Lennar intends to appeal a decision by state officials in Calfornia to reject a $25 million grant proposal by the city of San Francisco that the builder could have tapped for its massive Hunters Point redevelopment project there.  

Earlier this month, voters favored a proposition that combines Hunters Point, straddling San Francisco’s bay, with the redevelopment of nearby Candlestick Point. Lennar is the presumptive master developer of this 771-acre project, on which it intends to build parks, a research center, commercial and retail space, an arts center, a football stadium and at least 8,500 new homes. Nearly one-third of those homes will be priced for buyers earning between 50 percent and 80 percent of the area’s annual medium income. The company spent more than $4 million to help defeat an opposing proposition that would have required at least half of the homes at Hunters Point to be priced affordably.

Lennar expects to spend nearly $8 billion on redevelopment and construction at Hunters Point and Candlestick Point. Kofi Bonner, president of Lennar’s Urban Land Division for northern Calfornia, told BUILDER on Thursday that raising funds through Community Facilities District bonds (better known as Mello-Roos tax-increment financing) would probably not be as fruitful as Lennar had hoped because such funding is linked to land values that have been depreciating lately both in San Francisco and throughout the state.

Consequently, the builder saw the city’s grant proposal—which was applied for by the San Francisco Redevelopment Agency—as a way to make up some of the shortfall. The grant would have drawn from a fund established by a proposition that voters approved last February, which in part earmarks money for urban infill projects.

Bonner says that the state’s Department of Housing and Community Development at first needed clarification from Lennar and the city about an infill project that requires so much new infrastructure (Hunters Point is a former shipyard that is essentially a contaminated brownfield.) However, the project ultimately didn’t score high enough to qualify for the grant, explains Bonner, because according to the state it wasn’t close to enough amenities. “I was quite upset about this,” says Bonner, because one of the main selling features of Hunters Point is that it would attract new businesses and amenities to a neighborhood that has been deprived of both for decades. The city resubmitted the proposal that it rescored in a way that exceeded the state’s criteria, but by then the grant was already oversubscribed, and the state wouldn’t recognize the city’s rescoring.

The grant rejection two weeks ago gave opponents to Lennar’s involvement in Hunters Point more ammunition to suggest that the builder was financially unstable. Around the same time, Landsource Communities Development, a joint venture in which Lennar owns a 16 percent stake, filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Landsource’s filing ensnared a number of Lennar’s projects, including its Mare Island shipyard redevelopment. An alternative weekly, the San Francisco Bay Guardian, which has been a vocal critic of Lennar as the developer of this project, again has raised questions about the wisdom of turning over so much prime real estate to a builder with apparent money problems.

While Bonner dismisses such criticism as a distraction, he says Lennar was concerned enough about Landsource’s fallout that it sent a letter, signed by Emile Haddad, the builder’s chief investment officer, to local politicians explaining that Landsource’s bankruptcy would not affect the Hunters Point project. Bonner also says that his company has nothing to apologize for about seeking public funding to help defray the cost of an undertaking in which Lennar has already sunk more than $100 million before it has even started to build one house.

“We will continue to seek funding in the future, too,” he says.

John Caulfield is a senior editor for BUILDER magazine.

Learn more about markets featured in this article: San Francisco, CA.