Delay to San Francisco’s New Vacant Storefront Tax

Storefront Tax

We all have experienced this: a favorite store or local restaurant closes down after decades in business, citing the difficult climate to do business in San Francisco.  The rent is too high, costs to operate are too much, people shop and order food online instead of in person.  The numbers of closures have proliferated over the past five years, hitting every sector of the market and every neighborhood in the City. The result is a vacancy rate between 2 and 24 percent in the neighborhood commercial corridors.[1]

On March 3, 2020, just 13 days before the City’s mandated stay-safe-at-home Order took effect, San Francisco voters approved the Prop D: Vacancy Tax Ordinance, which imposed an annual excise tax on landlords who had vacant ground floor commercial space.  Sponsored by Supervisor Peskin, the law was intended as one tool in a larger toolbox, including streamlined permit processes, that would address San Francisco’s rising number of vacant storefronts in the neighborhood commercial corridors.

The tax, passed by 70.09% of the electorate (above the 66 2/3rds required to pass), was to begin in January 2021.  It imposes a scaled tax on owners who keep their storefronts vacant for 6 months or longer, with the money going into the Small Business Assistance Fund to support the maintenance and operation of small businesses in San Francisco.  The tax is calculated based upon the following:

1) the number of feet facing the street or ground level commercial space; and

2) how long the space has remained vacant.

The vacancy tax has tiered tax levels, which vary depending on how long the storefront was vacant.  It would apply as follows:

  • In 2021, owners or tenants would be taxed $250 per street-facing foot;
  • In 2022, owners or tenants would be taxed either $250 or $500 per street-facing foot if the space was kept vacant in the immediately preceding year; and
  • In 2023 and later, owners or tenants would be taxed either $250, $500 or $1,000 per street-facing foot depending on the number of immediately preceding years in a row the space was kept vacant.

For example, a storefront with 15 feet of frontage that was vacant on January 2021 and remained vacant for three years, would be taxed $3,750 in 2021, $7,500 in 2022, and then $15,000 in the years after.  The law does take into account permit processing and contains exceptions for certain nonprofits.

While on paper it seems inconceivable that a storefront could remain vacant for a three-year period, certain San Francisco neighborhoods such as North Beach, consistently have vacancies for multi-year periods.[2]  There has been many articles and studies done about the origin of the vacancies in San Francisco –  the changing face of brick-and-mortar retail to online purchasing, the high costs of running a small business (from minimum wage to mandatory health insurance), zoning restrictions regulating large chain stores, and the onerous permit process which can take anywhere from 6 to 18 months.[3] However, proponents of the Vacancy Tax argued that one main reason for the high number of vacancies is the prohibitively high rents that landlords charge, hoping to draw higher-scale and larger businesses.  Few small business owners, even the most profitable ones, can make the numbers work with high rents.  Prop D was promoted as an antidote to that issue, with the thought that high tax rates would incentivize owners to lower rents, resulting in these spaces to be leased and occupied.

When Prop D passed in March of this year, few predicted that the City and nation would be impacted by Covid-19 and the subsequent economic fallout related to it.  Between March 3rd (the day Prop D was passed) and March 6th, the City and State declared state of emergency, with a stay safe at home order imposed on March 16th.  All non-essential business were forced to close, which impacted every neighborhood in San Francisco.  Most stores were boarded up, with many unsure when or even if they can reopen.  While San Francisco is currently operating under a phased reopening plan, it is too early to know the true vacancy rate in San Francisco resulting from Covid-19.  Most expect it to be higher than before Prop D was passed on March 3rd.  Even formerly “healthy” retail corridors such as Hayes Valley will see an increase in ground floor vacancies.

On June 9th, the Board of Supervisors unanimously passed an Ordinance on first read calling for the suspension of Prop D for the 2021 tax year (BOS File No. 20-0420).  Recognizing that “one week after [the] election, our way of life was fundamentally flipped on its head,”[4] Supervisor Peskin called for the delay in its implementation so that studies could be done once the City fully reopens.  It is likely that the high vacancy rate for ground floor spaces will continue well into 2021, with no real “normal” returning for retail and eating and drinking businesses in the near future.  It is too early to tell whether the Vacancy Tax will be implemented in its current form, or if it will be delayed further due to a continued economic downturn.[5]  Either way, this new tax, while well intentioned, conflicts with current conditions on the ground today. Owners of commercial spaces can point to one piece of good news – they won’t be penalized for vacant spaces until 2022.

