Friday, February 1, 2008
New S.F. condo project will be a rarity in 2008
San Francisco Business Times - by J.K. Dineen
Jackson Pacific is set to begin construction this week on One Hawthorne St., a 165-unit building likely to be one of the few new condo projects to begin rising from downtown San Francisco this year.
The 24-story building, which will cost $150 million to build, is a joint venture with San Francisco-based MacFarlane Partners.
Ezra Mersey, the former Tishman Speyer managing director who founded Jackson Pacific in 2003, said any hesitancy to jump into the treacherous housing market is outweighed by the project's prime location near the corner of Howard and Second streets.
"We're looking beyond the present cycle and creating a unique project -- with the best location, exceptional contemporary design and very strong sponsorship," said Mersey.
Amalgamated Bank, a labor union pension fund, provided the $120 million construction loan along with the Bank of America. Webcor is the contractor.
While a dozen amenity-packed deluxe condo projects have vied for attention over the past three years,
financing for new construction has dried up in recent months. Instead of the 10 to 15 percent equity common in past few years, lenders now look for developers to put in 40 percent of construction costs, and few banks are willing to lend more than $50 million for new condo projects, according to Michael Joseph of Kearny Street Capital, a commercial mortgage broker who worked with Jackson Pacific on the deal.
The only other highrise projects expected to begin building this year are phase two of One Rincon Hill and possibly Turnberry Associates' 45 Lansing St., which Jackson Pacific ushered through the city's entitlement process and sold 18 months ago for $30 million. Two major downtown residential towers are now under construction: Millennium Partners' tower at 333 Mission St. and phase two of Tishman Speyer's Infinity.
The terms of the construction loan were hammered out in September, and Joseph said it would be nearly impossible to duplicate it in the current credit environment. In addition, the involvement of the deep-pocketed MacFarlane Partners and the experienced Webcor went a long way toward assuaging lenders' fears.
"A lot of banks are licking their wounds right now and they are not interested in more speculative development," said Joseph.
While MacFarlane Partners is one of the biggest urban real estate investors in the country, with $20 billion under management, One Hawthorne is its first San Francisco project. MacFarlane Partners' Bay Area projects include the Crossing in San Bruno, Bay Street in Emeryville and Uptown in Oakland. Company founder Victor MacFarlane lives in a penthouse at the St. Regis in San Francisco.
One Hawthorne will include an unusually diverse selection of floor plates ranging from 550-square-foot "junior one bed-room" units to 2,200-square-foot three-bedroom condos. Pricing will range from $500,000 to about $3 million for 2,200-square-foot penthouses. Mersey said he wants to cater to an eclectic mix of buyers, including families who he predicts will be increasingly drawn downtown.
"Families live in downtown Paris and New York," he said, "so why wouldn't they live in a world-class city like San Francisco?"
Mersey concedes that the national housing market "may get worse before it gets better," but
he calls San Francisco the "most land-constrained and supply-constrained market in the United States."
"The excesses were far less here and the recovery will be much better," he said.
The project will be an important milestone for Jackson Pacific. The firm made a major bet on downtown and Rincon Hill in 2003, during the dot-com downturn, snapping up three sites: 45 Lansing St., 340 Fremont St., and One Hawthorne St, which Mersey said was a "failed dot-com and no one else wanted it." Mersey's company took each project through the city's time-consuming and politically charged approval process. All three were approved in 2006.
Since that time, more than $2 billion has been invested within five blocks of One Hawthorne, with developments ranging from the $460 million Westfield San Francisco Centre and the $350 million Millennium Tower to the $300 million office tower at 555 Mission St.
"The amount of investment near the site is staggering," said Mersey.
The building will consist of a masonry podium and a curtain wall tower broken into two sections. Mersey, a former architect who worked with the celebrated Philip Johnson, designed the building with EHDD.
jkdineen@bizjournals.com / (415) 288-4971[/quote]
Source:
http://www.bizjournals.com/sanfranci...ml?t=printable