partnership with Lennar/BVHP. After shipyard land is cleaned and transferred to San Francisco, the city will, in turn, transfer it to the Lennar group. The developer will build infrastructure, creating streets, utilities, and so forth, and then sell the improved land. Proceeds from the land sale are then divided between city and developer through a multi-layered plan. Lennar has the option of selling the land to itself at market rate, or to another developer who would build on it.

The city's investment in the first phase of the development is its 93 acres of land, valued in the deal (even though it was never appraised) at $30 million. Under the terms of its contract with Lennar, San Francisco will likely receive the $30 million land value, plus an additional $6.3 million. Because the project is designated as a redevelopment zone, that total $36.3 million must be reinvested within the area. The money will go into a community benefits fund that the Citizens Advisory Committee will determine how to spend, whether it be to build a community center, to lower housing prices, or for some other use. The city also will get six acres of land for a community use that has yet to be determined.

Lennar's investment in the first phase are its predevelopment costs – including paying the city's redevelopment bills for some four years – valued at $20 million. The developer is scheduled to make back that investment, plus another $14.2 million in profit. City officials have repeatedly said that the developer's profit is based on the risk Lennar took in paying out predevelopment costs before the land was even available. "Lennar has taken a risk for property that is not owned by the city and has really shown a commitment to the city and the people of Bayview-Hunters Point by putting up money," says Lennar spokesman Sam Singer, whose firm represents the developer in San Francisco.

But Lennar is developing land it did not have to buy. And more than half of construction costs for infrastructure in the project's first phase will be financed through public bond sales, according to city officials involved in the deal. More than $13 million of Lennar's $20 million investment in the project was generated at Lennar's discretion, and $10 million will be refunded to Lennar/BVHP from bond funds before construction ever starts. Meanwhile, Lennar holds an exclusive right to develop the city's property – a potentially lucrative right that has not been assigned a monetary value during consideration of the deal.

Under the first-phase contract now under consideration, Lennar will also be protected from liability for any unforeseen environmental problem that may arise during or after building at the shipyard. Federal law dictates that the Navy is required to clean up any environmental problems on the property before it's transferred, as well as anything found later. But Lennar/BVHP's deal with the city also includes a $150 million private environmental insurance policy, to cover interim costs, should there be a toxic surprise, with the Navy not immediately responsive. The nearly $700,000 premium for the insurance is to be paid for out of proceeds from the sale of shipyard land before the profits are dispersed.

So with environmental risk largely eliminated, and with a profit guaranteed once the first-phase land is sold, and with the option to buy first-phase land, build houses there, and then sell them, it would seem that Lennar faces only one major financial risk in regard to the shipyard deal: Lennar, one of the nation's largest developers of homes, may lose money if it can't build and sell homes for a profit in a city with a severe housing shortage.

If the Phase 1 deal seems designed to insulate Lennar/BVHP from most financial risk, it poses a large potential risk to the city. Nothing in the present agreement prevents the developer from "cherry picking" the best parts of the shipyard land for development and leaving the rest. Lennar continues to hold an exclusive negotiation agreement that precludes the city from entertaining other development proposals, but the present development agreement only covers the first phase of the project.

In other words, Lennar is legally free to build and sell homes on the cleanest part of the base and then walk away from the rest of the project, leaving the city with no developer for areas that are designated for commercial and light industrial use -- that is to say, the areas that will bring permanent jobs. Lennar says it intends to develop the shipyard for the long haul.

"We believe ultimately that your partners are going to act in good faith," Singer says. "We believe that the Navy is going to act in good faith and clean up the land, and that the city will continue to participate, and so will we, even though this has been slower than we would like to have seen, certainly slower than the city and the neighbors would have liked to have happened."

Others, though, question whether Lennar is getting too much in the deal, and whether the claim that the developer has endured great risk is not greatly exaggerated. "The argument is kind of compromised," notes Eve Bach, a lawyer with the ARC Ecology environmental group. "We're down to a much smaller amount of money that they're putting up [than if the developer fronted construction costs]. The question is, how much is the city paying to get this front-end capital, and how does that compare with what they could borrow?"