 

[1] Mission Street Corridor Economic Analysis, August 30 2017, prepared for SF OEWD by Strategic Economics: https://oewd.org/sites/default/files/Invest%20In%20Neighborhoods/MissionStreetReport_Final_08-30-2017_0.pdf

[2] Shwanika Naryan, Ronald Li, Shuttered Stores: North Beach’s Crisis, SF Chronicle, June 13, 2019. https://www.sfchronicle.com/business/article/San-Francisco-s-North-Beach-is-littered-with-13972898.php

[3] See Shwanika Naryan, Ronald Li, Bayview Sees Loss and Change, SF Chronicle, December 13, 2019: https://www.sfchronicle.com/business/article/Bayview-retailers-haven-t-seen-San-14899446.php; Shwanika Naryan, Ronald Li, West Portal Worries, SF Chronicle, September 27, 2019: https://www.sfchronicle.com/business/article/Wealthy-worried-watching-In-West-Portal-14470344.php#photo-18342062

[4] https://www.sfchronicle.com/business/article/SF-supervisor-wants-to-delay-vacancy-tax-as-15232781.php#photo-19289895

[5] The Board of Supervisors is empowered to amend the measure to lower the rate with a two-thirds majority vote.  State law requires that amendments to increase or extend local taxes be approved by the voters. However, amendments to lower a local tax may be passed legislatively (California Constitution, Article XII C).

 

See also:

State of the Retail Sector: Challenges and Opportunities for San Francisco’s Neighborhood Commercial Districts, February 15, 2018, prepared for SFOEWD by Strategic Economics:  https://oewd.org/sites/default/files/Invest%20In%20Neighborhoods/State%20of%20the%20Retail%20Sector%20-%20Final%20Report.pdf;

Mission Street Corridor Economic Analysis, August 30 2017, prepared for SF OEWD by Strategic Economics: https://oewd.org/sites/default/files/Invest%20In%20Neighborhoods/MissionStreetReport_Final_08-30-2017_0.pdf;

SF Budget and Legislative Analysist, Policy Analysis Report: Preventing and Filling Commercial Vacancies in San Francisco, January 16, 2018:  https://sfbos.org/sites/default/files/BLA_Report_Commercial_Vacancies-011618.pdf

 

Authored by Reuben, Junius & Rose, LLP Attorney Tara Sullivan.

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.

California Considers Stringent Restrictions on Commercial Evictions

As COVID-19 continues to shape our economic future, elected officials are weighing how to intervene in commercial evictions. Some municipalities have imposed temporary moratoria on evictions. Senate Bill 939 (“SB 939”), introduced on February 6, 2020 by Senators Scott Wiener and Lena Gonzalez, would go much further. The legislation would impose significant Statewide restrictions on commercial evictions of broadly defined “small businesses” for months after the COVID-19 state of emergency declared on March 4, 2020 is lifted.

SB 939 would prohibit a commercial landlord from serving a notice of eviction on a tenant until 90 days after the Governor lifts the state of emergency order. Eviction protection would apply to an eating or drinking establishment, place of entertainment, or performance venue that operates primarily in California and has experienced a specific decline in revenue due to COVID-19. Any eviction actions commenced after the date of the emergency COVID-19 order, but before the adoption of SB 939, would be void and unenforceable.

The Legislation would further provide tenants with additional time to pay unpaid rent accrued during the state of emergency. The balance of any unpaid rent accrued during the state of emergency would be due 12 months after it ends, unless otherwise negotiated with the landlord, and no interest or late fees would be due if paid within that 12 months.

Perhaps of most concern to commercial landlords, the legislation would provide qualifying tenants with the right to conduct negotiations with the landlord in order to modify any rent or economic requirements, and if unsuccessful, to terminate their lease. No additional rent would accrue, and the tenant would be required to pay only any rent accrued outside of the state of emergency plus three months’ worth of the past due rent incurred during the state of emergency. The right to lease termination would remain in effect until the earlier of two months after the state of emergency or December 31, 2021. Currently, this provision would be limited to businesses with fewer than 500 employees.

Not surprisingly, the Bill is generally supported by tenant groups and restaurant trade associations and opposed by landlords and business associations. Among other concerns, opponents point out that most commercial properties are owned by families or small landlords. In addition to questions about the fairness of the bill, there is concern that the law could cause ripple effects throughout the economy, including widespread mortgage default by owners of commercial property. Proponents argue that there are no Statewide protections for small businesses, and that many restaurants simply cannot keep paying the rent due, either now or in the uncertain future of social distancing and a battered economy.

As urgency legislation, SB 939 would take effect immediately if passed by a 2/3 vote in each house of the Legislature and signed by the Governor. The bill has been amended several times since introduction. Additional amendments are anticipated, but have not yet been released. The Legislation was passed by the Senate Judiciary Committee on May 22. It was then considered by the Senate Appropriations Committee on June 9 and will be heard by Appropriations again on June 18.

