High-rise risk

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Board Prez David Chiu, who helped collect signatures against 8 Washington, encountered developer Simon Snellgrove on the street.

The fate of 8 Washington, a luxury high-rise project planned for San Francisco’s northern waterfront, remains uncertain after landing at the center of a political firestorm last year. Yet a whopping $42 million, invested by the California State Teachers Retirement System (CalSTRS), is currently tied up in the project.

Months from now, in the November 2013 election, San Franciscans will vote on a building height-limit variance crafted for this particular development. If the variance goes down, the luxury development – in spite of winning entitlements last June with an 8-3 vote of the Board of Supervisors – will be toast. That outcome could jeopardize CalSTRS’ $42 million contribution, and some retired teachers are beginning to ask questions.

“We have been watching with particular concern what appears to be an incredibly risky investment by CalSTRS,” four retired CalSTRS members from San Francisco wrote in a letter to the pension fund’s investment committee last October, requesting information about how project developer Pacific Waterfront Partners had made use of the funds.

Investment amount increased 

In response to the teachers’ request for information, CalSTRS indicated that the investment committee had actually increased its contribution up from $31.7 million last March, when final project approval seemed imminent.

The CalSTRS investment committee added the project to its investment portfolio in 2006 with an initial $26.7 million commitment. Prior to that, the pension fund had partnered with Pacific Waterfront Partners in a different venture to refurbish San Francisco Piers 1 ½, 3 and 5. That development was well received by the community, and since CalSTRS earned a healthy return on investment, the 8 Washington project seemed like a safe bet at the time.

But now that it’s frozen for months and faces possible reversal, pressure is mounting on the CalSTRS investment committee.

Earlier this week, a Change.org petition created to ask the CalSTRS board to reconsider its investment garnered 150 online signatures in the first 24 hours. The online petition website lists the initiator as “Lorraine Honig, Retired Teacher,” but could just as easily read No Wall on the Waterfront, the name of the opposition campaign created last year to amass signatures for a voter referendum on 8 Washington. Honig and several retired teachers initially queried the pension fund’s investment committee in league with Jon Golinger, a key driver behind No Wall on the Waterfront and chairman of the Telegraph Hill Dwellers, a neighborhood organization.

Honig, who is actually a retired social worker, explained that she used to be a member of the Golden Gateway Tennis and Swim Club, a community fitness center that would be razed to make way for 8 Washington. She’s since moved away from the neighborhood, but feels the planned 8 Washington waterfront housing complex is the wrong kind of development for San Francisco.

“The thing I object to is, it’s high end luxury housing,” she said. “There’s nothing that’s going to cost under a million. A lot of it is going to be absentee owners.” As for the CalSTRS investment, Honig said she felt worried: “I’m concerned that our money will be used to influence the voting.”

Funding used to counter signature gathering campaign

CalSTRS’ response letter also revealed that project developer Pacific Waterfront Partners had used nearly $31,000 to counter No Wall on the Waterfront’s efforts to gather enough signatures to qualify for a referendum. An expense roster showed that funds were used to cover graphic design, flyer printing, legal and compliance advice and “outreach personnel” costs.

A flurry of news reports from last July, however, indicated that some “outreach personnel” did no more than stand on the streets and physically block signature gatherers from asking passersby to sign the petition against 8 Washington. According to one account, when a signature gatherer approached project principal Simon Snellgrove to complain about this behavior, he responded: “That’s their job.”

At the end of the day, Pacific Waterfront Partners' $31,000 expenditure to try and derail No Wall on the Waterfront’s bid for the ballot is decimal dust compared with the full investment in a building that has not been constructed, and may never be.

CalSTRS spokesperson Michael Sicilia declined to offer comment to the Guardian, instead pointing to the CalSTRS letter of response to its members. That letter stated in part: “CalSTRS is optimistic that the successful development of the underutilized space along the San Francisco waterfront will provide benefits to CalSTRS members in the form of investment income, as well as many direct benefits to the neighboring community and the city.”

So far, CalSTRS has not provided documents in response to a public records request submitted by the Guardian seeking more information about the investment. And neither CalSTRS nor Pacific Waterfront Partners has answered questions about just what would become of that significant investment if the project were ultimately killed. When we put this question Pacific Waterfront Partners spokesperson PJ Johnston, he responded: “I certainly would not speculate on what happens after the outcome of the election.”