Back in 1993, the Hunters Point Shipyard Citizens Advisory Committee issued a list of priorities for developing the former shipyard. Nearly all of them had to do with jobs. Employment, in fact, is a common concern among communities where hundreds or thousands of jobs evaporated when the military closed up shop.

For example, Sacramento County turned its former military bases into industrial parks, including an airport and a technology campus, as the military was cleaning them up. "Replacement jobs is number one," says Sacramento Economic Development Director Paul Hahn, whose city has seen three military bases close, including McClellan Air Force Base, which employed some 12,000 civilians. "You have to look at what they [the military] did, and what is the contamination, and what are the facilities, and come up with a re-use plan that makes sense.

"Industrial and commercial development came first, and housing came second. First and foremost, the county was focused on trying to get jobs."

In San Francisco, though, there is a seemingly insatiable appetite for housing, and in the current market, housing will likely make more money than commercial development, so residential construction has become a priority for developers. Because the Navy has broken just about every cleanup schedule it's ever made, the transfer of property that might be used for job-creating commercial and industrial development remains in a seemingly perpetual limbo. "The community wanted jobs, and that's a very good priority, and I understand it, but show me the jobs," says Jim Chappell, executive director of the San Francisco Planning and Urban Research Association, who believes the city should be courting employers that would locate at the shipyard. "Zoning and plans do not create jobs. Broad-based, long-term economic strategies create jobs."

There are other significant issues that must be addressed before any major commercial or industrial development at the shipyard can work, including transportation. The present entrance into the shipyard -- from Third Street down Evans Avenue -- would send increased traffic through Bayview neighborhoods. (There is no immediate plan to link the Third Street light rail that is currently under construction to the shipyard site.)

In a separate move, San Francisco is studying a southern entrance that would link the shipyard with Highway 101, through either a bridge or an expressway spur. Such a direct transportation link into the shipyard would certainly open the door for commercial development, but it would also bring additional plumes of car exhaust to a community already plagued by asthma and air pollution-related illness.

Environmental activist Saul Bloom, director of ARC Ecology, notes that his organization, for one, would fight any future transportation plan that does not include direct economic benefits to the surrounding community. And beyond a few hundred construction jobs involved with the building of housing, job creation remains a distant dream for the former Hunters Point Shipyard.

As the mayor flogs, citizens consider, and the Redevelopment Commission gets ready to vote on the long-awaited first phase of civilianization of the Hunters Point Shipyard, rumors of a plan for a new football stadium float around the old naval base like so many ghosts. Nearly any time San Francisco 49ers owners John and Denise York talk about rebuilding Candlestick Park, there is some mention of at least the possibility of an alternative location for a new stadium. One of those possible sites is Hunters Point Shipyard. Though it has no place on any of the colorful maps that illustrate all of the new development proposed for Hunters Point, the idea of a new football stadium for the San Francisco 49ers on this shipyard is not dead. Nor, it seems, is it alive.

"They (John and Denise York) are interested in keeping the stadium on Candlestick Point. But they would also consider the possibility of putting a stadium at the shipyard," says Singer, who also represents the Yorks. "John and Denise York have expressed interest in a stadium at the shipyard. They have looked at the shipyard, have spoken to Lennar about it. They are talking hypothetically about it. But that's as far as it has gone.

"There is no plan."

For that matter, every aspect of the Hunters Point Shipyard plan -- except for the housing proposed for Phase 1 -- remains in a kind of arrested development, even if the city signs a deal with Lennar this year. New jobs, other than those connected to the construction of infrastructure and houses, are still years away. So are public facilities such as a community center and job-training programs. Environmental cleanup of most of the shipyard will not be complete for at least another seven years. In fact, Mayor Brown's successor may not see development of this shipyard to a finish. But after three decades of living next to a dead, toxic shipyard that has offered nothing but the vague promise of jobs and development on a long and indefinite timeline, few in the Bayview-Hunters Point neighborhood are particularly surprised by a plan that involves uncertainty, and a lot more waiting.

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