Presidio bust

Presidio bust

City officials and residents push the Presidio Trust to pay attention to more than just the bottom line

By Amanda Witherell

Can the Presidio Trust afford to listen to its neighbors? If not, it may just find city officials willing to play hardball over a controversial housing project.

Look at a map of San Francisco. Look closely at the northwestern corner: there are 1,491 acres of federally owned and operated land occupying about 20 percent of the city’s space. The Presidio is a bounty of beauty — miles of hiking trails and bike paths, beaches, bluffs, and greenways maintained by the National Park Service and available for San Francisco and its guests to enjoy.

Unfortunately, the city doesn’t have much say about what happens within that acreage. The property is managed by the Presidio Trust, an independent entity formed in 1996, two years after the park service took control of the former Army base. The trust began with the lofty mission “to preserve and enhance the natural, cultural, scenic, and recreational resources of the Presidio for public use.” It also had a tough mandate: financial independence by 2013.

While the park service tends to the trees and the grass, the 768 buildings scattered throughout the property fall into the purview of the trust, which has rehabilitated and leased 350 of the historic structures in the last 10 years. More than 100 remain on the list for a makeover and one in particular has become a poster child for the strained relationship between the trust and the city in which it lives.

The trust’s Board of Directors has been presented with four development alternatives for the Presidio’s Public Health Service Hospital Complex — 400,000 square feet of dilapidated buildings high on a hill at the southern edge of the Presidio, just 100 yards from the single-family homes that line the quiet avenues north of Lake Street, in the city’s jurisdiction.

For three years, the people who live in those homes have been advocating for developing only 275,000 square feet of the PHSH for smaller units that would house about 438 people and, they say, create less traffic in the neighborhood and environmental impact on the park.

At the last public PHSH meeting on June 15, nearly 200 people representing interests as varied as the Sierra Club and the Mayor’s Office voiced opposition. There was almost universal advocacy of “Alternative 3” (see table, page 14) or some sort of smaller development more in character with the neighborhood. There are currently only five dwellings in the Richmond district with more than 50 units, and the largest has 85.

The trust staff has consistently recommended “Alternative 2,” a plan for 230 market-rate, multibedroom apartments. After three years of neighborhood input and agitation, spokesperson Dana Polk told the Guardian, “This represents a compromise.” The original plan called for 350 units but was still the same size.

To the neighbors it represents a doubling of profit for the trust and its partner in the deal, Forest City Enterprises. Claudia Lewis, president of the Richmond Presidio Neighbors, wrote in a 16-page letter addressed to the board, “The difference in revenue between Alternative 2 and 3 is only $540,000, less than 1 percent of the trust’s projected annual revenue for the year 2010. For this modest gain, the trust is willing to sacrifice the adjacent habitats and community.”

The developer’s projected revenue has leaped from $2.8 million to $6.5 million with the “downsizing,” and the trust’s cut from a 75-year lease has gone from $253 million to $685 million. Forest City, the Cleveland-based real estate developer with a net worth of $8 billion, is only willing to renovate all 400,000 square feet of the building. If another alternative were chosen by the board, trust officials say there would not be a developer interested in the project.

Development in a national park is a lot easier than in the city: There are no restrictive city codes, no process of appeal, and no profit lost in social subsidies. Developers don’t even have to build low-income housing, as the city requires of all projects through its inclusionary housing ordinance.

“They have nothing, zero, no affordable housing in there,” District 1 Sup. Jake McGoldrick told the Guardian. “It’s just more expensive, market-rate housing. I would think they would want to be in sync with what we do on the other side of the road,” he said. “They ought to really address affordable housing voluntarily, as a good neighbor gesture. There’s no reason they can’t rethink the whole thing. How much profit do you really need to turn?”

In the “Response to Comments” on the Draft Environmental Impact Statement of the project, published in May 2006, project proponents argue, “Alternative 3 is, at best, marginally feasible as a rental project because it would not generate a sufficient return to induce a developer to undertake the project.”

PHSH is one of the last remaining large-scale renovations for the Presidio, and in order for development to be financially sufficient, trust staff says, it must net the trust at least $1 million annually in base rent. “That’s why the Public Health Hospital is a key project,” said trust representative Dana Polk. “For us, this is one of the only options for that kind of revenue.”

From a strictly economic standpoint, the Presidio Trust is in the real estate business. Since its creation by Congress in 1996, it’s been fixing up property to lease for the profit necessary to operate the park. In addition to Grubb, the six other Bush-appointed members represent a wealth of experience in real estate, investment banking, law, and finance. They know how to make money but not necessarily how to build a Presidio that works well for San Francisco.

It cost $43 million to operate the Presidio in fiscal year 2004–2005 — and that’s just to keep the lights on and the doors open. In that same fiscal year, the trust received $56 million from residential and commercial rentals, with George Lucas cutting the largest rent check, for $5.6 million. After the additional revenue from PHSH, that $56 million isn’t expected to change much and, according to Presidio spokesperson Polk, certainly won’t double with the 40 percent of Presidio square footage that remains to be renovated.

Since its inception, the trust has received an annual financial allowance from the federal government as assistance while it attempts to achieve fiscal sovereignty. That amount, $19.2 million last year, will steadily decrease to zero by 2013, when the trust is scheduled to sever ties with the US Treasury. It has already exhausted the $50 million borrowing power it was also granted, so for the next seven years it only has what it can raise philanthropically or attract economically to rehabilitate the remainder of the park.

While the trust can occasionally handle retrofits and small-scale renovations, buildings like the PHSH and the cluster of barracks at Fort Scott aren’t entirely feasible as in-house projects. “If we had the capital, we’d do it ourselves,” said Polk, who explains that in most scenarios the lessee incurs the cost of renovations in lieu of rent, which also explains why that $56 million isn’t expected to grow much: Rent revenues are disappearing as favors for renovations.

None of the Presidio property can be sold. It must be leased, but if the trust isn’t raising enough revenue to finance its own public interest renovations, what kinds of development can be expected to continue? Who is willing to pony up cash for buildings they can never own? What kind of bank finances loans on property that can never be foreclosed? Only enormous real estate firms with very deep pockets such as Forest City can afford the Presidio scenario.

In the next couple weeks, McGoldrick is hoping to gather reps from the Mayor’s Office, Rep. Nancy Pelosi’s office, the California Department of Transportation, and the local Transportation Authority’s office to try and reach a compromise between what the city needs and what the trust wants.

“One of the problems is they still have an objective to get as much money out of this project as possible,” said McGoldrick. “They should pause and consider trying to get 70 or 80 percent of that $1 million. They should find some way to find the other $300,000. They should find some way to be a good neighbor.”

Otherwise, the city may have to find some way to be a bad neighbor. There’s still a threat on the table to close portions of 14th and 15th Avenues — literally locking the Presidio’s gate to the city — which would severely cripple access to the PHSH. McGoldrick, whose district abuts the southern edge of the Presidio, put forward that resolution along with Sup. Michela Alioto-Pier two years ago.

Although McGoldrick still considers it a possibility, he told us, “Let’s hope we don’t have to go there.”

Originally published July 5, 2006 in the San Francisco Bay Guardian