How is the money being spent?

All of this leaves some open questions. Will that investment be washed away if voters effectively reject the project? Is the rest of the money still sitting in Pacific Waterfront Partners’ accounts, or was it eaten up by pre-construction costs? Is Snellgrove’s firm biding its time until November, when some of the funding can be tapped as a war chest to respond to No Wall on the Waterfront’s ballot referendum with an oppositional blitzkrieg?

“I don’t have a breakdown of their investment costs,” Johnston told the Guardian when posed with questions about how the funds had been used. “All pre-development phases require funding,” he added, referencing environmental impact studies, permitting, and other pre-construction hurdles that major developments must clear. “This process was drawn out over a number of years.”

Johnston also criticized the No Wall on the Waterfront campaign, saying, “A small band of corporate and really, really rich neighbors have put this on the ballot.”

And the project opponents who have deep pockets know a thing or two about investment, Golinger suggested in a letter to CalSTRS. He wrote, “The supporters of No Wall on the Waterfront who have experience with institutional investing warn that some money managers resist learning from their mistakes and, instead, double down on them, trying to prove they were right all along. The beneficiaries of the funds with which you are entrusted are sensitive to warning signs … that may be happening here.”

CalSTRS is the nation’s second largest pension fund and a source of financial support for retired educators throughout the state. About 70 percent of the money used to provide benefits is derived from investment income, and the $152.1 billion pension fund had $21.8 billion invested in real estate as of July 2, 2012. The Sacramento Bee reported earlier this week that the pension fund faces a $64 billion deficit, and would need $4.5 billion per year to become fully solvent.

Uncertain outlook

With the fate of 8 Washington now hitched to the unpredictable forces of San Francisco politics and voter sentiment, this luxury high-rise investment looks far riskier than it likely did when Pacific Waterfront Partners approached CalSTRS' investment committee years ago.

On a broader scale, there are signs that higher-risk investments are becoming problematic for pension funds across the board. An academic study released by researchers from Yale University and Maastricht Univeristy in the Netherlands tracked public pension systems in the U.S. and elsewhere, and determined that major U.S. funds like CalSTRS are trending toward higher risk investments.

“Gradually, U.S. public funds have become the biggest risk-takers among pension funds around the globe,” the authors concluded. “A major worry is that their increased risk-taking is reckless and could lead to substantial future costs to taxpayers or public entities if their more volatile risky investments fail to meet the expected rates of return.” 

At this stage of the game, it’s too soon to say whether CalSTRS’ investment in 8 Washington will ultimately become a statistic backing up that worrisome finding. Early polling results from David Binder Research showed that voters would likely reject the height-limit increase by 56 percent. But November is still many months away.

Comments

that is planned for SF. That is a gross abuse and misuse of the proposition system, and of course only happned because a couple of one-percenters bought votes so their view would not be slightly blocked.

I feel bad fot the teacher and wish them luck. That said, there is no way their pensions can be funded fully even if their fund makes a whole series of speculations break their way.

8 Wash being built will help our teachers and out tax base. But it will take a lot of 8Wash's to bail out our public sector pension liabilities. And of course the unfunded healthcare liability is even more.

Oakland is in even worse shape though. At least in SF there is demand for these deficit-fixing developments - feel bad for Oakland where nobody in their right mind would invest like this.

Posted by Guest on Feb. 07, 2013 @ 4:39 pm

....said the Snellgrove troll.

Posted by Guest on Feb. 07, 2013 @ 7:17 pm

I cannot wait to vote NO on this poorly-conceived 8 Washington waterfront high-rise project. Since the Board of Supervisors & Mayor failed to do their job, we will clean up their mess in November.

Posted by Guest on Feb. 07, 2013 @ 5:15 pm

It's much more important that we don't have a few rich people here than that we provide more housing for the poor. And if we can screw over our teachers at the same time, that's even better, right?

The politics of envy rides thru town.

Posted by Guest on Feb. 07, 2013 @ 5:39 pm

her group gets the money earmarked for them, which is why she lobbied so hard for 8 Washington in the first place (without registering as a lobbyist, but of course). http://www.sfgate.com/bayarea/matier-ross/article/Rose-Pak-s-power-surge...

