“Up until this point,” Maduli-Williams continued, “this project has relied upon developer equity and Community Facilities District funds as a funding source for infrastructure costs. If this formula works, other funds would be used to provide much needed affordable housing. If the formula doesn’t work, the project is subject to either a drastic reduction of scale or two to three year postponement, if not longer, without additional sources of capital.”

In her May 16 letter, informing the SFRA that the City is ineligible for a grant, Yepez noted that about 69 percent of the 87 projects that Maduli-Williams requested funds for, had construction dates of May 2008.
Yepez also observed that SFRA’s explanation of why the project needs gap funding indicates that the net result of receiving the grant would be an increase in Legacy funds to $20.9 Million.

“From this information, it is difficult to determine whether this application demonstrates a clear financing gap versus supplanting available funds," Yepez wrote.

As Sup. Chris Daly, who unearthed these documents, told the Guardian, the discovery that the City applied for and was turned down for a $25 million grant to subsidize construction at the Shipyard, raises significant questions whether or not they have the financing to move forward.

“It also casts a very large shadow on the mixed-use development envisioned under the conceptual framework on Proposition G,” Daly told us.

Calls to SFRA’s executive director Fred Blackwell remained unanswered as of the publication of this blog post.

But Maduli-Williams’ May 23 letter offers valuable insights into the potential pitfalls the City faces by having entered into a public-private partnership with Lennar.

As Maduli-Williams writes,, establishing a community facilities district enables the City to make the shipyard available for development.

“While this tool is made powerful by the capture of increased land values, it is also susceptible to changes in the project scope and market,” Maduli-Williams wrote. “Currently, the project has had to absorb a significant increase in soft costs related to unforeseen environmental issues, increased construction and labor costs associated with an extended performance schedule “

According to Maduli-Williams, the net result of these issues is that the purchasing power of the Hunters Point Shipyard CFD has decreased by more than 44 percent, resulting in a gap of roughly $25 million by the 4th quarter of 2008.

Maduli-Williams claims that issuing additional CFDs would be infeasible due to the impact on homeowners’ property taxes, which in turn would result in decreased home values, and further deteriorate the project’s value.

He further notes that the other gap funding alternative, market based debt financing, would be challenging as well, “due to the increased cost of borrowing, as well as the scarcity of available debt for large scale housing projects.”

“This alternative would increase development costs and exacerbate the gap that the Agency seeks to close,” Maduli-Williams wrote. “In addition, additional debt would be considered fiscally imprudent by the Agency and the Developer’s finance committee.”

Maduli-Williams also clarifies how the Legacy Fund is tied directly to the land sales.

“To date, this land value agreement has yet to be confirmed and approved by the Agency. Without this value, the Legacy Fund is merely a projection, which could fluctuate depending on market conditions. As with any development project, the developer’s “return” is not truly known until the land is sold.

Maduli-Williams notes that the Hunters Point Shipyard would not be the first large public-private development project to fail "due to market fluctuations.”

He cites Hudson Yards in New York, City North in Phoenix, Seattle’s Denny’s Triangle as all having faced financial setbacks due to diminishing land values and the market’s reluctance to take on new risks.

“Yet projects such as these hold broader implications for a City’s economic health than the project’s financials," Maduli-Williams wrote. "As a result, a public agency such as SFRA has an obligation to see project through market cycles. Ultimately, the project is left with only one alternative, the Infill and Infrastructure grant from HCD. It is clear that without these funds the project may fail."

Maduli-Williams also intimates that if Phase 1 doesn't go forward, Phase 11--the mixed use project that voters just approved on the june 3 ballot--may also be jeopardized.

“In particular, the failure of Phase 1 may obstruct the delivery of Phase 11 of the Hunters Point Shipyard/Candlestick development project which would bring 10,000 new homes to the community, at least 30 percent of which would be made affordable, as well as hundreds of open space, transit, and jobs to an area that has been deeply neglected for more than 30 years," Maduli-Williams claimed.

Maduli-Williams attached letters from Lennar to SFRA, which as he wrote, “should serve as evidence of the historical infrastructure delays the project has endured over the last 18 months.”

These letters, dated June 14, 2007, July 30, 2007 and November 2007, provide a summary of the issues that caused a delay to the project schedule for grading and retaining walls phase at Parcel A of the Shipyard.

These issues include exceptionally hard bedrock, shutdowns due to naturally occurring asbestos monitoring, greater than average rainfall, electrical design issues, subdrain and storm drain redesigns and Block 56 redesign, for a total of 234 days.

In our previous coverage of Lennar’s failures to properly monitor and control asbestos at Parcel A, the Guardian unearthed a memo in which Lennar admitted that each lost construction day cost at least $40,000.

Lennar also faces millions in unresolved fines from the Bay Area Air Quality Monitoring District for its failures to properly monitor and control asbestos at the Parcel A site.

In her June 10 reply, Yepez notes that the “pocket parks” that Maduli-Williams listed as project amenities in his May 23 grant appeal, do not meet the definition of a public park. Instead, they more closely resemble open space within a development, and as such may not be eligible for tax credits, Yepez warns,

Yepez’ observation raises even more questions about the fiscal viability of Lennar’s Shipyard/Candlestick Point development, in which much of the open space consists of pocket parks. And this latest twist in the development saga has Lennar’s critics accusing them, once again, of being more interested in land banking than redeveloping BVHP.

Stay tuned…
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