Build Inc. surrenders 460-unit housing project in SF to lender

Build Inc. has surrendered a property approved for a 40-story apartment highrise in San Francisco’s Hub District to its lender.

The San Francisco-based developer has filed a deed-in-foreclosure for its stalled One Oak project at 1500 Market Street and will hand it over to Seattle-based Washington Capital Management, the San Francisco Business Times reported.

Build owed $44 million for the property at the edge of Civic Center, Mission and South of Market, according to the filing. It includes a parking lot and three-story building and ground-floor cafe.

The developer bought the parcels for the property in 2015 for $40 million. 

Its surrender marks the latest real estate casualty in a city where a third of the offices are vacant and rising interest rates, the coronavirus pandemic and soaring construction costs have hobbled housing development. Rents have fallen 15 percent since March 2020, according to CBRE.

The One Oak project was approved in 2017 as a mixed-use, 304-unit tower containing 1,200-square-foot condominiums, with a curved glass facade and public plaza. At the time, the development was valued at $400 million.

But Build couldn’t get investors to bankroll it as construction costs rose faster than home prices. In 2018, the firm tried to sell the site for an undisclosed price.

Last summer, the developer turned toward building apartments instead. The city’s Planning Commission approved revised plans to build a 460-unit tower of mostly studio and one-bedroom apartments, averaging 800 square feet.

While the denser building made more economic sense, Build still wasn’t sure the changes would draw the capital needed to construct it.

The commission approved the switch in a 4-3 vote, even as some of its members expressed doubts the project would get built, according to the Business Times. Build had already received a two-year extension of its entitlements in 2020.

The developer’s surrender of the One Oak site casts doubt on two other approved Build projects in San Francisco yet to break ground. One project is an apartment tower at 469 Stevenson Street in Mid-Market; the other is an India Basin mixed-use project in the southeast part of town.

The India Basin project includes more than two dozen industrial parcels along Innes Avenue entitled in 2018 for redevelopment. Plans call for more than 1,200 homes, 270,000 square feet of shops and restaurants and 15.5 acres of public open space.

While the city broke ground last year on a 10-acre India Basin Waterfront Park at 900 Innes Avenue, Build hasn’t moved forward on its housing plan.

In October 2021, San Francisco’s Board of Supervisors rejected a plan by Build for 495 homes on a Nordstrom parking lot at 469 Stevenson Street in South of Market.

The now infamous decision at the behest of an affordable housing group drew fire from Mayor London Breed, who called it a “perfect example” of how San Francisco sank into a housing crisis. It also became a symbol of the city’s red tape on construction.

The reversal sparked a first-ever probe by the state Department of Housing and Community Development into the city’s glacial housing approval process.

Last month, Gov. Gavin Newsom approved using a recent state law to speed up the resolution of any future legal challenge to the proposed 27-story project at 469 Stevenson Street. Its new environmental impact report is slated for certification on April 20.

— Dana Bartholomew