Posted by Guest on Feb. 07, 2013 @ 6:19 pm

Supposing that 'her group' actually does get $11MM for affordable housing - what's nefarious about that? The money goes into building housing, not into her pocket. Hate on 8 Washington for 8 Washington's sake, if you'd like, but all of this 'Rose Pak, powerbroker' stuff has nothing to do with the issue. There are powerbrokers and financial benefits on both sides of 8 Washington, so decide on the project based on its merits, not on the trumped up specter of Rose Pak.

Posted by Guest on Feb. 08, 2013 @ 8:23 am

to Pak and her cronies out of the funds. Plus Pak gains prestige within Chinese community. Housing will be unofficially restricted to Asians only.

Posted by Guest on Feb. 08, 2013 @ 12:04 pm

I think that we'd get much better projects if they had to go before the voters for approval as it is much more difficult for developers to buy the electorate than 6 supervisors and the Mayor.

Posted by marcos on Feb. 08, 2013 @ 6:59 am

Are you seriously suggested voter approval for each one? Most voters don't care about things as trivial as this.

And who would pay for all these elections?

Posted by Guest on Feb. 08, 2013 @ 7:25 am

This is the stupidest thing I've read on this site in a long time.

So the complete blanket of almost universally mediocre buildings we have blanketing downtown in SF is due to our endless fetish for process over results - and you think the way to get even better buildings is to have every tom dick and harry weigh in on design?
Have you ever heard of analysis paralysis? I suspect you are trolling for comments.

Posted by Greg_the_diKC on Feb. 08, 2013 @ 8:56 am

But sadly that is exactly what you get when too many cooks are spitting in the broth.

Posted by anon on Feb. 08, 2013 @ 11:25 am

who tips 11% because of Healthy SF. Maybe it is you.

Posted by Eddie on Feb. 08, 2013 @ 12:04 pm

Architecture by whose who can afford it tends to really suck as well, Stanley Saitowitz to wit.

Posted by Guest on Feb. 08, 2013 @ 12:06 pm

the request of a poor person?

I don't think so.

Posted by anon on Feb. 08, 2013 @ 12:29 pm

Sucks for the teachers, but what do you want when we have an election which was basically funded by 1-3 concerned golden gateway rich people who preferred to not lose their views.

People here care infinitely more about political posturing than reality, so in the end who cares if some teachers get screwed and 11 million for affordable housing gets lost. We dont need no stinking housing for rich people.

Posted by Greg_the_diKC on Feb. 08, 2013 @ 8:58 am

Writes the fucker who screws teachers and all other public sector employees. Choke on that shit.

Posted by Guest on Feb. 08, 2013 @ 1:00 pm

lot which sits there now. Gritty urbanism!!

Posted by Lucretia Snapples on Feb. 08, 2013 @ 12:00 pm

If allowed, Mr Snellgrove will continue to beautify San Francisco as he has striven to do for the past 40 years

Posted by Guest. Moon and stars on Feb. 08, 2013 @ 12:06 pm

You wouldn't even notice in in NYC or Chicago.

Posted by anon on Feb. 08, 2013 @ 12:28 pm

Once in a while comes a developer with a passion in his belly and a love of his city. Go Snellgrove

Posted by GMP on Feb. 08, 2013 @ 12:17 pm

build a signature high-value building on the waterfront and expand the taxbase and affordable housing at the same time.

Posted by anon on Feb. 08, 2013 @ 12:31 pm

Fine, GO TO ANY OTHER CITY, Please. You can take US-101 either north or south. I80 and I580 both head east and from there you can either go further east take I-5 north or south. DEVELOPERS GO BUILD IN HELL.

Posted by Guest on Feb. 08, 2013 @ 12:58 pm

a few more rich people live here? It's not like they will ever interact with you, except maybe when they give you a tip.

Posted by anon on Feb. 08, 2013 @ 1:07 pm

Your troll powers are useless here. I'm a progressive homeowner with a job in the tech economy, writing software that organizations license and use.

Posted by marcos on Feb. 08, 2013 @ 6:55 pm

And yes, we know you hoard a unit of housing rather than allow the community use of it.

