Partners Butt Heads Over Treasure Island Redevelopment

There’s a pitched legal battle over the real estate treasure on San Francisco’s Treasure and Yerba Buena islands.

Stockbridge Capital Group and Wilson Meany have filed a lawsuit seeking to declare a deadlock in their negotiations to boot partner Kenwood Investments out of the redevelopment project, the San Francisco Business Times Reported.

While Stockbridge and Wilson, both based in San Francisco, seek to deny Kenwood its share of the profits, Sonoma-based Kenwood has filed a countersuit alleging both have tried to dilute its interest.

Stockbridge and Wilson cited the pandemic, unexpected cost increases and delays that cut projected revenue to claim their investments are “much lower today than they were a few years ago,” according to their complaint.

Stockbridge, the equity funder in the joint venture, alleges that because it no longer expects to realize its preferred return on the project, Kenwood can no longer expect to receive its share of the profits. Kenwood holds a contingent equity interest.

Kenwood disagrees, causing the partners to reach a six-month impasse.

Stockbridge last month invoked a clause in the trio’s contract that obligates Kenwood to either buy its partners’ shares or sell its own interest to them by April 30.

Kenwood, led by Sonoma developer and lobbyist Darius Anderson, filed a countersuit alleging Stockbridge and Wilson Meany intentionally diluted its interest prior to the pandemic and are now “trying to push Kenwood out of the project it originated.”

“Stockbridge and Wilson Meany’s actions place the entire Treasure Island project at risk and leave Kenwood with no option but to protect its own interests,” Kenwood’s lawsuit states.

Kenwood’s lawsuit accuses Stockbridge and Wilson Meany of fraud and of breaching the joint venture’s operating agreement to “ensure their own profits” at the expense of Kenwood. The suit seeks unspecified damages and also names Stockbridge TI, a Stockbridge affiliate brought on in 2016 as another investor.

Kenwood first entered the Treasure Island development project in 2001, when it formed a partnership with national homebuilder Lennar. In 2005, Kenwood brought on Stockbridge and Wilson Meany to capitalize its 50 percent stake, forming a separate joint venture with the two firms. Lennar still holds the other 50 percent interest.

At the time, the partners agreed that any revenue from the project would first go to Stockbridge “until it recoups the amount of its capital contribution, as well as a return of 12 percent on its capital contributions,” according to Kenwood’s complaint.

The investors signed a disposition and development agreement for the 400-acre, man-made Treasure Island and neighboring Yerba Buena Island with the city in 2011.

The $6 billion, two-decade redevelopment has completed infrastructure work and a ferry landing along with Bristol, a 124-unit condominium building on Yerba Buena Island, and a 105-unit affordable Maceo May complex on Treasure Island.

Stockbridge and Wilson Meany allege the overall project’s “growing financial challenges destroyed the expected value” of Kenwood’s interest, according to their complaint. Details on the value were redacted from Kenwood’s countersuit.

Kenwood’s interest was still expected to have significant value in September 2019, according to the Stockbridge and Wilson Meany suit. But the projected revenue from land sales has fallen by nearly 30 percent since then, it says, while “development costs have increased by approximately 28 percent and financing costs have spiked by 16 percent.”

Their lawsuit alleges that the team has had challenges selling off land parcels for vertical development, stating that “potential third-party buyers had little appetite to commit to early vertical development” on Treasure Island. Many instead wanted to see successful vertical development by the investors or their affiliates before risking their own funds, the partners state in their lawsuit.

Stockbridge and Wilson Meany also say they have been transparent in every step along the way. Their lawsuit states they informed Kenwood that its share could potentially be diluted.

Kenwood spokesperson Sam Singer refuted those claims.

“They are not giving a good faith valuation of Kenwood’s interest in essentially trying to force Kenwood out of this deal — a deal that Kenwood and Darius Anderson originated,” Singer told the Business Times.

“They can’t have their cake and eat it too. On one hand, they’re out telling the public that Treasure Island has been able to move forward at a very rapid pace when so many other big developments are stalled,” Singer added. “You can’t tell a certain set of investors that there’s a substantial return at Treasure Island and they ought to give you their money and then turn to your partner Kenwood and say, ‘It’s just not going to be what we projected.’”

— Dana Bartholomew