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Major Waterfront Project Scores Highly Coveted San Francisco Approval

San Francisco's 29-acre Potrero Power Station project has secured an allocation from the city's dwindled office development cap as part of developer Associate Capital's modified timeline for the Central Waterfront project.

The approval, which came last month, allows Associate Capital's 400K-plus SF redevelopment of Station A, a former Pacific Gas & Electric substation, into an office building, while taking most of the annual office approvals allowed under the city's recently tightened Proposition M rules. It is one of several changes meant to expedite its housing and commercial components and build more flexibility into the project amid uncertain times, according to Associate Capital partner Enrique Landa.

“We don’t know what the world is going to bring us, so we wanted to have more flexibility," Landa said.

A Potrero Power Station project rendering.

Approved in April, overall project plans call for about 2,400 units, 1.5M SF of commercial space, about 100K SF of retail and a 200-plus-room hotel to be built over 16 years. The estimated total project cost is $2.78B, according to Landa. 

Because of changes to Prop. M, a 1986 voter initiative capping large office development approvals at 875K SF per year, approval of Associate Capital's plan expediting Station A also means there is less than 150K SF worth of large office project approvals left available in the city until October.

Earlier this year, voters passed Proposition E, which drops the annual Prop. M office cap by whatever percentage S.F. is falling short of its annual affordable housing target, which is specified by the state's Regional Housing Needs Allocation. From 2015 to 2019, S.F. produced 6,156 affordable units, about 40% less than its RHNA goal of 10,210 for that same period. As a result, the city could only approve about 527K SF – plus what is rolled over from prior years – of office from this October to next before giving Station A the green light.

Its initial phase consisted of just one commercial building, the hotel and one residential building of just over 300 units, according to Landa. Now, the updated first phase includes three residential buildings totaling about 735 units and 1.1M SF of commercial space. It will also be almost twice as long as the initial Phase 1, now stretching from 2022 to 2028. The developer expects vertical construction to start in 2023. 

On top of more options through more expansive Phase 1 approvals, Landa said Associate Capital's new plans were informed by community support for the redevelopment of Station A.

"The preservation and incorporation of Station A into the overall development was an important consideration for our neighborhood, and we are excited that Station A will be part of the first phase," Potrero Boosters Neighborhood Association President J.R. Eppler said. "That helps ensure that no further deterioration occurs to the site and makes sure that it is a vital part of the overall development."

Aside from the adaptive reuse of Station A, which Landa said could really only go the office route, much of the project's commercial space could end up as life sciences real estate because of the sector's strength and the site's proximity to the University of California, San Francisco's medical campus and Mission Bay.

Associate Capital's updated plan allows for 2,477 units, less than the 2,601 approved earlier this year, but at least 30% of the project's total will still be below market rate.

For-rent below market rate, units will be affordable at an average of 72% of area median income, which equals $64.5K for a one-person household this year, while affordable for-sale homes will be affordable at an average of 99% of AMI, which is just below $90K for a one-person household. 

One-bedroom base rent affordable at 72% of AMI comes out to about $1,660, while affordable homeownership at an income of 99% of AMI comes at a price of about $333K, according to the Mayor's Office of Housing and Economic Development. 

Average one-bedroom market-rate rents in the nearby Dogpatch and Potrero Hill neighborhoods are $2,795 and $2,950, respectively, both down over 20% year-over-year, according to Zumper. The median home price in both neighborhoods last month was about $1.1M. 

Landa said he thinks residential and office demand in S.F. will bounce back from current struggles but that the options provided by the project's duration are nice to have.

“We’re very curious to see, for when cities start returning, what are going to be the big changes, and that’s one of the advantages of having these long-term projects," Landa said.