Posted by Guest on Feb. 09, 2013 @ 7:11 am

Anonymous "Guest" troll complains about posting as "Guest."

Posted by marcos on Feb. 09, 2013 @ 8:21 am

and "own" your posts by always using your "real" name.

And now you are caught out lying.

Posted by Guest on Feb. 09, 2013 @ 8:37 am

A real Simon and Garfunkel Troll here:

lie lie lie (boom) lie lie lie lie lie lie lie
lie lie lie (boom) lie lie lie, lie-lie-lie-lie-lie-lie, lie-lie

Posted by marcos on Feb. 09, 2013 @ 9:09 am

No wodner you're showing your guilt and shame.

Posted by Guest on Feb. 09, 2013 @ 9:49 am

I love it. Marcos can hardly contain himself! One anon post as guest and he has to tell everyone about his triumph! We ALL want to know more about the sexually promiscuous misanthrope!

Posted by Greg on Feb. 11, 2013 @ 8:47 pm

Let the developer build it in another city that wants it. There are two attitudes about San Francisco. One is leave it alone we love it the way it is. The other is, we hate it and want to change it. If you don't like it you can always leave.

Posted by Guest on Feb. 16, 2013 @ 2:54 am

This article, believe it or not, is biased! The missing part of this article: who is really behind the No Wall on the Waterfront campaign? Who paid the signature collectors to get this on the ballot? Who paid for the polling mentioned in this article? Believe it or not, it's a rival out of state development corporation. You've been duped!

The $30k spent to try and keep this ridiculous proposal off the ballot is nothing compared to what the No Wall on the Waterfront people have already spent, will spend, and will force Pacific Waterfront Partners/CalSTRS to spend to try win at the ballot box. These types of ballot initiatives cost a lot of money to pay for consultants, polling, direct mail, staff, etc. We now have an out of state corporation using Golinger and the Telegraph Hill Dwellers to fight a local developer that is trying to make San Francisco an even better place for everyone. Just because you hate change doesn't mean you should prevent investment in our economy and new affordable housing, among other benefits the city already negotiated in exchange for the right to build on this site.

On the bright side, at least there will be something interesting to read about in the newspaper during the 2013 election cycle.

Posted by Guest on Feb. 08, 2013 @ 4:44 pm

"Just because you hate change" + "trying to make San Francisco an even better place for everyone" = at least you make us laugh Alicia, PJ, etc. ;)

Posted by Guest on Feb. 08, 2013 @ 5:13 pm

Union pension fund money has become a reliable deep pocket for building high-rises for rich people and funding sprawl housing developments throughout the US. The pensions say - "We need to dramatically increse our investment returns to pay our looming billion dollar unfunded pension liabilities, so we need to get into the real estate exploitation business since that's where the really big investment payoffs are possible."

The Port, which has been rapidly turning public property into its own little real-estate fiefdom, is more than happy to take the union pension money to build inappropriate developments like 8 Washington that create very little affordable housing, yet allow the developer, real estate land-use lawyers, and PR flaks to make multi-millions from the zoning entitlement. If the property value turns south over the next 20 years, no doubt it will be the pension funds holding the bag, just like they lost tens of billions from their real estate investments made 10 years ago.

Public pensions and quasi-private government agencies like the Port could care less about the rest of us so long as they get their money and maintain control over valuable real estate assets. And with the taxpayers funding the entire exploitation madness, it just makes the whole process even more laughable.

Posted by Guest on Feb. 09, 2013 @ 9:54 am

the fund mangers have tot ake outsized risks to have any hope of meeting those laibilities.

And that means investing all the things that municipal apologists hate, like hedge funds, sub-prime bonds and mortgages, and property speculation, become legitimate investments. Such delicious irony.

Of course, such investments come with considerable risk as well. And if they go south, then those teachers and bureaucrats had better start planning on an impecunious retirement. The money probably just will not be there.

Posted by Guest on Feb. 09, 2013 @ 10:21 am

Maybe the money managers will work it out, after all.

Posted by lillipublicans on Feb. 09, 2013 @ 10:40 am

trying to stop the public sector pension funds investing in things that he finds ideologically repugnant, thereby harming the returns, thereby harming the teachers.

The Law of unintended consequences.

Posted by anon on Feb. 09, 2013 @ 10:55 am

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