Hotel Conversion Ordinance and Google’s $1 Billion Housing Pledge


In 2008, the Board of Supervisors passed a law restricting conversions of large hotels (100+ keys) into condominiums.  Conversions were allowed with a Conditional Use approval if a corresponding number of new hotel rooms came online in the past year. If more units were proposed for conversion than had been constructed, a lottery would take place. This restriction applied for 10 years via a “sunset provision”, and went away in April 2018.

Last week, a revamped and stronger version of the ordinance was introduced at the Board. It would prohibit all conversions of hotel rooms to condos, even if new hotels come online in the future, and as a result get rid of the lottery.

San Francisco’s economy relies on tourists and conventioneers, and making sure there are enough tourist hotels to accommodate visitors at all price points is a worthy policy goal. Also, hotels employ thousands of hospitality workers and provide an ongoing source of good-paying jobs. And the ordinance apparently would continue to allow the conversion of hotels into rental housing.

On the other hand, prohibiting a way to create new ownership housing within existing buildings might rankle housing advocates. Any conversion project creating 10 or more units would also be required to address the city’s affordable housing crisis by participating in San Francisco’s Inclusionary Housing Program. These projects would provide on-site or off-site affordable units, or pay into the City’s affordable housing fund—often hundreds of thousands if not millions of dollars.

One option to moderate the proposal somewhat would be to require a Conditional Use to convert large hotels into residential condo units instead of prohibiting a conversion outright. New hotels require a Conditional Use to open in San Francisco; it would make sense to apply the same process to turn it into housing.  That would still allow public input and give the Planning Commission discretion to decide if a conversion is appropriate on a case-by-case basis—with the Board of Supervisors having appellate jurisdiction on each determination.

The ordinance is in a 30-day holding period before Planning Commission or Board Committee hearings will take place. As with so many land use ordinances in San Francisco, it may change as it goes through the legislative process. We will continue to track its progress.

Land Use Details on Google’s $1 Billion Housing Contribution

Earlier this week, Google made a significant commitment to addressing the Bay Area’s housing shortage, pledging the equivalent of $1 billion to facilitate and/or construct new housing across all income levels. $750 million comes from rezoning land it currently owns to allow residential use, and Google will establish a $250 million investment fund to “provide incentives” to enable developers to build at least 5,000 affordable housing units. From a land use and development perspective, deal structure, timing, and process now become crucial to actually construct the new housing and bring it to market.

Google proposes to rezone or otherwise reach agreements with city governments to allow residential developments on land it owns that currently does not permit large-scale residential development. In its blog post announcing the investment, Google indicated it is having “productive conversations” with both Sunnyvale and San Jose about residential developments, and pointed to its recent successful rezoning effort in Mountain View. Timing and complexity of rezoning efforts can vary wildly depending on jurisdiction.

Google also plans to lease its land to developers instead of subdividing and selling off portions of the sites. As friend of the firm Todd David pointed out, one of the primary barriers to constructing new housing is the cost to acquire land. By entering into long-term leases with experienced residential developers, Google can avoid traditional carrying costs that dog project sponsors dealing with a protracted approval process.

The residential units will be available for the general public, and offered at “all income levels”, including low- and middle-income housing. Each Bay Area jurisdiction has its own unique rules about affordable housing, and a rezoning effort gives cities the ability to tailor affordability requirements for each project.

Finally, Google employees live throughout the Bay Area, and many commute long distances to work in San Francisco and Silicon Valley. It will be interesting to see if Google facilitates new housing construction outside of the South Bay and Peninsula.

 

Authored by Reuben, Junius & Rose, LLP Attorney, Mark Loper

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.