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Greenbelt Alliance In the News

June 25, 2004

San Francisco housing reaches for the sky

Development pipeline soars skyward as opposition eases

In a city long resistant to large-scale development, highrises -- particularly residential skyscrapers in the downtown area -- are not only being reconsidered, but also are garnering greater acceptance.

In fact, more than 30 towers, ranging from 18 to a soaring 58 stories, are proposed, approved or under construction. Twenty-one of these projects are slated for housing or include a significant residential component, offering a potential addition of more than 5,500 housing units to the city's pipeline.

The right combination and timing of market forces and planning trends are driving city development skyward, developers and planners say. But they also say they've seen a gradual change in the mindsets of those previously opposed to building tall. That shift, along with a greater recognition of the value of smart growth in the last developable areas of the city, stands to transform the San Francisco skyline over the next decade.

From 'no' to 'how'
Most of the highrises in the pipeline have been proposed near San Francisco's downtown core, with the largest numbers of tall buildings slated for South of Market, particularly in Rincon Hill and the area around the Transbay Terminal. The mid-Market/Mission Street corridor could also see significant additions to the skyline. (See map and sidebar.)

Whether people will embrace highrises in San Francisco "is still a live issue," according to Gabriel Metcalf, deputy director of think tank San Francisco Planning and Urban Research (SPUR). But, he said, "there seems to be a citywide acceptance of the idea that around the Transbay Terminal, in Rincon Hill and in SoMa, that that's a good place to go to build highrises."

In a city where development is often dogged by "not-in-my-backyard" neighbors, outspoken activists and anti-development politicians, San Francisco's current generation of highrises has generated surprisingly little opposition.

The location of the highrises in the pipeline is partly responsible. On a basic level, because of their downtown locations, there are simply fewer neighbors to protest development, said Larry Badiner, acting director of the San Francisco Planning Department. "Generally for downtown projects, people don't care," he said.

Which is not to say some of the planned towers have not caused controversy. Badiner noted that the 300 Spear St. and 201 Folsom St. projects at the foot of Rincon Hill garnered "vehement opposition," but added that his office is now seeing positive responses to other Rincon Hill projects under consideration.

Why the change in attitude? One explanation is a growing realization that by building tall and adding housing downtown, there will be less pressure to build in other neighborhoods, where resistance to new building and higher density is greater.

Another is that neighbors, activists, politicians and planners have a greater appreciation for the value of smart growth, or building denser housing around public transit, than they did a decade ago. City development plans for the Rincon Hill and Transbay Terminal areas, for example, are centered around the smart-growth concept. Supervisor Chris Daly has come out in support of the 300 Spear and 200 Folsom towers in Rincon Hill, and groups like the Sierra Club and the Greenbelt Alliance have moved toward advocating smart growth from policies of no growth.

That's a marked shift in a city where proposals for tall buildings have frequently been derided as "Manhattanization."

"San Francisco is a limited land mass. ... If you are going to have growth, then you've got to have highrise, high-density living," said developer Jack Myers, whose Myers Development Corp. is working on a controversial 51-story residential tower near the Transbay Terminal. "People who have resisted that in the past realize that it's not a question of if, but when and how that will manifest. They are changing from 'no' to 'how.' "

It's the 'how' that worries attorney and frequent development foe Sue Hestor when it comes to highrise residential construction downtown. "Do I have problems with people living in tall buildings? No," she said. "But if the economics of who's being served is warped by it... when you go to 40 to 50 stories, tell me how many people can afford the top 20 stories?"

Hestor says she's concerned that highrise developers, in order to make their projects pencil out financially, are marketing to the top 1 percent of income earners, many of whom want second homes in the city, or to DINKs (households with double incomes, no kids). Selling or renting bay-view condos to this wealthy minority of the population does little to alleviate the shortage of housing for middle- or low-income families in the city, she said.

May the (market) forces be with you
For developers, the return of the highrise in San Francisco ultimately comes down to economics.

When the demand for offices slumped, many developers approached the planning department about converting office projects to residential, Badiner said. Now, with a strong demand for housing and continued low interest rates, developers are looking to highrise residential to fill what he called "a dramatic need."

San Francisco's housing shortage is well-documented. The Association of Bay Area Governments (ABAG) pegs San Francisco's average yearly housing need at 2,716 units for the period between 1999 and 2006.

"The shortfall is so chronic in San Francisco that we can be kept busy for a long time meeting and satisfying that demand," said developer Myers.

So when a downtown tower is completed and hundreds of new bay-view units go online, demand is high. The Metropolitan, a set of towers of 21 and 26 stories on First Street, is seeing strong sales, according to Jeffrey Heller, whose Heller-Manus Architects designed the project.

If there was any doubt about the potential of highrise residential development in San Francisco, the success of several large projects built in the late '90s proved that there's demand for downtown digs.

"People love the chance to live in highrises with views, said SPUR's Metcalf.

Projects like Millennium Partners' 40-story Four Seasons hotel and condos on Market Street, and South Beach condominium projects like Avalon Towers sold quickly, Metcalf said, which confirmed for developers that the opportunities were real.

Finding the money
Despite that, many of the skyscrapers now in the pipeline may never be built. Developers say the greatest obstacle to building higher and denser in San Francisco is not neighborhood opposition or planning issues. It's financing.

"Comforting (investors and construction lenders) with the prospect of building 200 to 400 units at one time is very challenging," said Myers.

Highrises spend longer in planning and take longer to build, increasing the chance that the market will change in the meantime. And the taller the building, the bigger the financing problem. Heller, whose firm is designing more than a half dozen highrise projects, favors pairs of more modest towers so that construction -- and financing -- can be done in phases.

The tallest proposed towers are six 40- to 50-story buildings called for in the city's proposed Transbay Redevelopment Project. The highrises contain up to 600 units apiece and face a tough road both in terms of market demand and financing, Heller said.

But demographic changes are likely to continue to fuel the ripe downtown housing market. The 2000 census showed a reversal of flight from inner cities that had been the national trend since the end of World War II. As part of that "urban renaissance," an increasing number of younger people and older "empty nesters" are returning to the city. These are the types of people that seek out highrise living, Heller said.

Lifestyle changes may also be boosting the demand for rooms with a view.

"There's been a gradual realization that people want to live in San Francisco because they like the urbanity, said Metcalf. "They want to live near restaurants and stores, maybe walk to work. The only way to provide the urbanity that people are looking for is to build high densities."

Elizabeth Browne is a contributing writer to the San Francisco Business Times.

© 2004 American City Business Journals Inc.

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