Lennar Corp., one of the country's largest home builders, has been suffering for months from slow sales, plummeting prices and other pains from the worst housing crisis in decades. But none of this quite compares to the trials of San Francisco's land-use approval process.

Lennar Lennar Corp.'s redevelopment plans for Hunters Point have drawn protests in San Francisco (below).

Miami-based Lennar, which for more than 50 years has built mostly in U.S. suburbs, jumped headfirst into these rocky and politically charged waters in 1999, when it began negotiations with the city to develop 770 acres, the largest undeveloped site San Francisco. One of its biggest tests will come next week when city voters decide whether to approve what Mayor Gavin Newsom called "one of the most significant development projects in our history."

Lennar's development plan for the southeastern San Francisco neighborhood includes homes, retail shops, parks, biotech offices, a theater, a football stadium and a possible ferry terminal.

The company has agreed to pay the city a nominal amount for the site that includes the former Hunters Point Navy shipyard and Candlestick Point. In exchange, the city requires that Lennar allocate 400 acres for park and open space, a site for the San Francisco 49ers' new football stadium, if the team stays in town, and thousands of homes for low- and moderate-income residents. Lennar estimates that such stipulations will cost about $1.2 billion over the 10-year project.

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But Lennar and its massive mixed-use plan for 10,000 homes has still become a magnet for criticism in a city infamous in real-estate circles for the power that activists have wielded against developers. The site abuts one of the city's historically African-American neighborhoods, where some residents -- who have seen many failed proposals since the shipyard closed in 1974 -- fear the project will force out low-income families. African Americans are a decreasing share of the city's population.

"When you develop in the suburbs you are developing in someone's backyard," says Emile Haddad, Lennar's chief investment officer. "When you develop in the urban core, you are developing in someone's living room. This is space that people feel like they own."

Lennar is looking to the project on San Francisco's Hunters Point Shipyard and other mothballed military properties in California as a way to expand its business beyond the suburban housing market. The builder is emerging as a player in the arena of megaprojects, where developers, such as Related Cos., are redeveloping land in Los Angeles and New York City into hotels, condos, shops and stadiums.

But Lennar's success at Hunters Point is far from certain, and may depend largely on its political acumen. In next week's vote, a deal-breaker could be the amount of housing that will be set aside for low- and moderate-income residents. Lennar has agreed that 32% of the rental and for-sale housing will be "affordable" and that it will donate $27.3 million for lower-income buyers to purchase homes. The affordable for-sale homes will be available for residents making between 80% and 160% of the area's median income, which is about $82,000 for a family of four in San Francisco, according to Lennar.

But a competing measure on the June 3 ballot demands that 50% of the units be designated affordable. Lennar calls that demand a "poison pill" and says it is prepared to walk from much of the proposed development if the measure is approved. The company has spent $3 million campaigning so far, including running local television and radio advertisements.

On May 20, the company announced it had cut a deal with many of the city's influential labor unions, which pledged to support the project after Lennar agreed to increase the affordable housing set-aside provision to 32% from 25% of the planned units and provide the additional $27.3 million.

The Hunters Point project could be a bright spot in Lennar's land portfolio. The San Francisco housing market remains one of the most robust in the country.

City Supervisor Sophie Maxwell, who represents the Bayview-Hunters Point neighborhood, says "the majority of people are for the project," which promises to improve shopping and transit to the area. "People feel this is our best chance for change."

But Lennar hit a rocky patch with some residents last summer after coming under fire from the Nation of Islam, which said that the dust kicked up from construction contained asbestos and was sickening children at its nearby school. One of Lennar's subcontractors had failed to properly monitor the air quality at the construction site for a time.

"Lennar nullified its trust with the community," says Christopher Muhammad, who heads the religious and community organization in San Francisco. "We are not against the development, we are against the rogue developer." Federal, city and state tests indicated that air quality wasn't dangerous.

"The very allegation that Lennar is a rogue developer is baseless," says Lennar spokesman Lance Ignon. "You have test results that utterly shut down his allegations.''

Even if the voters approve Lennar's measure, it could take another year before final approvals are completed. Lennar is lining up other equity investors and doesn't expect to start raising financing for the next phase until 2010. By then, Mr. Haddad says he expects credit markets may have improved.

Many city officials also have a lot riding on Lennar's plans, which they say will bring economic development to one of the city's poorest neighborhoods and help stem the exodus of working-class residents leaving because of high home prices. "It's everything that matters to me in what I want to achieve as mayor," Mr. Newsom says of the project.

Write to Michael Corkery at michael.corkery@wsj.com

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