If the bill is not passed out of the Appropriations Committee by June 19, it will not move forward in this legislative session. If the bill does pass, litigation is almost certain. We will continue to follow this legislation and the debate over commercial evictions during the COVID-19 era.

 

Authored by Reuben, Junius & Rose, LLP Attorney Jody Knight.

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.

City Expands Demolition Controls to High-Value Homes

San Francisco

For years, San Francisco has required a conditional use permit as a prerequisite to demolishing a residential building. In addition, the building could not be demolished until a building permit for the replacement structure was approved. The theory behind the prohibition is that existing housing is the City’s most affordable housing and should be preserved.

However, until recently there was an exception that exempted  the demolition of a residential building in RH-1 and RH-1(D) single-family zones from the conditional use requirement if the residence was demonstrably unaffordable. A house that is demonstrably unaffordable is one that has a value greater than 80% of the value of single-family homes in the City. The value includes both structure and land value. Under the exception, an applicant had to provide an appraisal made within the last six months. Critics saw the demonstrably unaffordable exception as a loophole serving the wealthy, and one that could be manipulated.

In February, Supervisor Rafael Mandelman introduced legislation amending the Planning Code to require conditional use authorization for applications to demolish single-family homes that are demonstrably unaffordable (“Mandelman Ordinance”). The Mandelman Ordinance grandfathers applications made before the legislation was introduced on February 11, 2020. Supervisors Peskin, Fewer, and Yee joined as co-sponsors.

The Board of Supervisors unanimously approved the Mandelman Ordinance. It is now on the Mayor’s desk and will go into effect 30 days after the Mayor’s approval. The unanimous Board of Supervisors’ approval would be enough to override a Mayoral veto.

The Mandelman Ordinace removes the demonstrably unaffordable exception in Section 317 of the Planning Code that generally prohibits demolition of existing housing without a public hearing and a conditional use permit.

Before the Mandelman Ordinance left the Board’s Land Use and Transportation Committee, Supervisor Peskin proposed amendments to further tighten demolition regulations. As the amendments may require a re-hearing by the Planning Commission, the Committee carved out these amendments into a second ordinance (“Peskin Ordinance”) to be reviewed on a separate track.

The Peskin Ordinance would subject a broader range of projects to conditional use requirements for demolition by  lowering the threshold of work required before a renovation, remodel, or alteration is considered a demolition.

The Peskin Ordinance lowers the threshold for two types of changes to a building that require conditional use approval. First, an alteration that removes more than 50% of the front and rear façade or the removal of more than 65% of all the exterior walls would be considered a Residential Demolition. Currently, an alteration that does both is considered a Residential Demolition. One or the other alone is not enough to trigger the restriction. Second, an alteration that would remove more than 50% of the vertical envelope elements or an alteration of more than 50% of the horizontal elements would be considered a Residential Demolition. Currently, an alteration is a Residential Demolition if it does both, but not one or the other.

Like the Mandelman Ordinance, the Peskin Ordinance grandfathers applications made before the legislation was introduced on February 11, 2020. However, the Peskin Ordinance is subject to change. It will be considered by the Land Use and Transportation Committee and may need to be re-considered by the Planning Commission before it can be enacted by the Board of Supervisors.

Please keep in mind that there are many subtleties to both new and existing law. Please contact Reuben, Junius & Rose, LLP for more information.

 

Authored by Reuben, Junius & Rose, LLP Attorney Jonathan Kathrein.

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.

 

Court Upholds City of Cupertino’s Approval of SB 35 Vallco Project

SB35 Vallco

Less than two weeks after issuing a decision that required the City of Los Altos to approve a 15-unit SB 35 project, the same Santa Clara County Superior Court judge (“Court”) issued a second favorable decision upholding the City of Cupertino’s (“City”) decision to approve an SB 35 project that would redevelop the former Vallco Fashion Mall site with more than 2.2 million square feet of mixed-use development (“Project”). The approved Project will subdivide the 50-acre site into 11 blocks consisting of 2,402 dwelling units (50% of which are affordable), 1,981,447 square feet of office space, and 485,912 square feet of retail space. After the City determined that the Project qualified for streamlined review under SB 35 and subsequently approved it, Friends of Better Cupertino (“Petitioners”) filed a lawsuit challenging the Project. The Court dismissed the Petitioners’ arguments, affirming for the second time in a matter of weeks that SB 35 is a powerful tool compelling cities to quickly accept much-needed housing development.

