Developers mull lawsuit after SF supervisors deny tax break for Transbay Transit Center

Courtesy renderingThe Salesforce Tower will be the centerpiece of the Transbay Transit Center.

The future of the Transbay Transit Center may have been made a little less clear, but on Tuesday, the Board of Supervisors refused to cave into pressure from developers seeking a tax break.

The long-envisioned new transit center at First and Mission streets has been dubbed the Grand Central Station of the West, with plans for it to include a high-speed rail service and the downtown extension for Caltrain. A centerpiece would be the Salesforce Tower, one of the tallest buildings on the West Coast.

All of this is dependent upon sufficient funding, which included the formation of a special tax district known as a Mello-Roos. But a group of six developers are fighting the tax district over a tax bill that has soared since the deal was initially brokered in 2012. That deal granted the projects the right to exceed existing building limits.

Developers argue that when the deal was struck, it locked them in at property values at that time, not the current estimates, which like property values throughout The City have soared significantly. One developer's letter noted that at the time the agreement was made, the rate was at $3.30 per square foot for an office building, but that has now increased by nearly 50 percent to $4.91. Another letter noted that “To put this in perspective, these changes add over $100 million in additional tax burden to the Salesforce Tower alone and similar order of magnitude increases to the other projects in the Transbay Plan Area.”

Adding to the tension and political intrigue was that former Mayor Willie Brown registered as a lobbyist to represent the developer interests. According to the Ethics Commission, Brown has earned $125,000 from Boston Properties, one of the six developers seeking a tax break, and he met with Mayor Ed Lee to discuss the issue on five occasions.

It appeared supervisors might have struck a deal with the developers two weeks ago. That deal would have generated about the same amount of tax revenue as the 2012 agreement, city officials said, but paid over 37 years, not 30. But the deal fell apart when some of the developers refused to agree not to sue The City, said Ken Rich, director of the Office of Economic and Workforce Development.

Supervisor Scott Wiener said he had from the outset taken a “dim view” of developers' argument that they should be locked in at values at the bottom of the market, even “though the upzoning and the subsequent growth we've seen has just exploded the values of these properties.”

“I don't think that we should be bullied into giving up a huge amount of critical transit money,” Wiener said.

The Board of Supervisors voted unanimously not to change the terms of the original deal. A vote by property owners to form the special tax district is still scheduled for Dec. 29. A lawsuit could delay that vote.

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