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Hayes Valley rally: Housing boom in San Francisco neighborhood

By J.K. Dineen, San Francisco Business Times

In 1992, Donald Klingbeil won accolades for Fulton Grove, a Hayes Valley project with 22 wooden-shingled townhouses lining a private cobblestone courtyard.

Back then, Hayes Valley was far from trendy and, while the project sold quickly, it barely broke even.

“At that time the consensus was that we were on the wrong side of the freeway — the Civic Center was considered to be the nicer side,” said Klingbeil.

Twenty-one years later the freeway is gone, Hayes Valley is one of the chicest neighborhoods on the West Coast, and Klingbeil is joining a rush into his old stomping grounds. Klingbeil and Elizabeth Costello, who run the San Francisco-based firm Pocket Development, are preparing to open the sales office for 300 Ivy St. — a $23 million, 63-unit project that represents one of its three substantial condominium projects under construction in San Francisco.

“It’s fun to be back in the neighborhood after such a long, long absence,” said Klingbeil.

Hayes building boom.

The Ivy Street project, which will be completed in the fall, is the first of six market-rate projects in Hayes Valley that will start construction over the coming year, a burst of residential building that will bring 450 units and more than 1,000 new residents to the area. That is a lot of housing for an enclave that has added just 158 new condominium units over the past 10 years. The majority of the developments will be on formerly city-owned parcels along Octavia Boulevard that were freed up when the elevated Central Freeway was knocked down.

Three of the projects will be the work of San Francisco-based DM Development and its New York partner DDG Partners. The first of these will break ground next month: 8 Octavia, the Stanley Saitowitz-designed 48-unit project at Market and Octavia Streets. Then by next summer, DM Development plans to start work on 400 Grove, a 34-unit project that the Planning Commission approved on Jan. 31. Finally the company is hoping to win approvals this spring for 450 Hayes St., a 41-unit project being designed by Handel Architects. In addition, Equity Community Builders and Farrallon Capital Management are working on a 72-unit rental project that will be developed along with a new clubhouse for the Boys & Girls Club.

Finally, AvalonBay is pulling permits to build 180 rental units on Parcel P, the largest of the city-owned sites along Octavia Boulevard from the freeway demolition.

“There are a number of for-sale projects in Hayes Valley, but we think given how vibrant this neighborhood has become there will be strong demand for well-designed housing,” said Mark MacDonald, a partner with DM Development.

The projects are all part of the Market Octavia neighborhood plan, a 2009 rezoning that will eventually allow for about 6,000 units of housing. Lou Vasquez, a principal in the Hayes Valley-based development firm Build Inc., which sold Parcel P to AvalonBay, said that the projects “are fulfilling the dream that was arrived at after a long and difficult eight-year community building process.”

These new developments will “put more people in the ‘hood and enliven the streets,” said Vasquez.

Design mavens

Costello and Klingbeil met at Columbia University’s real estate development masters program. Before grad school, Costello had been a construction lender at banks in Ohio and California, and Klingbeil, whose family owns the apartment investment firm Klingbeil Capital Management, had been a partner with his cousin at San Francisco-based Urban Frontier Development Corp., the entity that built Fulton Grove.

From the beginning, Pocket Development has gained a reputation as a design-centered builder. The company built two projects in Oakland — Magnolia Row and West End Commons — both of which pulled roughly 25 percent of buyers from architecture and design fields. Alan Mark of the Mark Co., which has marketed all of Pocket Development projects, predicted “the same thing will happen with Hayes Valley.

“It’s a key passion for Pocket Development to personally labor over every finish, every detail as if they are living there,” said Mark. “It’s geared for people who are keen on design, and there is a timeless feel to it.”

Pocket Development was lucky enough to sell out its two Oakland projects before the crash of 2008 and then was able to buy 300 Ivy for $4.4 million in 2010 at the bottom of the market.

The 300 Ivy project, designed by David Baker + Partners and financed with a construction loan from PNC, consists of one studio, 23 one-bedroom units, 34 two-bedrooms units and five townhouses. The building has two bike parking rooms — a total of 68 bike storage spaces — and 32 car parking spaces for residents. The nine below-market-rate units will be on site.

“It’s the first luxury development that will be truly ‘parking light,’” said Baker, who like Klingbeil commutes by bike. “It’s going to be interesting to see how it plays out. We have really honored the bike in the design.”

Glass walls from the lobby will open onto interior courtyards. All the units have outdoor spaces; the townhouses have private roof decks. The developers are shooting for LEED Platinum. “It should be lush. The materials are going to feel substantial and modern,” said Costello.

Mark said the condo inventory in San Francisco has dwindled to nothing. The Millennium Tower has 10 units left out of 419. One Hawthorne has three. Madrone is sold out. Pocket Development will face competition from the 114-unit project Linnea at 1998 Market St. and 1800 Van Ness Ave., a 98-unit development called Marlowe. Mark said the last sold-out project that’s comparable to 300 Ivy is 299 Valencia, which topped $900 a square foot when it sold out six months ago.