More incentives planned for SF commercial-to-housing conversions, but there are still challenges
SAN FRANCISCO (KGO) -- More than a year ago, then San Francisco Mayor London Breed revealed her plan to add needed housing by converting commercial spaces into residential units. Now, Mayor Daniel Lurie has upped the ante by adding incentives to convert those properties.
Building conversions are a challenge, but not always impossible. San Francisco has a history of converting office spaces into residences.
At the Royal Insurance Building at Sansome and Pine streets, 46 condos were developed
The old Chronicle Building is now a Ritz Carlton Residence on Market Street. 52 units there were converted.
The Bank of Italy building, later named Bank of America at One Powell Street, was transformed into 44 lofts and the largest conversion happened at 100 Van Ness, the old Triple A building, now home to 418 rental units.
The architect explained how they did it.
"The biggest thing that we did with the building was to remove the old precast concrete facade and to replace that with floor to ceiling glass to really allow for the view potential in the building to be realized," detailed Strachan Forgan of Solomon Cordwell Buenz
That project started in 2013.
MORE: The challenges San Francisco faces converting office space into residential units
Today, a hard reality is hitting developers like Marc Babsin of the Emerald Fund.
"The exact same building that we are in today, if we bought it out today would cost 70% more, 70% more for that 2013 in these 12 years," revealed Babsin.
Construction costs have increased at a faster rate than rents in San Francisco, so for many developers, the numbers don't always add up.
Last October, then Mayor London Breed announced the office-to housing conversion at 785 Market Street, the old Humboldt Bank building.
But the developer appears to have now hit the pause bottom.
Supervisor Rafael Mandelman is staying realistic in these uncertain times.
"Where are we going? Are we headed into a recovery or are we headed into recession, that will make a difference. What happens with interest rates? What happens with tariffs?" asked Mandelman.
MORE: San Francisco officials introduce plan to convert vacant downtown offices into housing
Here's what the city has done to incentivize developers. A year ago, we told you the city's permitting process had been expedited and planning fees reduced. But, there's more to it.
Developers who convert, then later sell the building no longer have to pay the 6% transfer fee.
Conversions are exempt from affordable housing requirements.
That was all done during the Breed administration to try to add housing and revitalize downtown.
Now Mayor Daniel Lurie has signed legislation aimed at continuing the work of his predecessor.
It would reimburse the yearly tax increases that an owner would have to pay.
"That increased tax would actually come back to the owner of the building as an incentive for them to take on the project in the first place," explained Mandelman.
MORE: SF office to housing conversions would likely take 10 years to make a dent, expert says
Let's say you converted the building and now the added value is $209 million. The building would be eligible for a city rebate, in this case that's nearly $1.4 million in the first year alone. That would increase each year as taxes went up. Over 30 years, that really adds up.
"So it's a real value to the property, a huge reduction of the expenses of operating the building," insisted Babsin.
Members of the Board of Supervisors are optimistic that it will increase conversion developments. The vote to pass the legislation was unanimous.
"I think there are about 50 that are actually going to be utilizing this program. Those 50 buildings turn into about 44 housing units of housing. That turns into over 10,000 new residents in the downtown area," Said San Francisco Supervisor Danny Sauter.
But right now, those 50 or so that may be viable candidates for conversion are laying low and not revealing their intentions, yet.
