Board subcommittee backs 60-year ground lease, $100M reinvestment plan for San Francisco Wholesale Produce Market

The Budget and Finance Subcommittee voted to send forward a resolution authorizing a 60-year ground lease that will allow the San Francisco Wholesale Produce Market to undertake a phased reinvestment project estimated at about $100 million.

Supervisor Jane Kim, a committee member, said the lease and reinvestment would support PDR jobs and local hiring in Bayview Hunters Point. Supervisor John A. (Supervisor Cohen) — the item’s cosponsor — told the committee “the item before you today provides the produce market with a new 60 year lease, that will facilitate a large expansion of the market, updating facilities, creating new expanded space for tenants who wanna stay and grow here in the city, and for also for new tenants that are looking to locate their business here in the market.”

John Updike, acting director of real estate, said the 60-year term was negotiated to align with multi-phase financing: the project’s last phase could be completed around February 2036 and institutional debt on that final tranche could extend decades thereafter. Updike said the city projects stabilized net revenues of roughly $1.5 million annually after project stabilization, producing a net present value estimate of about $30 million to $35 million to the general fund over the lease term.

Market officials described the operation as a long-standing regional food hub. Michael Janus, general manager of the wholesale produce market, said the market now serves roughly 26 businesses with shared warehouse and dock space, provides hundreds of jobs and donates produce to the San Francisco Food Bank. Janus told the committee the reinvestment would upgrade five buildings (including 901 Rankin Street), add 100,000–200,000 square feet of capacity and phase construction over 10–15 years so market operations can continue.

On financing and fiscal oversight, Updike said the lease includes operational restraints and reporting requirements; the city retains review and approval rights over the development plan, budget, design, leasing schedule and rent schedule and can require corrective action if commercially unreasonable practices occur. He described triggers that must be met before relocation of city tenants at 901 Rankin would occur, including the identification of a suitable replacement site and an anchor tenant for newly constructed space.

Committee members pressed for clarity on the short-term fiscal impacts. Updike said the project is structured so that the initial years’ net revenues and tenant rents are used to pay debt service and construction costs and that the city should not expect meaningful net revenue flows until after stabilization (projected ~2036). He acknowledged the Department of Technology relocation could result in ongoing rental costs for DT estimated in prior analysis at roughly $500,000–$800,000 per year in a rental scenario, which the city would offset as part of the negotiated arrangement; Updike said SFMTA’s relocation costs are expected to be covered within SFMTA’s existing budget.

Budget analyst Mr. Rose noted capital improvements are estimated at approximately $107.8 million over about a 20-year build schedule and categorized approval of the resolution as a policy matter for the full Board of Supervisors because of remaining unknowns, including the stabilization date and the precise net-revenue outcomes.

Multiple market merchants and local stakeholders spoke in support during public comment. Merchant Jack Pisa described multi-generational ties to the market and called the negotiated structure “a deal that’s going to allow the market to continue to operate” while Michael Janus and vendor representatives emphasized local hiring ties and the market’s role in the city’s food supply chain.

The subcommittee voted to send the item forward with recommendation to the full Board of Supervisors; the full board is scheduled to consider related land-use components on July 17, 2012.