San Francisco Business Times' Structures Breakfast

Your BOMA San Francisco Advocacy Team and member leadership attended the San Francisco Business Times' 2009 Structures breakfast recently. The guest speakers included:

• Mayor Gavin Newsom
• Michael Covarrubias, Chairman & CEO, TMG Partners
• Oz Erickson, Chairman, The Emerald Fund
• Monique Moyer, Executive Director, Port of San Francisco
  

With the tumultuous downturn in the commercial and residential real estate markets, the event, which focused on the future of San Francisco from a development standpoint, was informative and timely. Here are the highlights:

Stay Positive - Joan Story, Partner, Sheppard Mullin Richter & Hampton LLP

• The doom and gloom of the current economic environment is hard to avoid: with residential foreclosures, commercial real estate defaults and frozen credit markets, the key is to stay positive.
• With the projected population growth, the demand for real estate will continue to exist in the Bay Area regardless of the economic environment.

Mayor Gavin Newsom

• There are challenges, but we need to focus on what's right: San Francisco's unemployment is high, but it's the lowest in California; the vacancy rate for Class A commercial space in San Francisco is high, but it is the lowest in the Bay Area; and lastly, the City's bond rating is low, but it's the highest in California.
  
• The City's budget: All parties have come to a reasonable agreement. It's balanced without borrowing or raising taxes.
• San Francisco's bond rating is up, which has allowed the city to sell $130 million in bonds (e.g., General Hospital Bond).
• There are development projects in the pipeline. The Hunters Point project is in its first phase with 400 units being built; they will be available for purchase later this year. This project is important as the various stakeholders have been talking about redevelopment at Hunters Point for 30 years. What's transpiring--development and environmental clean-up--is beneficial for the City, the residents of Hunters Point, and the environment.
  
• In addition to Hunters Point, there are a number of other development projects that will help drive the local economy: Treasure Island has a planned carbon neutral development in the works; and, the Port of San Francisco has a number of planned projects.
• The City has been successful in improving the parks and building 21st Century libraries in San Francisco.
• The Road Repair and Safety Improvements Bond is part of the City's 10-year Capital Plan. While there have been some reservations about this bond measure, the Mayor made it very clear that if the San Francisco electorate doesn't pass the Road Repair bond, there will be a painful escalation cost to help maintain the roads in the City--$753.2 million vs. $550 million (or $119,000 per block vs. $90,000). A larger benefit to the local economy from the bond measure is job stimulus. Passage of the bond will guarantee that 'real' jobs will be produced, helping the local economy over the long run.
• San Francisco, under Mayor Newsom's leadership, has opened a new office in China that reaches out to Chinese businesses and helps them create new economic opportunities in San Francisco.

Michael Covarrubias, Chairman & CEO, TMG Partners

• Where are we? The casualties are behind us, and we are waiting for a recovery. The question is, will the recovery come from job growth or demand?
• Commercial real estate--as bad as it is--is still good thanks to our location: San Francisco. More specifically, we can't overbuild and, thus, we are a safer location for capital than other localities.
  
• While true that it's tough to build here, it doesn't need to get any tougher (i.e., via fees, affordability issues, etc.). Luckily, in Mr. Covarrubias' view, the government and commercial real estate are on the same page.
• There are development possibilities in the current market environment: the Moscone Center expansion, for example. It is one of the smaller convention centers in the country, and if there were to be a push to expand the Center, it would need to be done in the next business cycle to be a viable project.
  

Oz Erickson, Chairman, The Emerald Fund

• How's the residential real estate (RRE) market? Bad: there currently exists 8 months of RRE inventory in San Francisco that needs to be absorbed. Consequently, construction of new RRE units has slowed to 600 total for 2010.
  
• The only RRE game in town is affordable housing.
  
• Most RRE construction money will be spent in 2011-2012.
• Professionals, such as architects and engineers, who are involved in RRE construction have seen their business shrink 50% and 40%, respectively.
• Construction unions have a 25% unemployment rate.
• The City, namely the Board of Supervisors, hurts construction, mostly through fees. For example, at 1 Rincon Hill, the fees alone cost $90,000 per unit. In 6 years, there has been a 14 fold increase in city fees.
• Solutions: A moratorium on fees and the City's assistance in reviving RRE construction in San Francisco.

Monique Moyer, Executive Director, Port of San Francisco

• The Port is debt free as of July 2009 and plans to reinvest the money saved going forward.
• There are many new exciting projects are on the horizon, including the $250 million Exploratorium project at Piers 15-17, and a modern cruise ship terminal at Pier 27. Please click here for a full list of the developments under consideration.