Treasure Hunt in San Francisco Bay

As California struggles with its financial crisis, this city is close to launching a massive redevelopment of a former naval base that offers a ray of fiscal hope.


At an estimated cost of nearly $6 billion, the development on Treasure Island, located in San Francisco Bay, would be one of California's biggest building projects. Under the plan, the island's 400 acres of man-made land would be transformed by the construction of 6,000 to 8,000 homes, four skyscrapers towering more than 40 stories, a retail esplanade connecting three of the remaining buildings from the 1939-40 World's Fair and a ferry terminal to provide shuttles to San Francisco three miles away.

All of that is likely to provide a spending and employment boost to a Bay Area economy that is grappling with an unemployment rate that was 9.7% in November, slightly below the national rate of 10%. City officials estimate the Treasure Island redevelopment would create 5,000 temporary construction jobs and 2,500 permanent jobs.

San Francisco has struggled with budget deficits tied, in part, to decreased revenue from the cash-strapped state, and faces a roughly $500 million deficit for the 2010 budget year. But city officials say the Treasure Island project could potentially boost the city's coffers without costing it a dime as developers would be on the hook for all expenses.

"This is a big deal," said Stephen Levy, director of the Center for Continuing Study of the California Economy, a nonpartisan think tank in Palo Alto, Calif. "It's a hugely attractive piece of property, and could turn out to be one of the premier examples of base conversions in the country."

After more than a decade of wrangling, the project is undergoing an environmental review with a draft report expected in March or April. That is one of the last regulatory hurdles the proposed development must clear following the Navy's agreement last month to transfer the base to San Francisco for as much as $105 million.

But critics say the project faces numerous obstacles. The artificial island is composed of landfill that is vulnerable to earthquakes and could be inundated by rising seawater from global warming over time.

Another concern is getting financing amid a continued real-estate downturn. Tony Hall, former executive director of the Treasure Island Development Authority, said the costs of reinforcing the island against potential earthquakes and removing toxic materials left behind by the military could make the project a tough sell for a bank.

"My contention is you'll never see that island developed under this present scheme," said Mr. Hall, who was fired from his city-appointed post in 2005 after feuding over the island's direction with San Francisco Mayor Gavin Newsom.

City officials say the developers have already spent tens of millions of dollars planning the project and have determined it is financially feasible.

"What's important is that it's the private sector and not the city that's on the hook," said Michael Cohen, director of the mayor's office of economic and work-force development.

The Navy, under its agreement with the city, would be paid $55 million over 10 years by a development partnership and another $50 million if the investors reach a projected rate of return.

The city awarded the contract in 2006 to a joint venture that includes homebuilder Lennar Corp. and San Francisco developer Wilson Meany Sullivan. Pending final permits, city officials say they expect ground to be broken in 2011 and the project to be completed in 10 to 15 years.

Development officials concede it will be challenging to deal with issues such as earthquake safeguards and toxic cleanup. In all, it will take $1.3 billion to $1.5 billion to prepare the island with infrastructure improvements before any construction begins, said Chris Meany, a partner in Wilson Meany Sullivan. He said the partnership is using its own capital so far.

Mr. Meany added that his venture will take all necessary safeguards, including setting back buildings from the water's edge to deal with any rising seawater. "To make the place safe and livable requires an incredible investment," he said.

Treasure Island was created to host the 1939-40 Golden Gate International Exposition. After the Navy closed its base there in 1997, San Francisco was given management oversight of the island and used it partly to house hundreds of low-income families in former Navy barracks.

Some of Treasure Island's 1,500 current residents worry they may be excluded from the new development, though city officials say they will be allowed to stay. One concern: Many residents own cars, but the city may discourage car use on the island by imposing "congestion" fees for crossing the San Francisco-Oakland Bay Bridge. The bridge provides the only road access to the island.

"I'm looking forward to redevelopment if there's a place for me and I can afford it," said Emily Rapaport, 52 years old, who has lived on the island for 10 years.

Source: The Wall Street Journal