SFO homebuilding continues (housing construction listed as “essential function”)

What the coronavirus shutdown means for the Bay Area’s housing crisis

As much of the Bay Area’s economy sputters to a halt due to the new coronavirus, housing builders are plugging away — pouring concrete and hanging drywall — even as they impose strict hygiene rules and ask workers to keep a safe distance from one another.

On Monday, the six Bay Area counties that issued a shelter-in-place order included housing construction on the list of essential services that are exempt from shutting down. The order allows all housing projects to continue — market rate, affordable, and mixed-use — while construction projects that are strictly commercial must temporarily shut down.

“Mayor Breed absolutely believes building housing is an essential function at this point,” said mayoral spokesman Jeff Cretan. “We need that work to continue.”

Currently, there are 10,000 units under construction in San Francisco. About 4,300 were completed in 2019.

The shelter-in-place order Monday sowed some confusion among builders who were under the impression that they would be forced to shut down job sites. Bob Nibbi, president of Nibbi Brothers Construction, which is building nine Bay Area housing projects, said he was starting to do just that before learning that housing construction could continue. The company has several commercial building jobs that will be suspended.

“Our housing job sites will remain open,” said Nibbi.

The company implemented social distancing and strict hygiene rules several weeks ago, he added. “Morale is still good. Our people are happy to be coming to work and earning a living,” he said. “Especially when you are seeing layoffs in so many other industries.”

Eric Tao, a partner with L37 Partners, said construction at 950 Market St. is progressing, with the ninth floor poured this week. That project, which has 232 condos, a theater and 242-room hotel, will continue. At Factory O/S, a modular housing factory on Vallejo’s Mare Island, three housing projects are being constructed on the assembly line, including two affordable complexes and one for Google workers.

Factory O/S President Rick Holliday said workers have been ordered to stay 5 feet from one another, while janitorial services have been tripled and hand-washing stations have been added throughout the building.

“Our guys want to work. We have 270 people banging away. Their attitude is, ‘We’ve got housing to build for the homeless. And we have plenty of plywood and sheet-rock,’” he said. “We are business as usual while being extra vigilant about hygiene.”

He said he thinks there will be a brief pause in financing new projects.

“I’d be surprised if any deals got done this month, but I don’t think capital will flee housing,” he said. “We are still 3 million units short in the Bay Area.”

Sam Moss, executive director of Mission Housing, which is building two affordable projects, said his group would continue to build.

“We are doing everything we can to keep our workers safe but in this crisis, it’s more clear than ever that housing people is among the most important factors in keeping people healthy,” he said. “The housing crisis is a self-inflicted wound caused over the course of decades. It’s good that elected officials are taking it seriously.”

But while projects still under construction are going ahead for now, developers say the fast-moving virus will eventually disrupt new housing production, exacerbating the region’s already severe housing shortage. The pandemic could make it harder to obtain building materials, while widespread sickness could fuel a worker shortage or shut down job sites altogether.

Already, lenders have at least temporarily stopped writing loans for new construction projects, said John Manning, a broker with Avison Young, which helps developers finance housing development. On Thursday, a lender canceled a loan on a 100-unit West Coast condo project, although Manning wasn’t authorized to discuss the details.

“There is going to be a mass pause in the very short-term,” said Manning. “If we have two months of home isolation and then things start to flatten out and get better, I’m imagining the banks and equity funds will gradually put their toes back in the water.”

Tao of L37 agreed. His group is raising capital for a new project — 299 units at 1270 Mission St. — which he said will likely be delayed.

“Right now, lenders are sitting on the sidelines waiting to see what happens before deploying more capital,” he said.

A lack of liquidity in the markets could slow down the city’s multi-phase megaprojects, like India Basin, Treasure Island and Candlestick Point. Other projects that were already languishing due to a lack of financing before the coronavirus hit the Bay Area, like the proposed condo tower at 1 Oak St., could drag on even longer.

“It’s too early to know what the impact will be, but it’s hard to imagine that housing production won’t be delayed by workforce and financing issues, just for starters,” said Judson True, Mayor London Breed’s point person on housing production. “Clearly, the city’s focus right now is on public health, but at some point we may have to look at even more creative strategies to take on the housing landscape we face after the virus recedes.”

Emerald Fund President Oz Erickson, who has built thousands of housing units in San Francisco, said that historically low interest rates will make it cheaper to build housing. But he said COVID-19 will slow down construction as workers call in sick and building material deliveries slow down.

High construction expenses and city-imposed fees have already increased the cost of building in San Francisco to about $800,000 a unit in San Francisco, which makes building anything challenging, he said.

“The coronavirus will be an additional impediment to financing any project, which was already exceedingly difficult,” he said. “This is going to do nothing to help with construction costs.”

The health crisis could be a mixed bag for affordable-housing developers. Low interest rates could make it cheaper to borrow money. A hiatus in market-rate projects could cool down competition for land, lowering costs for taxpayer-subsidized projects. But the cooler market wouldn’t matter if the coronavirus substantially depletes the workforce.

In addition, affordable projects in San Francisco are backed by the city’s top-notch credit, which makes them a safe haven for investors in turbulent times, said Rebecca Foster, chief executive officer for the San Francisco Housing Accelerator Fund, a public-private partnership that helps pay for the production and preservation of affordable housing.

But affordable developers also face increased uncertainty. The coronavirus is already disrupting the tax-exempt bond market, Foster said. Most affordable-housing projects in San Francisco are funded in part through the sale of tax-exempt bonds.

Foster said she is getting ready to sell tax-exempt bonds in the next few months for a supportive-housing project for the formerly homeless in the South of Market.

“It’s possible the bonds will sell with a lower interest rate than expected, but also possible that there will be no buyers,” she said. “It adds another layer of uncertainty, and that can impact your timing and add to costs.”


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