Miami-based home builder Lennar reached a final agreement last week with the city of San Francisco on the redevelopment of the Hunters Point Naval Shipyard and nearby Candlestick Point, where Lennar plans to build up to 10,000 homes within those sites' 770 acres.
Lennar and the city reduced some of their risk on this $2 billion project when the builder last month formed a 50-50 financial partnership with Hillwood Development and Scala Real Estate Partners. Lennar, Hillwood, and Scala will kick in $618 million for "horizontal" development costs. Over the past several years, Lennar had already spent more than $100 million on development and planning. (A spokesman for Hillwood deferred all questions about Hunters Point to Lennar. Officials from Scala did not return phone calls requesting comment.)
Emile Haddad, Lennar's chief investment officer, told BUILDER on Friday that his company needed to find new development partners after LNR Property dropped out of the project. "In today's world, there are going to be a lot of changing partners," he said. Haddad called Dallas-based Hillwood a "natural partner" for the Hunters Point/Candlestick Point redevelopment and pointed to other similar projects it has worked on, including Victory in Dallas that surrounds American Airlines arena and the mixed-use community that's part of Alliance*Texas airport in Fort Worth. Haddad had worked with Hillwood previously on at least four projects when he was employed by Bramalea, the developer that Lennar acquired in 1995. Scala's principals are former Hillwood executives.
Last June, 61 percent of San Franciscans who voted approved a proposition supporting Lennar's redevelopment plan and rejected an opposing proposition that called for a significantly higher level of affordable housing than the 3,345 affordably priced homes Lennar's plan calls for. "That was an endorsement by the community of our pro forma," said Haddad. Public financing, through the sale of Mello-Roos bonds, are expected to provide another $1.4 billion for this project.
Aside from the homes it will build (which include restoring the dilapidated 256-unit Alice Griffith Public Housing Project on Candlestick Point), Lennar's plan calls for 300 acres of open space, parks, and recreation sites; more than 700,000 square feet of retail space; and 2.2 million square feet of office, science, technology, and research space. Kofi Bonner, president of Lennar's Urban Land division, who is supervising this project, told BUILDER earlier this year that his company's investment in the vertical component of this project could eventually run as high as $6 billion; the latest draft of the plan states that construction of the affordable homes alone would cost more than $500 million.
Lennar has also agreed to pay the San Francisco 49ers football team $100 million to help pay for a new stadium on Hunters Point, where the team would lease land for $1 per year. (The 49ers' ownership has been threatening to move the team to Santa Clara, Calif.) If the team accepts, environmental work would start on the site next year, and construction of the stadium could be completed by 2013, Haddad confirmed. "The central part of the plan right now is the stadium," explained Haddad, so that Lennar can start installing infrastructure in order to build the stadium as quickly as possible.
Hunters Point was once a naval shipyard and has long been identified as a toxic Superfund site by the EPA. The San Francisco Chronicle reported that the city has received funds from the Navy to clean up the first of four phases at Hunters Point and expects the cost to clean up the rest of the site to range from $300 million to $500 million.
Lennar has been directly involved in the Hunters Point redevelopment since 1999, when it outbid three other companies to become the master developer. Since then, the builder's environmental stewardship during the initial stages of the project has been ridiculed by critics who also worry about the city getting into bed with any builder on such a mammoth project at a time with demand for housing is weak.
Haddad didn't dispute this perception of current market conditions. "The consumer is hearing, and is being told, that we are in a recession, and the consumer is saying that he's not gong to buy anything until things get better."
But he also noted that Lennar won't be starting its first homes on Hunters Point for several years. (Michael Cohen, director of the city's Office of Economic Development, told the Chronicle that the land should be ready for development within a decade and that the residential and commercial construction could be completed by 2023.) Haddad also dismissed naysayers who question the city's ability to sell bonds when the financial markets are in turmoil. "Everyone tends to forget that nothing happens in a nanosecond," he said. "We believe this is a very good time to be entitling land for when the market turns around. And we're hoping that by the time the bonds are sold, in two or three years, the environment will be better."
John Caulfield is a senior editor at BUILDER magazine.