San Francisco’s VA Medical Center could build a 343,500-square-foot project for $300 million to $550 million at the Salesforce.com site in Mission Bay under a unique public-private partnership, according to a report prepared for the medical center’s nonprofit research support arm by the Bay Area Council Economic Institute.
The partnership, which could jumpstart construction on the project as soon as next year, would place the VA adjacent to the Mission Bay campus of its research and clinical partner, the University of California, San Francisco, and even allow the VA to share the structure with UCSF and others.
That arrangement, according to the report that is scheduled for formal release Monday, potentially would allow for more efficient and effective research collaborations targeting HIV/AIDS, epilepsy, post-traumatic stress disorder, traumatic brain injuries and more.
But the plan also would require leaping over substantial financial, political and real estate hurdles, any of which could prove fatal to the project.
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At the same time, the VA’s move also could open for reuse the current home of the San Francisco Veterans Affairs Medical Center, the sweeping Lands End site known as Fort Miley that overlooks the Golden Gate to the north and miles of coastline to the south.
The VA's preliminary plans initially were reported in 2010 by the San Francisco Business Times.
The 52-page report for the nonprofit NCIRE — the Northern California Institute for Research and Education — paints a dire future for the VA at Fort Miley and outlines a financing plan to expedite a move to one of a handful of parcels in Mission Bay. The site owned by cloud computing giant Salesforce is one of the hottest chunks of developable property along the West Coast and is clearly the most preferred in the report.
Salesforce on Friday announced that it signed what could be the largest office lease in San Francisco history, taking 714,000 square feet in the 1.4 million-square-foot Transbay Tower.
Time, the report said, is of the essence, even if a public-private partnership financing costs more in the short term.
“As those sites will not be available indefinitely, it is important that the necessary legislation and/or directives enabling a pilot project to move forward be pursued on an expedited basis,” the report said.
The proposed Third Street site is a quarter-mile from AT&T Park, across the street from UCSF’s growing Mission Bay campus and kitty-corner from the under-construction, $1.5 billion UCSF hospital complex.
Under the plan presented in the Bay Area Council Economic Institute report, the VA would occupy 150,000 square feet and UCSF could take 193,500 square feet in the proposed structure. The structure would be financed through a public-private partnership that would shift design, construction, financing, operation and maintenance to a private partner.
That arrangement could allow the project to hurdle a backlog of VA-approved major capital projects, moving its potential start date from 10 to 15 years from now to next year and targeting completion within three years after construction is started. What’s more, the report said, a public-private partnership could cut the cost of the project by 20 percent or more.
Getting the project even to the starting line would require fine political, financial and legal footwork. It must be classified, for example, by the federal Office of Management and Budget as an operating lease transaction, the report said, but getting that classification will require legal experts.
Such a maneuver may seem like a bureaucratic sideshow, but it is important since a typical capital lease transaction requires an upfront budget appropriation of hundreds of millions of dollars. That would be a tricky feat to pull off in today’s hyper-politicized Congress, especially in the district of Democrat and former House Speaker Nancy Pelosi.
NCIRE has long coveted the site for relocating all or some of the VA’s operations, even before Salesforce bought its 14-acre site in 2010 from Alexandria Real Estate Equities Inc. Two years after the purchase, Salesforce opted not to build its headquarters there, and the site continues to appear as a gaping wound while new development has sprung up or is proposed around it.
Many rumors have circulated about the site, including its use an alternate location for the Golden State Warriors politically troubled waterfront arena project.
Only last month, UCSF said it would buy a four-acre rectangular flank of Salesforce’s property to build up to 300,000 square feet of office space.
But the main chunk of Salesforce property has a big, muddy ditch slicing through the middle of the fenced-off parcel. Changing that image quickly, according to the report, will require a public-private financing partnership.
The cost of that financing deal will be “somewhat higher” than an eventual federal appropriation, the report said, but could save time and, eventually, money.
Cost estimates range from $879 per square foot for a lowest-cost scenario under a public-private partnership to as much as $1,594 per square foot if the project is publicly funded, according to the report.
A public-private partnership — or what the report dubs a “P3” — for funding a building is not unheard of; in fact, UCSF used a similar arrangement on its Mission Bay campus for the $200 million, 237,000-square-foot Sandler Neurosciences Center building, which opened in 2012.
In the case of the neuroscience building, UCSF owns the land but leases it to a nonprofit group that subleased it to a for-profit development partnership that leased the structure for 38 years to UCSF, which then will own the building. Construction was financed by some $200 million in public bonds sold by the California Infrastructure and Economic Development Bank.
A “P3”-funded VA project could have a massive effect on the medical center and its research operations.
The VA’s Fort Miley medical center, which in 2012 had about 28,000 inpatient visits, currently includes 124 operating beds, a 120-bed community living center and six outpatient clinics in 1.1 million square feet in 38 buildings on 29 acres.
But the center needs about 485,000 square feet of space, the report noted, and its patient load has increased with the aging Vietnam War veteran population and soldiers from the wars in Iraq and Afghanistan.
Outpatient stops have increased from a little more than 600,000 in fiscal 2008 to 900,000 in the fiscal year ended Sept. 30, the report said.
At the same time, patients and staff have long complained that the medical center is difficult to reach via one Muni bus line and with limited parking on the extreme northwestern edge of San Francisco. Neighborhood groups, meanwhile, have opposed expansion plans over the years.
The Golden Gate National Recreation Area, Lincoln Park Golf Club and the Legion of Honor also are among the VA’s neighbors.
The VA's current structures, many built in the 1930s under the Works Progress Administration, are outdated for 21st century medical and research work, the report said.
The San Francisco center receives more than 55 percent more research grant funding than any other VA facility, according to the report, including $87 million in research funding in fiscal 2012.
The VA and UCSF’s School of Medicine have worked together for nearly 50 years. Physicians are jointly recruited and faculty work together on many treatment and research programs.
But, the report noted, collaborating VA researchers at Lands End and UCSF researchers at Mission Bay are separated by a 55-minute car ride.
“If the SFVAMC does not locate a portion of its research space close to UCSF,” the report said, “its partnership with the university will be under growing stress.”
The VA two years ago leased 42,000 square feet for a research center at 1700 Owens St., off the north side of UCSF’s Mission Bay campus.
If the VA finds additional space at Mission Bay or elsewhere, the Fort Miley site at Lands End could be converted to other VA uses or faculty housing, the report said. Those would be less-intense uses, the report said, that could mitigate neighbors concerns about traffic.