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San Francisco Business Times

June 24, 2010

Major Work Getting Under Way at Bay Meadows

By J.K. Dineen

Nearly two years after developer Wilson Meany Sullivan knocked down the Bay Meadows horse track, the bones of a new mixed-use community are starting to come into focus.

The 83-acre property is crawling with heavy construction equipment. In place of thoroughbred horses, Bay Meadows is home to a fleet of Cat 627G Scrapers – tractors that carry 22 cubic yards of dirt and go 32 miles an hour as they create the new roads that will make up San Mateo’s newest neighborhood. “Dust trucks” follow behind, sprinkling water over the dirt while pile drivers prepare to push 12-foot piles into the ground. An onsite plant is crushing some 67,000 tons of concrete, creating a mountain of pulverized rock out of the walls of the old race track grandstands. Backhoes are digging four trenches, one for storm drains, one for water, one for sewer, and a last to accommodate phone, data, gas and electric.

At its busiest, 40 workers, mostly from the contractor Townsend Management Inc., are building the site infrastructure, with a team of 22 working on the underground work, laying water, sewer, storm basin, and electrical,

“It’s all about horizontal construction,” said construction manager Scott Giddens of Wilson Meany Sullivan. “It’s all about getting the infrastructure in place, the roads built, the pads leveled and ready to deliver so (developers) can come in and get their shovels in the ground and ready to go. We have every intention of plowing ahead and getting this thing done.”

WMS principal Christopher Meany declined to say how much is being spent on the preparatory construction, saying it’s “tens of millions,” but less than $50 million. If everything goes as planned, by the end of this year the developer will have the infrastructure built for “spar No. 3” – three development pads that would total 344 residential units.

Once the pads are ready, WMS will begin negotiating with a select group of national home builders – companies like Pulte, Toll Brothers, Lennar – who have expressed interest in buying preparted development sites. From there, actual townhomes could rise in six to nine months.

“We believe it will be most effective to make selections at the end of the year so they can go vertical next year, as the market recovery starts to accelerate,” said Meany. “Not too far ahead and not too late.”

Weathering the storm

After a seven-year entitlement process – an epic land-use battle even by Bay Area standards – WMS won approvals in August 2008 to knock down the race track to build 1,037 housing units and 850,000 square feet of commercial space. The developer immediately razed the race track and was well into the permitting process when the economy collapsed in fall of 2008. While critics of the project accused the developer of abandoning the project, Meany says the development was only delayed by a total of five months.

“In the midst of incredible economic turmoil we tried to be super, super sensitive about where the market was going,” said Meany. “And we were not sitting idle. We think we made some very good decisions during that period.”

Instead of September 2009, construction started in March 2010. In between, WMS re-jiggered the phasing of the development. Instead of starting with the densest corner of the property, the southwest, WMS decided to start on the northeast corner, a parcel that is approved for lower density. The idea is to minimize risk by building the cheaper, lower-density townhome condos before the 55-foot podium buildings. If everything goes as planned, the first units would be completed in 2011 with the bulk coming on line in 2012 and 2013.

The work is being done as the rating agency Fitch released a report that identified a loan on the Bay Meadows project as a “loan of concern.” The report said the loan is current and was recently extended 24 months to February 2012. Meany said the project is not highly leveraged.

“We have a modest amount of existing debt. If the climate were different, we would have refinanced and taken out a larger loan. Instead we want to reserve that option for later. We kept our low leverage in place and invested additional equity to build out what we build,” Meany said.

Meany said his firm is “cautiously optimistic” despite the “gruesome” economic downturn of the last two years.

“We think we will have the most compelling development site with in-place infrastructure in the Bay Area as it becomes clear in 2011 that the recovery in the residential market is taking hold – and we predict that the market will be surprisingly undersupplied at that time,” said Meany.

Read the original story here.