Nix Lennar's higher profit deal

Changes need to benefit the city, not a private developer
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EDITORIAL The troubled homebuilder that wants to develop the Hunters Point Shipyard and Candlestick Point has come back to the city asking for a higher profit level, more market-rate housing, more retail, and more office space. In essence, Lennar Corp. wants to change the deal voters approved in June. The supervisors should give this a hard look, hold hearings, and check the numbers, because the entire project is looking more shaky and dubious by the day.

Lennar is one of the nation's largest residential development companies, but it's been walloped by the drop in the housing market. A Lennar project at Mare Island recently went bust and is being auctioned off. The company's stock has tanked. And some wonder if it will be able to get the financing necessary for a multibillion dollar project in San Francisco.

But Lennar is not only moving forward — it's demanding more. In fact, as Sarah Phelan reports on page 16, the Redevelopment Agency just signed a deal with Lennar agreeing that the city and the project sponsor "will work cooperatively to reduce risks and uncertainties" and "find additional efficiencies and values" to achieve the developer's proposed 22.5 percent annual return target.

That 22.5 percent — which is far more profit than many San Francisco businesses ever make and seems almost obscene in this economic climate — is up 7.5 percent from when the deal was first signed. And remember, Lennar gets the land — public land — essentially free.

Of course, a consulting firm the city hired to evaluate the deal finds that perfectly reasonable. The firm, CBRE Consulting, is a subsidiary of CB Richard Ellis, a global real estate firm headed by Richard Blum, who is married to Sen. Dianne Feinstein, a big supporter of the Lennar plan.

The original plan called for 8,500 to 10,000 housing units; that's now up to 10,500. There's no significant increase in community amenities, affordable housing, or infrastructure payments.

If this sounds a little funky, it is. From the start, Lennar has been playing around with the numbers and promising more than it may be able to deliver. And if the project starts to go belly up before it's finished, Lennar will walk away and leave the city with the mess.

We've always been a bit dubious about the way the Redevelopment Agency turns to a single "master developer" and gives that private outfit exclusive rights to build on a large piece of land. The deal always seems to be a lot better for the builder than it is for the city.

And this one was bad from the start. At the most, Lennar would offer 25 percent of the units at below-market rates; that's less than half the amount of affordable housing mandated in the city's general plan. Much of the land on the site is toxic, and Lennar has been steeply fined by the air quality board for failing to control asbestos dust. The whole concept of a suburban-style community of luxury condos with special freeway access in southeastern San Francisco is inappropriate, if not bizarre.

But voters approved the program after Lennar spent millions on a ballot measure campaign, so the city has to continue working with the developer. But there's nothing that says the supervisors have to sign off on changes in the deal that don't serve San Francisco's interests.

The board ought to demand, at the very least, that Lennar devote some of its higher profit margin to increasing affordable housing — and that the funding for community amenities should be set aside before the builders break ground on the luxury condos. Ideally this entire thing should go back to the drawing board. But short of that, any changes need to benefit the city, not the private developer.

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