Agency halts land auction key to S.F.’s transit center
The Transbay Joint Powers Authority has called off a much-anticipated live auction of a key piece of land after several of the developers, spooked in part by the meltdown of international stock markets, informed the agency they wouldn’t be submitting bids.
The authority canceled the auction late Tuesday afternoon, just 18 hours before the first-of-its-kind event was scheduled to take place at San Francisco City Hall.
The move is significant because the authority, which is charged with building the new Transbay Transit Center at First and Mission streets, had hoped to generate upward of $200 million for the 29,000square-foot parcel, which can accommodate a 750-foot-tall tower. While $200 million is less than 10 percent of the cost of the $2.1 billion transit center, it’s money that is badly needed because the project’s con-
struction costs have been skyrocketing. In June the authority said that recent bids had added $210 million to the price tag.
Real estate sources said that several of the prequalified bidders were uncomfortable with the auction process, which would have required a hefty nonrefundable payment before any project was approved for the property. In addition, at least two of the five bidders were Chinese and may have been reluctant to place a major bet at a time when stock markets in that country have lost 43 percent of their value since June.
Transbay Joint Powers Authority spokesman Adam Alberti said the agency would continue to work with the five prequalified bidders “to secure the best price and most complementary land use for the site.” Under the rules laid out in the auction, the agency has the right to cancel the auction and choose the bidder to which it would offer the property.
Parcel F represents the last remaining site available for development in downtown San Francisco with a direct connection to the Transbay Transit Center via a pedestrian sky bridge. Located mid-block between First, Second, Howard and Natoma streets, and adjacent to the Transit Center, Parcel F is zoned for at least two-thirds office space. The remainder would be retail, hotel or housing.
Land sales are a central part of how the agency is paying for the increasingly expensive transit center. On Sept. 17, the Transbay Joint Powers Authority is scheduled to sell Transbay Block 5 to an office developer for $172 million. Previously, the agency sold 101 First St. for $192 million, a site that will be home to the Salesforce Tower, San Francisco’s tallest building. Residential sites sold include Block 6/7, which in October 2013 went for $30.57 million plus an affordable housing fee; Block 9, which sold in February for $43.63 million; and Block 8, scheduled to close in October for $71 million.
None of those sites involved an auction. The agency’s deci-
sion to hold a live auction was likely motivated by a desire to jump on a land rush, largely fueled by Chinese money in recent months, that resulted in a $297 million sale of a 1.17-acre development site at nearby 50 First St. The buyer in that case was Tohigh Property Investment, a wholly owned subsidiary of the Chinese group Oceanwide.
It’s unclear to what extent the economic turmoil in China played a role in the cancellation of the Parcel F auction, but a consultant on one of the bidding teams said the international stock market slide “absolutely had an impact on several of the bidders.” While money from China will continue to pour into San Francisco, it will be less likely to go after deals that come with the political and market risks associated with large downtown developments.
“The big Chinese money is going for stability, especially now,” said Daniel Cressman, a broker with Newmark Cornish & Carey. “It’s like the Japanese investors in the 1980s — they are going to be buying up topshelf trophy buildings without any risk.”
AGI Capital Principal Eric Tao, whose group was part of the winning team on Block 9, said that the auction structure probably turned off developers both from the U.S. and abroad.
“It’s a different process,” he said. “With (a request for proposal) process you vet your design and concept and programming. You go through a community and planning process before you have to commit large sums of money.”
Darlene Chiu, who heads up ChinaSF, a city agency that helps bring Chinese investors to San Francisco, said she doesn’t expect any slowdown.
“Some groups may be rethinking how to approach development,” she said. “But I don’t see the money stopping.”
Patricia Yeh, a senior manager at architecture giant SOM, who works with Chinese developers, said that some foreign builders found that Block F, a mid-block site currently used for staging and access to the Transbay Terminal construction site, was trickier than initially thought.
“Once people started to get involved in the project, they realized that it was complicated and that it might take longer to get approved,” she said. “It’s hard to figure out the value of the land if you don’t have a clear sense of capacity or design of the building.”