Real Estate Journal

April 28, 2003

Crossing Over to Smart Growth -- Ground breaks on Phase 1 of $320 million mixed-use, high-density project in San Bruno featuring easy access to transit

Contributing Writer BY JIM EMERSON
Special to the CREJ

A new city center being built in San Bruno called, The Crossing, demonstrates smart growth principles in action, according to developers.

With a 120-unit-per-acre housing density, it serves as a preview of how suburban towns in the San Francisco Bay Area could evolve with increasing housing density and urbanization.

The Crossing will be situated on 20 acres near San Francisco International Airport with convenient access to a new BART subway station a few blocks away and bus routes. Also, it is close to three freeways, U.S. 101 and Interstates 280 and 380.

Officials from development firm, Regis Homes, say the project's density and location reflects the smart growth development philosophy of promoting development within metropolitan areas and along existing transit corridors rather than destroying farmland and areas of open space far from built-up communities.

"This is a model for future development along transit corridors," said Drew Hudacek, a vice president at Regis Homes. "There will be more projects of this or greater density in the future."

The former naval base was acquired for $25.5 million at auction from the federal General Services Administration. Ground was broken recently for the $67.8 million first phase of construction, which includes 300 apartments surrounding a parking garage and community center.

All told, entitlements have been obtained to build up to 900 apartments, 228 units of senior citizen housing, one or two hotels with up to 500 rooms, 15,000 square feet of retail space and 325,000 square feet of office space. The flexible approvals allow the developers to scrap the office component and build more apartments, depending upon future market conditions.

The first phase is scheduled for completion in May 2004. Construction of the second phase consisting of more apartments and retail space is expected to begin in early 2004. The phase three build-out isn't expected to begin for at least another year or two.

Total build-out costs will likely exceed $320 million, and the project is expected to take five more years to complete.

The Crossing development is a 50-50 joint venture between Foster City-based Regis Homes and San Francisco-based TMG.

The Crossing has financial backing and guarantees from the California Public Employees Retirement System and Union Bank, which supports tax-exempt bond financing arranged with the help of the Association of Bay Area Governments.

"The fact that it's mixed-use, situated in a transit-oriented location, with bond financing for apartments makes this project viable," said David Cropper, a partner at TMG. "If this were an office project, we'd be mothballing it."

Housing Makes Project Feasible

Few projects of this magnitude in the Bay Area are under construction amidst war concerns and bad economic times. However, the region's high housing costs and smart growth planning made The Crossing attractive to the money partners involved, including CalPERS and its investment advisor and joint venture partner San Francisco-based MacFarlane Partners.

"More affordable housing is desperately needed in the Bay Area where the median home price tops $469,000," said Chuck Berman, managing principal at MacFarlane. "This is a well-designed project in an excellent location that we believe will provide a solid return on our investment."

Historically, apartments have been a good investment in the Bay Area, despite peaks and valleys due to the region's economic booms and busts.

"There is no expectation to build and sell this property," Cropper said. "CalPERS has a very astute long-term hold strategy."

Early this spring, the development partners plan to announce a request for proposals to push ahead plans for building the senior housing component.

"We think the senior housing can be under construction by the end of this year," Cropper said.

Before the joint venture agreement between Regis and TMG expires in 10 years, the partners plan to sell the land designated for hotel development when the depressed hotel sector recovers and a buyer is found.

Developing With Density

Planners and developers of "smart growth" projects such as The Crossing anticipate bigger, taller and more densely packed buildings with minimal landscaping will become increasingly more common in built-out regions of the state, especially near San Francisco.

California's population and development density along transit corridors is low compared to highly urbanized East Coast states like New Jersey. The 120 unit-per-acre density of The Crossing is unprecedented in the Bay Area outside of the cities of San Francisco and San Jose, Hudacek said.

"There are very few large-scale developments like this between San Francisco and San Mateo, but this is what the Bay Area will look like in 20, 30 or even 40 years from now," he said.

The emphasis on smart growth concepts aided the entitlement process for the complex project.

San Bruno took an unusual collaborative approach to promote high-density development. The city began the entitlements and planning process by investing its own money and spending two years soliciting opinions from developers before devising a development plan.

"They didn't come up with pie-in-the-sky plans. They were conscious of what they wanted and of what would make the project work for developers," Hudacek said.

What's more astounding, according to Hudacek, is that 72 percent of local voters approved a pro-growth ballot initiative and increased building height limits to allow this project to proceed.

"That's never happened before in California," he said.