In December, Russian bathhouse owner Mikhail Brodsky sued San Francisco to block the development of 1,575 homes next to his clothing-optional spa in Bayview-Hunters Point. At the time, he said that the project would “box in” his business, block water views and deprive his patrons of “fresh air.”

But in a case that provides insight into the private deal-making common in San Francisco development negotiations, it was not light and air that Brodsky received to settle the case. It was money — not only for the waterfront bathhouse, but also the small Oakland university where he’s president.

Under the settlement, developer Build Inc. agreed to pay $100,000 to Brodsky’s Innes Avenue bathhouse, Archimedes Banya, and an additional $100,000 to Lincoln University, an East Bay nonprofit school of about 650 students that offers degrees in business administration.

Agreements between private developers and a neighbor or group of neighbors are common, thanks to the state law that governs development, the California Environmental Quality Act. The law, known as CEQA, gives neighbors the power to block projects that they say could potentially damage the environment.

While environmentalists have used CEQA to combat fracking or block cement plants, it is most commonly used in the Bay Area to stop housing development. CEQA critics say that payouts associated with the lawsuits ultimately make homes more expensive as the region struggles with a historic housing crisis.

In the India Basin settlement, the developer of the homes at 700 Innes Ave. also committed to give the bathhouse 20 free parking vouchers for its future garage and write a letter of support should the bathhouse seek to add a commercial kitchen, according to the agreement obtained by The Chronicle.

Build also agreed that future renters or homeowners moving into units with views of the Banya would have to sign a form stating that they understand the bathhouse, “including the rooftop deck, is a clothing-optional facility.”

Build Inc. partner Lou Vasquez declined to comment on the specifics of the settlement because both parties signed a confidentiality agreement.

“We are really enthused about the project and we are really glad to have settled this dispute,” he said.

Brodsky said that he is still against the project because it will damage “a San Francisco cultural jewel” that he spent a dozen years creating. He said overall he was not happy with the settlement, but “couldn’t keep fighting forever.” He said that the payment to his business will not even begin to compensate for the loss of serenity and views that his bathhouse clients enjoy and that he deliberately asked to have half of the money donated to the Oakland university because he didn’t want it to appear that the lawsuit was motivated by greed.

While CEQA can be used to get more community benefits from a developer — such as building parks or improving streets — it has another side, according to developers and attorneys familiar with private CEQA negotiations.

The process gives neighborhood organizations and individuals a legal tool to force developers into paying large sums of money for nothing more than agreeing to drop a lawsuit or not sue in the first place. Those agreements, while common, are almost never public, according to developers and attorneys.

“Unfortunately, there is a long, unhappy history of CEQA being used as a shakedown machine to leverage cash payments,” said Jennifer Hernandez, a land-use and environmental law attorney with Holland & Knight. “It’s usually backroom and almost never public.”

One veteran San Francisco developer told The Chronicle that in several cases he has agreed to pay neighbors a “construction cooperation fee” of between $100,000 and $200,000 in exchange for them agreeing not to file a CEQA lawsuit. The developer declined to be identified because he had signed confidentiality agreements, and The Chronicle agreed to withhold his name in accordance with its policy on identifying sources.

He contrasted this with payments to a neighborhood nonprofit that could theoretically offset economic pressures or gentrification caused by the development.

“There is a difference between a pure payment to a neighbor versus something that has a connection to the community,” he said. “There is nuance.”

More Information Online More about the Bay Area’s housing struggle: www.sfchronicle.com/bayareahousingcrisis

Read More

Neighborhood groups argue that CEQA-related payouts temper gentrification by supporting nonprofits and stabilizing communities. But in a city with the highest housing prices in the country, the settlements also ultimately make it more expensive to rent or buy a unit, Hernandez said.

“It all falls down to the cost of housing,” she said. “In the case of India Basin, that $200,000 will be absorbed by the renters.”

A lot of housing is at stake in the case of India Basin — 1,575 rental and for-sale units, 25% of which will be below market rate. Build Inc. spent four years winning approval, which was secured last October.

While Build Inc. has been working to line up financing for the development, lenders are generally unwilling to commit to a project that has a CEQA lawsuit hanging over it. So the lawsuit delayed the project — which also includes 200,000 square feet of commercial space and 15.5 acres of parks — about a year.

The CEQA delay also made the project less attractive to investors looking to take advantage of the federal Opportunity Zone program, which provides capital gains tax breaks for investing in low-income neighborhoods. The project is one of the few in a San Francisco Opportunity Zone, but the seven-year program ends in 2026, which means that the potential tax advantage an investor could receive declines each year the investment is delayed.

But Vasquez said he is confident his group will find financing needed to start construction. Next week, Build is set to open a cafe in a former warehouse at 888 Innes Ave., the first of several temporary uses that will activate a portion of the property during the four- to five-year build-out.

“We are moving forward full speed, which means hopefully we are out of the ground this time next year,” he said.

A spokesman for City Attorney Dennis Herrera, whose office signed off on the agreement, said “we’re pleased this case was resolved quickly and this much-needed housing can move forward.”

Veteran San Francisco developer Oz Erickson said pressure from residents can lead to some positive outcomes — his project at 333 Harrison St. included a new neighborhood green space — but that he has managed to avoid paying off neighbors.

“It’s one thing to contribute a park, a true community benefit that improves the neighborhood and the project,” said Erickson. “But some of these other things are totally ridiculous.”

J.K. Dineen is a San Francisco Chronicle staff writer. Email: jdineen@sfchronicle.com Twitter: @sfjkdineen