[BTinSF]

But as we all know, the reality is mostly bad:

Friday, October 31, 2008
Credit freeze puts major S.F. projects on ice

San Francisco Business Times - by J.K. Dineen

The building explosion that transformed large swaths of the central San Francisco skyline over the past four years has come to a screeching halt as nervous lenders and developers mothball active construction sites and place long-awaited ground breakings on hold.

The frigid environment is affecting not only condo towers but also office buildings and even government projects, and likely spells the start of a two-year drought for major new construction jobs.

At 535 Mission St., Beacon Capital Partners has directed contractor Swinerton Builders to stop work on a 27-story building that represented the only downtown office highrise under construction.

In Mission Bay, Bosa Development is not going forward with the 318-unit phase two of the Radiance until lenders are comfortable with sales in the 99-unit first building.

At One Rincon Hill, developer Mike Kriozere has delayed construction of the second, 42-story tower as his sales staff struggles to sell the remaining 100 units in the building’s first 60-story highrise.

“We own the land, we have the financing (Viewguy, Nequidimis please note) and our construction plans and contracts are in place,” said Kriozere of Urban West Associates. “Like others, our team is watching the economy for the proper time to re-commence construction.”

At 680 Folsom St., TMG Partners and Rreef are reevaluating the timing of plans to start a $200 million renovation and expansion of the old AT&T building, recast as Folsom Place.

The anxiety has seeped into the public sector as well: The Public Utilities Commission has shelved plans for a $188 million super-sustainable headquarters building at 525 Golden Gate Ave.

“Everything is on hold because there is no money to finance anything (well, not quite ANYTHING--see immediately above),” said Chris Foley of Polaris Group. “It looks like there may be some money in the second quarter of next year.”

The combination of tight credit and a likely recession are dampening whatever new plans exist. Some projects that can get financing don’t make economic sense any more, said Michael Joseph, a principal with Kearny Capital.

Condos that could sell for $800 a square foot 18 months ago have dropped in some cases by 20 percent and more, putting values on par with still-high construction costs. Two condo projects, Symphony Towers and the Hayes, are offering at least 20 percent markdowns for some units.

“If you have product that makes economic sense to build, you could get a loan for it,” said Joseph. “The difficult part is finding a project that makes enough sense.”

But with office rents on the decline and condo values dipping, it’s hard to make a compelling case for new condominiums or office towers.

“You are hard pressed to build in the Bay Area for much better than 6 percent return on cost,” said Joseph. “So why would you take all that risk and end up with no profit?”

Apartments and biotech seem to be the two bright spots in the development landscape, said Joseph.

Elaine Forbes, finance director for the San Francisco Planning Department, said the pipeline of new projects of more 25,000 square feet has also dropped precipitously. The first three months of the current fiscal year saw 2.9 million square feet in applications for eight new projects of 25,000 square feet or more; during the same period last year, applications came in for 13 million square feet of major projects.

“We’re seeing revenues lower than we project, but we’re not seeing a dramatic downturn yet,” said Forbes. “We have seen the end of a strong housing cycle in favor of office development and now we’re wondering if that cycle is ending as well.”


jkdineen@bizjournals.com / (415) 288-4971

Source: http://sanfrancisco.bizjournals.com/...ml?t=printable