Developer drops plans for condo tower

From today's SF Business Times,

Citing an "overheated" residential construction environment, developer Monahan Pacific has scrapped plans to build a condominium tower at 535 Mission St. and has unloaded the prime south financial district land to Beacon Capital Partners for $30 million.

While the property is approved for a residential complex, a spokesman for Beacon Capital confirmed the company plans to build an office tower on the site, the latest example of what is shaping up to be a revival of new Class A office construction in San Francisco. In addition to the 535 Mission St. site, Tishman Speyer is expected to break ground this year on an office building at 555 Mission St., and Shorenstein Properties is actively seeking tenants for a 350 Bush St. highrise.

Jeff Hutchinson, Monahan Pacific's director of acquisition and finance, said the company had hoped to develop the land as a 34-story housing complex but a "super-heated environment" put construction costs 40 percent above what they were in 2004 when the company finished its 166-unit building at 199 New Montgomery St. Monahan Pacific bought 535 Mission two years ago for $19.2 million.

"It seems like the labor and construction issues were going to get worse before they get better," he said. "The cost environment gave us some pause along the way."

Hutchinson said the project would have been competing for labor and materials with a spate of skyscrapers under construction, including 301 Spear St., One Rincon Hill and Millennium Partners' towers at 301 and 333 Mission St.

The rise in construction costs over the past few years has been staggering. A study by Webcor showed the price of roofing, glass, aluminum, drywall and metal stud jumped by more than 25 percent in 2005. Glenn Gabel, senior vice president of Webcor, said crane towers are "at a premium right now in the Bay Area and continue to get more expensive, but they are available."

Could these new costs also include the developer price hikes pushed through the Board of Supervisors by Daly last year?

What happens when the office market really picks up and developers turn back to building office space? First a moratorium, now a shift to building Class A office space.

The attack on housing continues... And none of this is going to create more affordable opportunities...