11/15/2019

SF residential projects languish as rising costs force developers to cash out

While the next crop of luxury condo towers like 160 Folsom, which developer Tishman Speyer has branded as Mira, continue to rise in the fast-growing eastern end of South of Market, other approved housing projects across the city, like 2675 Folsom St., are stalled and on the market because of soaring construction costs and fees, developers and other industry sources say.

The growing number of developers seeking to cash out rather than risk losing money on building is fueling concerns that residential production will start to decline even as the Bay Area’s housing crisis worsens.

. . . Developer Oz Erickson of the Emerald Fund said it would be impossible for his company to get financing for any project with a requirement of more than 15 percent affordable units. The group’s recently completed tower, 429 units at 150 Van Ness Ave., was approved when affordable housing requirements were 12 percent. It was financed by the International Brotherhood of Electrical Workers national pension fund, which mandates a certain return on investment, he said.

“It’s their property, their project,” Erickson said. “We are just the advisers, the experts in getting this done. They have a statutory requirements that they have to get a 6 percent return. If they don’t, they can’t pay their retirees.

“The combined increase in construction costs and extraordinary increases in affordable housing requirements makes building any project extremely difficult in San Francisco,” he added.

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