Thursday, March 19, 2009

San Francisco - Valencia Gardens

Public housing doesn't exactly have a stellar reputation in the United States. The "projects" began as an attempt to provide "adequate" housing to lower income families and individuals. In cities like New York, slums were demolished en masse to make way for sprawling public housing projects. The overall density (in DU/acre) of these places were always less than the tenements that they replaced and they introduced a feature rare to cities, mandatory open space. In most places, that meant pure, green lawn. As these projects descended into the very same chaos they were meant to replace (and the untouched slums slowly became valuable real estate), government funding for such adventures dried up.But were there's a will, there's a way. San Francisco, faced with a decaying public housing project at the heart of the blossoming Mission District found a way to act. The liberal community would have never let the property be sold off to the highest bidder. Instead, the old project, pictured below (thanks Le Blog Exuberance) was replaced with a new one.
Before we get into how--and why--San Francisco developed this project and why others have difficulty, it's important to understand the concept of leverage. Just think JGWentworth (It's your money, use it when you need it!) only with way more risk than a structured settlement. Here's a page out of leverage's greatest hits (circa 2007).

Developer: If you give us 100 million, we'll build some apartments and pay you $200 million in 3 years. Here is a piece of paper with lots of numbers written on it. Since the $20 million project we did worked out, this one will too.

Banker: Sounds splendid. (To investors) Who wants to make some money? Put $10 million into this magic hat and in three years, you'll have $19 million back in your pocket! It's called investing, everybody is doing it!

The developer leveraged future earnings to obtain present money. What future earnings? The future rent money of the future inhabitants of the future building. The problem, of course, was that this model was so profitable, more future buildings popped up than there were future inhabitants to fill them, and they were certainly more expensive than the future rent money could pay for. But I digress, that discussion is for another day...

A city can leverage expected revenue increases (taxes) in exchange for cash that will be spent on generating that additional revenue. This pot of coins is known as TIF (Tax Increment Financing) money. Private developers generally try to dip into this pot when they develop infill sites, especially those that require a bit of clean-up. There's a lot of debate over the distribution of TIF funds.

The impediment with public housing, is that the federal money that subsidizes tenants rent can not be used to pay down debt. That is, public project money can't be leveraged. When faced with the prospect of raising funds to build a structure, that bag of loot is off limits.

In order to raise the money to build the structure, San Francisco did something somewhat odd. In order to create a larger tax increment (public housing residents don't have much in the way of tax bills) and to find a position to leverage, they created a mixed (gasp) public housing project. The city planner I talked to called Valencia Gardens a model that they hoped to use throughout the city.I know, the picture is a bit rough. The financial model of this development might be seen as something to duplicate. Mixing the rich and the poor isn't as crazy an idea as most of us thought. The development itself though, while making some significant improvements over the traditional project model, leaves much to be desired. Is the fence intended to project exclusivity or to protect security? In the later case, a building front would have worked just as well. In the former... well, let's hope that wasn't their intention.Why is this road so big for little three story buildings? Perhaps there are still open space requirements in the federal standards. And why does a city that actively discourages car ownership provide so much additional parking? The entire scene sucks away energy with vast stretches of negative space. The electrical boxes are more prominently placed than the entrances to shops. This sidewalk looks useful, no?My biggest issue with this building is the attempt to imitate a collection of small scale projects. This is now common practice in the architectural world. Take a big project and slightly vary the material, setback, height...etc every 20'. That way it will look like it grew organically as a collection of many small buildings designed by many (not so proficient) different architects. Newer strip malls generally utilize this ploy.

While I understand that economic realities of the real estate world, I have seen with my own eyes large buildings that are designed as a whole yet detailed to the human scale. I suspect that it can even be done at a lower cost than trying to cobble together a half dozen different styles. While I'm not one to point fingers (architects fault), I do think it's important to realize that building "fake places" is a bad thing. Yeah, this project probably won't see the same degree of problems associated with other low-income public projects, but other than a place to sleep and some daunting storefronts, what does this place add to the city? In short, if you duplicated this development a thousand times, would anybody pay San Francisco rent to live in such a place?

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