Downtown SF project may buy its way out of below-market-rate housing mandate

On a bright morning last November, Mayor Ed Lee stood in an empty downtown lot –a shiny shovel in hand — for the groundbreaking of 181 Fremont St.

Before a crowd, Lee touted the project as part of San Francisco’s solution to its affordability problem, as 11 of the building’s 74 condos would be below market rate.

Not only was the project a “great answer to the housing challenge,” with its mixed-income residences, it was also an example of “the way San Francisco works.”

But at the time, moves were being made to kill that very idea.

Developer Jay Paul Co. had come to The City that October and asked if there was any way the company could get around the requirements to build below-market-rate units.

Citywide, residential developers must make 12 percent of units below market rate or pay an in-lieu fee. But in the Transbay Redevelopment Plan, which affects 181 Fremont, such requirements are even more lofty.

That plan envisions a high-density neighborhood of offices and about 4,500 residences around the future Transbay Transit Center, with 1,200, or 35 percent, made permanently below market rate.

The Jay Paul request prompted The City’s Office of Community Investment and Infrastructure, which is in charge of the Transbay area’s development, to commission a market study, which calculated the market rate for those 11 units.

That study was completed before the mayor spoke in November.

By December, Director Tiffany Bohee of the Office of Community Investment and Infrastructure sat down with the developer to negotiate a deal. Jay Paul, which did not return calls for comment, agreed to pay The City $1.26 million for each of the 11 below-market-rate units, $13.85 million in all.

In turn, the Office of Community Investment and Infrastructure would use that money to pay for the construction of roughly 50 below-market-rate units – which cost roughly $250,000 to $300,000 a piece to build — in the Transbay redevelopment area.

That scenario would be a net gain for The City and boost the mayor’s goal of building 30,000 new housing units by 2020. Everyone would win. Jay Paul could sell the 11 units to the highest bidder and The City would get funding for below-market-rate units.

However, such a deal would break planning rules set up for the area. But Office of Community Investment and Infrastructure staff said the project would not set a precedent and was merely an exception.

Mostly office space, the building’s limited number of very pricey condos would have prohibitive homeowner association fees for middle-income owners. And once the units were sold, those fees could increase.

Despite such consideration and the below-market-rate unit boon the deal could bring, the Board of Supervisors will have the final say.

Cindy Wu, president of the Planning Commission, has not seen the details of the deal, but said it would have to be very advantageous if such an exception were allowed.

In the end, Lee’s statements about the project being an example of how The City works –his office did not comment for this story — may have been more true than he thought.

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