Brookfield has halted construction of a 3.5-million-square-foot mixed-use development that would create a neighborhood out of San Francisco’s historic Pier 70.
New York-based Brookfield Properties, master developer of the 28-acre site on Potrero Point, has hit pause on the $3.5 billion project because of economic conditions resulting from the pandemic, the San Francisco Business Times reported.
The Pier 70 project, which broke ground in 2018, calls for up to 2,150 residential units and 2.3 million square feet of commercial space to create a neighborhood on the city’s Central Waterfront. The development also would include parks and space for artists and manufacturing, while rehabilitating historic industrial buildings.
The global developer, in a joint venture with the Port of San Francisco, has already spent $237.4 million on its first phase, which includes infrastructure, road work, and the restoration of a vintage structure. The initial phase calls for six more new or restored buildings.
But Brookfield, whose development agreement requires it to buy or lease development parcels for the project’s first phase within two years of groundbreaking, has not exercised its option.
The reason: “ongoing economic impacts of the pandemic and construction costs on the viability of vertical development,” according to a Port report. It said Phase 1 revenues were coming in later and possibly lower than expected due to market conditions, creating a lower developer return than was projected five years ago.
An appraisal on one of the parcels last June came up short, granting Brookfield a “down market delay” of at least a year, said Rebecca Benassini, the Port’s director of real estate and development, at a hearing this month.
“They would have been required to take a parcel after it was appraised or lose it, but because we are in a down market, they don’t lose the option on the parcel,” she said.
Two more appraisals will take place in June to gauge whether market conditions have changed – and if the appraisal meets expectations, the clock starts ticking. Should market conditions remain the same, similar appraisals can be conducted each year for five years before both Brookfield and the Port face “bigger consequences,” Benanssini said.
Brookfield, despite the break in construction, remains committed to completing Pier 70, said Jack Sylvan, senior vice president of development for Brookfield.
The company has moved forward with its $2 billion redevelopment of the Stonestown Galleria mall.
“We take a very thoughtful, long-term approach to transformative projects of this scale,” Sylvan told the business journal. “Given the dislocation of the past two years, we are working to ensure that the Pier 70 project meets the community’s and market’s commercial and residential needs for decades to come.”
While the pandemic temporarily froze most construction across the city in early 2020, its long term impacts on the real estate industry are hard to measure. The vacancy rate of San Francisco’s 82 million square feet of office space hovers at 22 percent as companies shed physical offices for remote work.
Before the pandemic, Google was in talks to lease Pier 70’s entire office component, or 1.75 million square feet. But the Silicon Valley firm ceased negotiations in March 2020. Brookfield has since won permission to lease any future offices for life sciences use.
[San Francisco Business Times] – Dana Bartholomew
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