Does Mills make sense?

Pub date October 21, 2005

It wasn’t supposed to go like this.

 When Virginia-based mall developer Mills Corp. used political pressure by then-mayor Willie Brown and a partnership with the YMCA to narrowly win Port of San Francisco approval, in 2001, for the exclusive right to build a shopping center and office park at Piers 27-31, the project was supposed to slide right through.

 The Board of Supervisors was effectively cut out. All that elected body – which includes some supervisors who have been critical of the Mills project – could really do was tinker with the environmental impact report, or maybe just refuse to certify it and risk getting sued.

 But that was before a little-noticed change in a fairly noncontroversial ordinance put the board in the driver’s seat.

 Now a clearly concerned Mills Corp. has launched an aggressive lobbying and public relations campaign – including a series of full-page newspaper ads – urging the public to convince the board to certify that the project makes long-term financial sense when supervisors consider the matter next month. Otherwise, the project could be dead even before its EIR is complete, setting up the port to chose another developer when the Mills contract expires next year.

 Board president Aaron Peskin won approval last year for his Fiscal Responsibility and Feasibility Ordinance. "The whole notion of the ordinance is before you go headlong into these projects, let’s make sure the city has the resources to maintain it over time," Peskin told the Bay Guardian, noting how many projects in the city get built without solid plans for the long-term operating funds needed to maintain them.

 The ordinance covers projects that get over $1 million in public funds and other taxpayer-backed subsidies, and in July of this year, with the Mills project in mind, the board modified the measure to include in its definition of public funds the lucrative rent credits Mills is getting.

 "I think [Mills executives] are scared. They didn’t expect the board to be able to weigh in on this before the end," said Jon Golinger, who is leading the opposition to the project. "The board now gets to assess whether we can trust this company to do what they say they’re going to do."

 And trust seems to be a key issue in this case. Under state law and Prop. H, in which San Francisco voters required a recreation plan for the northern waterfront, Piers 27-31 are supposed to be geared toward offering recreational amenities to San Franciscans. Mills and port officials say the project’s YMCA and the "recreational retail" focus of its shops will meet that requirement.

 Critics in Golinger’s group say the project is little more than a glorified mall using the recreation label to pass legal muster, an accusation that Mills Corp.’s 2003 annual report does little to contest, calling the project "an attractive entertainment, dining, shopping and office center" and never once using the word "recreation" (a word added to the label in its 2004 report).

 An otherwise breathlessly laudatory economic study commissioned by the developers and released in July also indirectly raises the question of whether the 164,700 square feet of office space in the project will generate enough cash to pay for all the developer’s promises. Based on statements made by Mills executives, the report notes, "the project is unlikely to be built unless it can achieve minimum net rents of $35 per square foot which represents a major premium over current rents, that few if any existing tenants would be able or willing to pay."

 San Francisco has one of the highest office vacancy rates in the country, and rents average well below what these developers expect to receive. But Mills spokesman Dave D’Onofrio said the offices will be unlike any in the city, and "the market is clearly there" to support such high rents.

 In addition to these areas, Peskin said the board will consider Mills Corp.’s deal with the YMCA, which will be required to pay back the $30 million in capital costs fronted by the developer, on top of the ongoing operating costs needed to maintain this project as a recreational facility open to all.

 "They’re going to have to show how they’re going to fund the Y," Peskin said. He and others have noted that none of the financial documents released by the developer shed much light on that arrangement or other financial details of the project, although the port is currently preparing another financial document set for release to the board Sept. 28.

 Neither port nor YMCA officials returned our calls for comment, but D’Onofrio noted that the YMCA will pay just $1 per year in rent and that he is "utterly confident that the Y will be successful."

 Mills officials have publicly blamed opposition on businesses on Pier 39 and Fisherman’s Wharf, who fear competition from the project. "But there’s no validity to that argument," said Chris Martin, whose family has owned The Cannery and has been involved in northern waterfront planning issues for more than 30 years. He said the northern waterfront is already a congested mess on weekends, and an intensive project like this will make things much worse.

 In response to our inquiries, Mills project manager John Spratley issued a written statement saying in part, "The Board of Supervisors will find that The Piers is financially strong and a tremendous economic benefit for San Francisco and the Port."

 Peskin said he has an open mind about the project but said it is incumbent upon the developers to provide more information showing how the open space, recreational amenities, and other public access aspects to this project will be maintained over the long run: "To them, I say that if your project is so great then it will be great in the future."

 E-mail Steven T. Jones at