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Hayes Valley land sales hint at real estate upturn

By Robert Selna, Chronicle Staff Writer

A developer has agreed to pay several million dollars for property inherited by the city of San Francisco when the Central Freeway came down, suggesting the area's real estate is heating up again following a recessionary slump.

The two parcels sit between Octavia Boulevard and Gough Street, one on Hayes Street, the other two blocks north. As part of a city auction Oct. 26, the developer paid $5 million for one 17,000-square-foot plot and $3 million for another that is 11,000 square feet - more than the minimum bids of $4.4 million and $2.95 million, respectively, set by the city.

According to city officials, the buyer is DM Development. The company could not be reached for comment, but it is widely believed that it plans to build housing on the land.

The two lots are among 22 parcels that once lined the streets along the double-decker freeway, which began to be torn down in 1992 after being severely damaged in the Loma Prieta earthquake. Since 2002, the city has auctioned or attempted to sell the land, most of which is expected to be developed into housing units above retail space.

The auction results last week and strong sales at a new 31-unit condominium nearby have encouraged the city to auction three more parcels in the coming months. Once those are sold, the city will have nearly completed the distribution of the land.

The properties are an integral part of a neighborhood rezoning plan to add as many as 6,000 housing units while creating a walkable, thriving area accessible to public transportation.

The city's ambitious goals were slowed for years by debates over the plan's finer points, such as affordable housing, developer fees and parking space limitations. The bad economy has made if difficult for builders to obtain construction loans, but momentum appears to be building for new projects.

The first freeway parcel development is nearing completion at the corner of Octavia Boulevard and Oak Street. Meanwhile, the LindenHayes condominium project has seen brisk sales since it placed units on the market in June, according to Doug Shaw of Union Pacific brokerage.

Shaw said the sales probably were aided by the fact that not much other new housing has come on the market in the past few months. But he noted that Hayes Valley increasingly is becoming upscale, continuing to add boutiques, restaurants and shops.

"There was an encampment under the freeway overpass and after that came down all the merchants here say it was like night and day," Shaw said. "Octavia is being touted all over the place as a brilliant project in urban planning."

Developers, however, caution that many of the former freeway parcels probably will not be developed for at least a couple of years. The city permitting process and a dearth of construction loans are likely to make progress relatively slow, they say.

Most see the recession as a temporary bump on the neighborhood's inevitable path toward gentrification. That concerns some residents involved in the area's planning.

"I'm of two minds about the economic boom in the area," said Henderson. "I believe it's only being (delayed) by the national financial crisis. I also know that we have to be more aggressive about affordable housing; it's a challenge we will face in the coming years as waves of people come in here."