By Rachel Brahinsky

A dispute over the rehabilitation of the city's oldest steel-framed skyscraper has turned into a political football match pitting more than $4.6 million in potential city revenue against a downtown housing proposal that's earned the enthusiastic support of environmentalists, preservationists, and housing advocates.

At press time, before the scheduled Jan. 11 vote, it was unclear whether the San Francisco Board of Supervisors would follow Assessor-Recorder Mabel Teng's recommendation to deny a major tax credit to developer Jim Hunter, who has been seeking tax relief under the state Mills Act for his rehabilitation of the old Chronicle Building at 690 Market St. (Go to this story to learn the outcome.)

Hunter's plan to refurbish the original structure and add 8 stories – which would nearly double the square footage and transform the office building and its adjacent 16-story tower into a mix of apartments and "fractional interest hotel units" (which are a lot like time-share condominiums) – was initially popular but later became controversial.

To make the proposal pencil out, Hunter insists he needs tax relief under the Mills Act, which allows up to a 50 percent property tax reduction for historic buildings if they're restored to certain standards. But Teng said Hunter's plans call for gutting the interior, so the developer should only get a partial Mills Act credit.

The outcome could make a difference to officials working with a perennially tight city budget. If the board allows the credit for the facade of the building only, as Teng is proposing, the city would pull in an estimated $760,508 each year from the developer. If Hunter gets the larger credit, which would include the inside of the structure, Teng estimates the city would get only $370,845 annually. (If he's denied any tax credit, Teng estimates he would owe $834,677 a year. Over the course of the 10-year Mills Act contract, that would bring in $4.6 million more than if the developer's full Mills Act request is honored.)

The project has been a darling of preservationists and environmentalists since its conception because of its transit-friendly design and the historical significance of the structure, which began life as a 9-story building in 1890. Back then, planning sources say it was the tallest building west of the Mississippi River. Built by Chicago architecture firm Burnham and Root, the building housed the San Francisco Chronicle until 1924.

It also has support because the developer has to date agreed to create slightly more than the minimum required number of affordable-housing units, to be built just a few blocks away at 940 Market St. The latest proposal is to create 52 condos for sale at market rate, 49 fractional interest condos, and 11 units of off-site affordable housing.

For a while it seemed like Hunter's plan would sail smoothly through the various city approval processes. Sup. Aaron Peskin carried several key pieces of legislation, dealing with the building's landmark status and height limit. But last fall, when it came time for the supervisors to weigh in on Hunter's Mills Act tax request, Peskin balked.

It turned out Hunter wanted a tax break for the entire building – including the brand-new 8-story addition. After a November hearing before the Finance and Audits Committee, at which Teng took the developer to task, the future of the project became murkier. Peskin appeared inclined to follow Teng's advice, and the developer backpedaled and said a credit for the old portion of the structure would be enough. Then Peskin tried to withdraw the legislation from the board's agenda to kill the bill after his offline negotiations with the developer soured.

But in December, Peskin abruptly pulled the bill back out of committee to force a vote by the full board Jan. 4. At that point he appeared to be leaning toward giving the credit to the old portion of the building (including the interior), which Teng vehemently opposed. At the last minute, however, the vote was postponed by a week, and since then Peskin told the Bay Guardian he planned to follow Teng's advice and cut out the interior from the tax plan.

Hunter told us that could kill the deal. "We'd never make it," he said, citing the increased cost of steel as a key factor. He insisted that 60 to 70 percent of the old structure would be retained in the remodeling project. He also contends that Teng is improperly applying the Mills Act. That's where the developer and the assessor just don't see eye-to-eye.

"We must be seeing a very different building," Teng told us. "Even for them to ask for the facade is pushing it. The Mills Act was intended for the restoration and preservation of a building. It's not intended for a building to be gutted, [to have a] change of use and new construction."

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