By Laura Waxmann,Reporter May 29, 2024 (SFChronicle.com)
The Hayes Point construction project that was going to bring a 47-story skyscraper to San Francisco’s skyline had been on hold. Now, it’s for sale as the development company behind it refocuses its business.Lea Suzuki/The Chronicle
Two years ago, Lendlease made a $1 billion bet on San Francisco, breaking ground on the only skyscraper to advance to construction in the city since the start of the pandemic. This week, the development titan announced that it is selling the unfinished project as it looks to cut its U.S. and U.K. construction operations.
In regulatory filings on Monday, the Australia-based company that, over decades, grew into a global powerhouse said it is seeking to “right size” its cost base, focus on its Australian business and international investments platform, and release $4.5 billion of capital over the next three years.
To that end, Lendlease’s strategy involves shuttering its overseas construction divisions and exiting or selling offshore assets like Hayes Point, a planned 47-story mixed-use tower at 30 Van Ness Ave. that, today, is all but a hole in the ground in the city’s Hub District.
Lendlease listed the San Francisco project as “early release” inventory in its Monday filing, meaning that it is currently available for sale. Other U.S. properties in that category include two unfinished development projects in Chicago: Lakeshore East, three mixed-use high-rises on four acres, and South Bank, a 1,200-apartment mixed-use community spanning 2 acres.
A spokesperson for the company told the Chronicle that the process of “releasing capital” from projects like Hayes Point could go two ways: The company could introduce a new capital partner, or sell its interest in the project.
“We’re not a forced seller and will take our time to get the right outcome for the project, the local community and our securityholders. We continue to believe in the long-term fundamentals of Hayes Point,” the spokesperson said, before declining to comment on the project’s pricing.
It’s a stark reversal from the positive outlook for the project two years ago, when a massive crane marked the site where Lendlease had leveled a 5-story, city owned building that once housed a Walgreens store to make room for its development: a 540-foot tower featuring 333 condos across its top 38 stories, above a nine-story podium containing 290,000 square feet of office and retail space.
Hayes Point was valued at $1.15 billion, and represented the company’s largest investment in the Americas. The project was expected to wrap up in 2025.
It’s also a sign of the times: COVID-19-induced global shutdowns froze development, stalled major real estate projects, triggered supply chain disruptions and drove up costs. Four years after the pandemic, demand for office space remains subdued in many downtowns across the country due to remote work. In San Francisco, more than one-third of the city’s offices sat empty at the start of the year.
In a statement, Lendlease Chairman Michael Ullmer attributed the company’s “poor” security price performance and shareholder returns to “structural challenges and a prolonged market downturn.”
“We need to take significant action at an accelerated pace to deliver value for our securityholders, capital partners and customers,” Ullmer said. Some $2.8 billion in capital is expected to be recycled by year-end 2025 to pay down debt and pay back shareholders.
Uncertainty around when demand might return has pushed investors into retreat, making obtaining financing for new construction difficult. Meanwhile, maturing debt is weighing on property owners and developers who are struggling with vacancy, forcing foreclosures and fire sales. For-sale and multifamily housing properties are facing similar challenges.
Hayes Point was unique not only because its owner and developer forged ahead despite growing economic distress, but because Lendlease did not secure a construction loan for the project. The company paid all cash when it acquired the property in 2017 for $70 million, after the city’s Board of Supervisors rejected a bid from another developer who could not come to terms with the city around the project’s affordable housing commitment. Lendlease agreed to build 83 below-market rate homes on-site.
As ground-breaking neared, Lendlease, which was also the general contractor for residential towers 33 Tehama and Lumina, purchased the two-story building that houses the popular San Francisco Jazz club Mr. Tipple’s Recording Studio at 39 Fell St., adjacent to the development site, for $8.5 million to stage is field offices.
Because Lendlease is the project’s owner, investor and builder, the company said when it broke ground on Hayes Point that it could ensure efficiency in its construction and planned to hold the property for the long-term.
But, months into construction, work came to a halt when BART, which has underground rail tunnels running in close proximity to the project site, requested additional analysis demonstrating that the planned skyscraper would have no adverse impacts on its infrastructure.
After picking back up for a few months, construction again stopped last summer. This time, Lendlease cited market conditions, and indicated that the economy would need to normalize, and that it needed to secure an early commitment from an office tenant or capital partners to resume working on the project.
Lendlease’s spokesperson did not comment on the how much of the infrastructure work on Hayes Point was completed before the project stalled, but said that its teams had continued to work on “other activities related to Hayes Point, including engineering and design, permitting, easements, and coordination with public agencies and other stakeholders.”
Another blow came in the fall when Google, which had selected Lendlease as the lead developer for four of its future campus sites in Silicon Valley, terminated those contracts.
Lendlease responded to the regional real estate slowdown by cutting jobs — about 50 people “exited” the company’s Bay Area operations in 2023, the spokesperson confirmed.
Lendlease currently occupies office space on the 18th floor at 111 Sutter St. in San Francisco. Its spokesperson said that no decisions have been made regarding office closures.
Meanwhile, the future of Hayes Point has grown increasingly cloudy. Lendlease confirmed that it will continue to secure the site as it has done since work stopped.
The circumstances surrounding Hayes Point resemble another abandoned construction site across town: The unfinished Oceanwide Center at 50 First St., near Salesforce Tower.
When construction broke ground on that planned 2 million-square-foot mixed-use project in 2016, its two towers were envisioned as the next jewels on San Francisco’s skyline. Chinese developer Oceanwide Holdings also pursued the project on its own.
But three years later, the $1.6 billion project had not entirely reached grade when Oceanwide ran out of money, and tried to sell the project several times, without success. After the pandemic hit, construction came to a full-stop in mid-2020 and never resumed. The project was seized by Oceanwide’s creditors in 2021 after the company missed debt payments, and the project’s contractors sued the developer over unpaid work claims and have been seeking a foreclosure sale to force payment. The matter is currently before a San Francisco Superior Court judge.
Reach Laura Waxmann: laura.waxmann@sfchronicle.com
May 29, 2024
Laura Waxmann
REPORTER
Laura Waxmann covers the business community with a focus on commercial real estate, development, retail and the future of San Francisco’s downtown. Prior to joining The Chronicle in 2023, she reported on San Francisco’s changing real estate and economic landscape in the wake of the COVID-19 pandemic for the San Francisco Business Times.Waxmann was born and raised in Frankfurt, Germany, but has called San Francisco home since 2007. She’s reported on a variety of topics including housing, homelessness, education and local politics for the San Francisco Examiner, Mission Local and El Tecolote.
