Posted: Nov 30, 2007, 6:28 PM
Join Date: Jun 2006
Location: San Francisco & Tucson
Lennar gets to the Point
Bruised developer pushes ahead on shipyard housing
San Francisco Business Times - by J.K. Dineen
Lennar Corp. is poised to break ground next spring on the first wave of housing in the former Hunters Point Shipyard, despite being among the homebuilders slammed hardest by the national mortgage crisis.
The Florida-based home-builder will open a sales office and start construction in 2008 on the project's first 82 units, a tiny fraction of the 1,600 units planned for the first phase, according to Kofi Bonner, president of Lennar's urban land division.
While modest, the first vertical construction will be a "seminal moment" for a corner of the city that has seen little investment since the Navy shipyard was shut down in 1974, said Bonner.
"It's going to be a happy event to see those houses going up and the hill taking shape," said Bonner.
Happy events have been few and far between in recent months for Lennar. In 2007, Lennar has seen its stock price wither from highs of $56 on Feb. 2 to recent lows of $14. The company has laid off 25 percent to 35 percent of employees in most markets, including San Francisco, where about 10 project managers were let go in November. Companywide, Lennar's housing starts in 2007 are down 62 percent from last year, according to an SEC filing. The builder recently postponed construction on 1,500 units in Irvine.
Lennar declined to comment on the layoffs out of respect for its current and former employees, but said the company "remains committed to its San Francisco-area projects."
In a statement, the company said: "Lennar, like other developers, continually assesses its operations and makes adjustments to meet changing market dynamics."
With some 20,000 housing units in the development pipeline at Hunters Point, Treasure Island and Candlestick Point, Lennar will arguably be San Francisco's biggest and most important housing builder over the next 10 years. The developer has taken gamble on some of the city's most challenging sites, agreeing to invest billions of dollars to create new neighborhoods in a sectors of the city plagued by crime and pollution.
In addition to 1,600 housing units at Hunters Point, the first phase includes 20 acres of new parkland, 20,000 square feet of retail. Some 30 percent of the housing will be for sale below typical market prices; even the market-rate units will be relatively affordable for San Francisco, averaging between $485,000 to $700,000. The first homeowner would move by the end of 2009.
Lennar is investing $90 million in infrastructure, environmental remediation and grading for the 63-acre phase one.
"That is $90 million before we get $1 million back," said Bonner.
Despite the layoffs and troubles with the subprime mortgage crisis in Florida and California's Central Valley, Lennar has shown a commitment to the San Francisco projects, according to Michael Cohen, head of real estate development and military base re-use for Mayor Gavin Newsom.
"The bottom line is you put your money where your mouth is, and Lennar is investing heavily every day in San Francisco," said Cohen.
And San Francisco is also hedging its bets, Cohen said. The city's exclusive negotiating agreement with Lennar requires the developer to take on development and equity partners for nearly every aspect of the project. Lennar has signed on Kimco Properties, one of the nation's largest retail developers. Engineering giant Mactec is also a partner on the project.
Bonner said Lennar is close to signing a deal with a housing developer for a chunk of phase one, but that the deal has not been consummated.
"It is our preferred business model to joint venture on everything we do," said Bonner.
The weakening condo market has prompted Lennar to reconsider a type of housing it had initially rejected: rental apartments. Bonner said Lennar is talking to city officials about shifting some of the 10,000 housing planned units from condos to rentals. The move is likely to please some Bayview-Hunters Point residents, Bonner said.
"We were criticized two years ago when we felt the highest value would be obtained by building just condos," Bonner said. "It just so happens that the condo market is not strong, it's soft. And the apartment market is stronger. We would be silly not to take a look at that."
Lennar only builds for-sale housing, so rental housing specialists would be brought on to develop the apartments, Bonner said.
Cohen said the city has always pushed Lennar to build a diversity of housing types, with market-rate, affordable, rentals, condos, high-rise and townhouses. He said having both rentals and condos would create a livelier and more financially sound community.
"It tends to be the case that when one is ebbing the other is flowing," he said.
Bonner said once the first block of housing is started, the hope is to start another chunk of housing "every two or three months" depending on the market. Lennar hopes to complete about 300 condos a year and will proceed cautiously.
"You're better off not having homes out there sitting empty," said Bonner. "In a market like this, you have to be much smarter about how you build. You have to be very clear how you are putting your dollars out."
Voters weigh in
Meanwhile the city and Lennar are going to the voters in June with a ballot initiative that would gauge voters' support for phase two of the Hunters Point shipyard as well as Candlestick Point. The combined project would include 9,000 homes, a shoreline trail, 350 acres of parkland, 700,000 square feet of retail, a cleantech research and development campus and an artists' village to maintain and expand the artist community currently at Hunters Point.
It could also include a San Francisco 49ers stadium, a possibility very much up in the air as the football team is negotiating to build a stadium in Santa Clara.
The measure would replace and update a proposition city voters passed in 1997.
"The good news is we have an unbelievably compelling story to tell about open space and jobs and affordable housing," said Cohen.
John Stewart, chairman of the John Stewart Co., which is hoping to build 700 units of public housing and condos next to the Lennar project, said the builder would survive the downturn.
"Everybody is getting hammered on the subprime. Do I think Lennar will weather it? Sure," said Stewart.
He said the first housing to appear on the side of the hill would make it easier for both his company and Lennar to attract other investors.
"It shows people there is change," he said. "Bankers look at it and see old broken-down public housing or an old base that was a Super Fund site, but isn't any more. It's hard for people to envision change, particularly positive change. They can see things going bad but not well."
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