Hines-led group blows deadline for hotel-condo-office tower in SF

A Hines-led development group has blown its first deadline to pay $40 million in damages for its delay in building a 61-story hotel, condominium and office tower in Downtown San Francisco.

F4 Transbay Partners, a joint venture between the Houston-based developer, Goldman Sachs and locally based Urban Pacific Development, failed to make the first $5 million payment to the Transbay Joint Powers Authority by April 30, the San Francisco Business Times reported, citing a TJPA spokesperson.

The missed deadline raises doubts about the future of the 1.1 million-square-foot spire long planned for Transbay Parcel F at 542-550 Howard Street, in the East Cut neighborhood.

It was to be the first of four installments of a fixed $40 million penalty between now and 2027, according to a deal with the TJPA in 2022. An initial agreement called for a $70 million penalty if the developers didn’t complete the mixed-use tower by Dec. 31, plus another $15 million a year thereafter.

The 800-foot, silver-blue skyscraper project never broke ground. The consortium had expected to begin construction in 2022 and complete what would be the city’s fourth tallest tower by 2027.

The agreed-upon penalty of $40 million was to be secured by a letter of credit provided by F4 when it secured a construction loan for the mixed-use tower project.

But the development consortium never provided a letter of credit, the TJPA spokesperson said. Its failure to make the first installment by April 30 means “the damages provided in the original 2016 agreement are reinstated,” the unidentified spokesperson said.

The Hines-led group had previously told the authority that the “open-ended nature of such liability would make its project unfinanceable,” Transbay staff wrote in a 2022 report.

Hines did not respond to questions from the Business Times about the implications of not coughing up $5 million for the payment.

An unidentified Hines spokesperson said in an email that the developer was working with its lenders, partners and the city “to address the complex situation and financial commitments” associated with Parcel F.

“Our concerted efforts are focused on steering the project toward a successful path forward,” the Hines spokesperson said.

It was not clear whether the Transbay authority had already demanded payment of the damages outlined by its original 2016 agreement, or what deadline it would set for F4 to pay those damages. 

But in the event the Hines-led consortium fails to make that payment, too, the TJPA may find itself with no other choice but to file a lawsuit, according to the Business Times. The authority  didn’t respond to a request for comment about whether it plans to sue for damages.

The setback is the latest for Parcel F, a 0.67-acre site released by the Transbay Joint Powers Authority to pay for construction of its Downtown Transit Center.

The original purchase agreement was signed in 2016, when F4 Transbay paid $160 million for the last patch of land zoned for a tower in the area. Plans for Parcel F include 165 condos, 189 hotel rooms, 275,647 square feet of offices and 9,000 square feet of shops and restaurants.

In a promising start, Salesforce pre-leased all the Parcel F offices prior to city approvals. Then  Salesforce backed out in 2020 during a broad shift to remote work. F4 won approval for the tower in 2021, saying it would put together $1 billion in project financing and break ground.

But in July last year, F4 listed Parcel F for sale, saying it was pressured by a looming maturity of $80 million in debt on the project site, as well as “dislocated market conditions and an over seven-year history of significant investment into the site.”

The $80 million loan, originated in equal parts by JPMorgan Chase and United Overseas Bank, matured in October, after a four-month extension. Hines then told the Business Times it was continuing to work with its lenders, but declined to furnish additional details.

— Dana Bartholomew

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