Why one of S.F.’s biggest housing projects could shrink by hundreds of affordable apartments

By  Roland Li April 1, 2024 (SFChronicle.com)

It’s been six years since the San Francisco Municipal Transportation Agency began working on an ambitious plan to build hundreds of affordable apartments alongside a replacement for its aging Potrero Yard bus facility.

Construction on the new transit facility is slated to start early next year. But there are still significant funding hurdles for what is the biggest active project in the Mission — and more than 75% of the proposed housing is at risk of never being built.

SFMTA and its partner, developer Potrero Neighborhood Collective, have two alternatives for the site: a larger plan with 465 affordable homes and, if there’s a funding shortfall, one with only 104. Housing would be built atop transit storage and repair facilities. Earlier concepts envisioned as many as 900 homes on the 4.4 acre site at 2500 Mariposa St., but market-rate apartments were later dropped from that plan.

“The MTA is doing everything possible in its own power to make the project fully feasible as proposed. We’re doing a project that has never been done or conceived,” said Jonathan Rewers, SFMTA’s chief strategy officer. “No one has ever integrated commercial bus yard architecture with housing.”

The Frisc, a local news website, first reported on the potential downsizing.

An estimated $525 million is required just to replace the century-old transit facility. The budget for the housing portion hasn’t been determined, but a single San Francisco apartment can cost upwards of $800,000 to build — including design, approvals, materials and labor costs — meaning the entire project budget could potentially approach $1 billion.

The project’s hurdles are familiar: Stubbornly high construction costs, years of reviews and, in recent years, rising interest rates have all made building housing in the city notoriously difficult. Only a handful of major projects have started work since the pandemic began, underscoring the city’s difficulties in meeting a state-mandated goal to approve 82,000 new housing units, over half of them affordable, by 2031.

“The thing we can’t manage is the market,” Rewers said. “We can’t control the construction market. We definitely can’t control interest rates.”

Securing money for the SFMTA project will require a slew of different funding sources and is expected to take years.

The Mayor’s Office of Housing has committed $35 million for design work. Other potential funding sources include the 2018 Regional Measure 3 bridge toll increase meant to pay for transit projects and potential bonds planned for the ballot in 2024 and 2028.

Developer Potrero Neighborhood Collective is paying other pre-development costs, and will only be reimbursed if the project is completed.

Because of that arrangement, “the risk is on the developer. We’ve removed the risk normally associated with this project,” said Bonnie Jean Von Krogh, SFMTA’s public affairs manager for building.

The developer referred a request for comment to SFMTA.

Complicating matters is the legal requirement that the SFMTA cannot spend transit money for a housing project that doesn’t generate money for transit. Much of the funding for affordable housing will have to come through a mix of state affordable housing grants, bonds and tax credits. That’s expected to require multiple rounds of bids and take multiple years, starting in 2025.

Construction on the bus yard is slated to begin in early 2025 and finish by 2027. Housing construction could start no earlier than 2025 and no later than 2028.

“Housing finance lags infrastructure finance,” Rewers said. “We’re paying for the superstructure necessary to support housing in the future.”

Meanwhile, work continues on design and building drawings, and building permits must be secured.

“This is definitely one of the most complex projects the agency has ever taken on,” Brewers said. “We’re on schedule.”

Reach Roland Li: roland.li@sfchronicle.com; Twitter: @rolandlisf

April 1, 2024

By Roland Li

Roland Li covers commercial real estate for the business desk, focusing on the Bay Area office and retail sectors.

He was previously a reporter at San Francisco Business Times, where he won one award from the California News Publishers Association and three from the National Association of Real Estate Editors.

He is the author of “Good Luck Have Fun: The Rise of eSports,” a 2016 book on the history of the competitive video game industry. Before moving to the Bay Area in 2015, he studied and worked in New York. He freelanced for the Wall Street Journal, the New York Times and other local publications. His hobbies include swimming and urban photography.

He can be reached at roland.li@sfchronicle.com.

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