Related California swaps land for approval to build bigger

Related California may build a taller tower in San Francisco in exchange for donating a nearby site for affordable homes.

The Irvine-based developer has proposed adding 35 feet and 40 more apartments to a tower at 98 Franklin Street in exchange for buying a former McDonald’s restaurant site at 600 Van Ness Avenue and giving it to the city for affordable housing, the San Francisco Chronicle reported.

Supervisor Dean Preston, who struck the deal with the developer, plans to submit legislation to the Board of Supervisors to nail down the agreement.

The deal would restart a stalled mixed-use development near Van Ness and Market Street by allowing Related to raise its tower from 365 feet to 400 feet, increasing the apartment count from 345 to 385 units.

The base of the building would be occupied by a 90,000-square-foot French-American International School, which bought the Franklin Street parking lot in 2012 and asked Related to develop the tower.

In exchange, Related has lined up a deal to buy the former McDonald’s, which it would give to the Mayor’s Office of Housing and Community Development.

The site is approved for 168 apartments, but it’s not clear who will finance and develop them.

Because the Van Ness site can accommodate significantly more affordable units than would be required onsite, Related would not have to pay about $6.5 million in fees, according to the agreement.

While the land donation would allow Related to avoid fees, the developer has agreed to pay an additional $1 million to help jumpstart a 54-unit affordable project languishing in Hayes Valley.

The arrangement comes as residential builders scrounge for ways to make projects pencil out while construction costs soar and rents decline.

Matthew Witte of Related California said construction costs have gone up 50 percent since his company completed 1550 Mission Street, a 550-unit tower and city office building finished early in the pandemic. At the same time, rents have dropped.

To compensate, developers seek to expand the number of units in projects. Tishman Speyer, the developer of 655 Fourth Street, has proposed increasing the project from 960 to 1,148 apartments. At 1 Oak Street, developer Build was approved to increase its tower from 304 to 460 units.

That the former McDonald’s site was stalled and available to be bought for affordable housing shows the lack of capital for market-rate buildings, according to the Chronicle.

The Franklin Street deal is similar to an agreement reached between Crescent Heights and the owners of the so-called “Monster in the Mission” site at the 16th Street BART station. The developer was allowed a taller tower at 10 South Van Ness Avenue in exchange for buying 1979 Mission Street and handing it over to the city for low-income housing.

Jeff Cretan, a spokesman for Mayor London Breed, said “this is something we are going to see again and again.”

— Dana Bartholomew

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