Cursed By Knowing The Numbers

The Port recently put this 600,000SF property out for RFQ/RFP on a 75 year groundlease basis.  Curbed and Socketsite are abuzz with opinion about what this site wants to be--

The port needs $1B to cover the gap in its operating and cap exp budgets, and it is using the ground lease of this site as a way to cover a significant part of this shortfall. 

The Port is counting on $8 to $10M in rent, which translates into about $250 PSF in residual value. My guess is you need an FAR of about 3 to make this work.  From the Mission Bay Standards, this looks achievable.

Opportunities/Constraints?

• LEED Gold or better.
• 2.57 acre China Basin Park to be developed as part of the plan.
• No height restriction.
• residential allowed as a potential use--unique for a waterfront location.
• close to UCSF Med Center
• Bayfront location.
• Replace all infrastructure, including Terry Francois boulevard.
• classic path of development play.

The math:

About 1.2MSF of buildable, at $750PSF TDC means this is a ~$1B total build out. 

Uses? 

Hotel--long term obviously, although this is a remote location for the next ten years.  There is a 500 room hotel use permitted across Third Street from this site. ADR hasn't accelerated to the point where you are seeing much new product.

Destination--some interesting options, but how much ground rent can be paid?

Office--subject to Prop M, and the Hines/Pelli Transbay project has the potential to tie up all the City's office space entitlements for roughly ten years.

Retail--the old "half a trade area" problem, the other half of the trade area being residents of San Francisco Bay and not huge shoppers.

Condos--the late saviour of the commercial construction market is oversupplied right now.  There are several condo sites being quietly offered, and no takers.  The fact that this site is groundleased means that condos are not a real option.

Rental housing--obvious use, but can it pay $100K/door?  You need $6 PSF rents to do that.  You have a few units on Craigslist pushing $5, so this is probably a 4 cap on trended rents.

The site used to be the old H&H Ship Service Company's tank farm, so you don't want to excavate much at all.  The Giants want 2000 spaces of ballpark parking--actually not much for a major league park.

Chase costs will be significant--any deal requires approval by the State Lands commission, and amendments by BCDC, but this is a marquee site in one of the world's greatest cities.

Oh ye gods, why do you tempt me so?

..of global climate change is human activity, particularly the burning of fossil fuels such as oil and coal.  So says the IPCC's summary, published last Saturday.

Well, we can't exactly build our way out of it, but how we build, and where we build will have a lot to do with the changes afoot.  The built environment can be a significant part of the solution--one of the largest opportunities embedded within the climate change crisis.

The IPCC Fourth Assessment Report is out.  Rising temperatures, rising sea levels [the area in light blue is what is likely to be under water in the Bay Area], and long term changes already well underway are described within the report.

We need a new way of valuing what we develop, and where.  The good news is that, after transportation, changes in our built environment have the greatest mitigation potential on climate change.

Where do you start?  Ask yourself if you are building the right thing in the right place.  Ask yourself if you are building it to thrive in a high cost energy world.  And start being the change...

In my pantheon of real estate pros, Sam Zell occupies a prominent place.  I first became aware of him and his grave dancer moniker when I was a grad student--he is a master of the real estate cycle.  In the past year, "he has achieved guru-like status in the business world." 

His sale of EOP at what looks like now as the top of the office cycle is recent proof that he hasn't lost his touch.

I recommend you take the time to read this article.  My takeaways:

he is constantly trying to "shut out the noise of conventional wisdom.  While it may not be wrong, it is rarely profitable."

"Look, business is easy.  If you've got a low downside and big upside, you go do it.  If you've got a big downside and low upside, you run away.  The only time you have any work to do is when you have a big downside and a big upside."

"...when you invest in emerging markets, you are trading growth for the rule of law, so it is critical to find the right local partner and build a strong personal relationship.  You're making a marriage."

Now to go do it...

is the quality of the interaction between

• you and the water, the light, the air
• you and quality of what you can touch
• you and other people
• you and what you need--food, solving a problem, finding a solution--and
• you and the architecture.

Leveraging how you choose to live a life.