After unsuccessfully trying to construct a mixed-use project at the site, the developer submitted a revised project to the City under SB 35. Enacted in 2017 to increase housing production in California, SB 35 requires streamlined ministerial approvals for housing projects that meet objective planning standards and provide a certain amount of affordable housing (10% or 50% depending on the city’s failure to meet state housing construction goals). For qualifying projects, SB 35 sets time limits for the City’s review (three to six months depending on the size of the project), limits challenges to relatively narrow technical arguments, and eliminates complicated and drawn out CEQA litigation.

In its lawsuit, Petitioners argued that the City had a ministerial duty to determine that the Project did not qualify for SB 35 streamlining based on allegations that the Project: (1) was located on a hazardous waste site; (2) does not provide sufficient residential space; (3) exceeds height limits; (4) lacks sufficient setbacks; (5) does not comply with the City’s requirements for below market rate units; and (6) lacks dedicated park land. However, the Court disagreed with each of these arguments and found that the City correctly determined that the Project was eligible for SB 35 because the Project complied with all object planning criteria.

The Court held that SB 35 does not impose a ministerial duty on cities to determine whether a project qualifies for streamlined review, nor to reject the application if the project is ineligible for streamlined review. Rather, SB 35 imposes a presumption that a project qualifies for streamlined review if the city does not reject the project within the applicable time period (60 or 90 days, depending on the size of the project), even if the project does not actually qualify.  While this holding rejected the Petitioners’ central argument, the Court did not stop there.  The Court took the extra step of considering—and rejecting—Petitioners’ arguments as to how the Project did not qualify for streamlined review.

The Petitioners claimed that the Project site remained a hazardous waste site based on two leaking underground storage tanks related to tenants of the former mall, despite the passage of more than 20 years since remediation was completed and the State Water Resources Control Board closed its cases related to the leaks. They argued that SB 35 only identified the California Department of Toxic Substances Controls (“DTSC”) as an agency that would clear previously contaminated sites. The Court rejected the Petitioners’ suggestion that a site would remain a hazardous waste site for purposes of SB 35 unless DTSC cleared it, noting that in practice numerous agencies (including the Water Board) cleared sites. It also rejected the argument that the Legislature intended a more restrictive definition of clearance when it adopted SB 35.  The Court further noted the Legislature amended SB 35 in 2019 to acknowledge that other agencies, including the Water Board, could clear sites for residential uses, and determined that this amendment had retroactive effect.

The Petitioners also asserted that SB 35’s requirement that mixed-use projects designate two-thirds of the “square footage of development” for residential uses should exclude areas of the project authorized under the Density Bonus Law, and that the “square footage of development” must be defined using the definition of “floor area” in the California Building Standards Code which Petitioners asserted would exclude parking areas.  The Court rejected both arguments.  It held that there was nothing in the law in effect at the time the Project application was submitted that required bonus areas to be excluded from the two-thirds requirement, and noted that the Legislature amended SB 35 in November 2019 to explicitly include bonus areas in the two-thirds calculation. The Court also rejected the idea that “square footage of development” was somehow defined by reference to the Building Standards Code.

The Petitioners next argued that the Project was inconsistent with objective standards in the City’s General Plan and Zoning Ordinance, namely height, setbacks, requirements for below market rate units, and parkland. The Court found that, as to each argument, they were not well-reasoned and failed to explain how the City lacked substantial evidence to support its determination.

Finally, the Petitioners argued that a public hearing was required to approve the Project and that the Planning Commission, rather than City staff, should have decided whether to approve the Project. The court rejected this argument as well, pointing out that although SB 35 does not prohibit public oversight, it does not require public hearings or approval by local planning commissions. To the contrary, the legislative history of SB 35 shows that “the Legislature clearly intended . . . to drastically reduce the politicization of the planning process and the use of tactics like those Petitioners resort to here.”

This decision affirming the sizable mixed-use Vallco project highlights that although there are many requirements that developers must meet to qualify for project streamlining, SB 35 is an effective solution to minimize the opportunities for project opponents to frustrate housing development through litigation.

 

Authored by Reuben, Junius & Rose, LLP Attorney Tiffany Kats

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.

 

California Superior Court Reverses Denial of an SB 35 Project

California

In a groundbreaking ruling, the Santa Clara County Superior Court found that the city of Los Altos acted in bad faith when it denied a 15-unit density bonus project that was proposed under SB 35 and subject to the Housing Accountability Act (HAA). Instead of sending the project back to the City for further consideration, the Court in this case required the City to reverse the denial and approve the project. Although the ruling does not serve as binding precedent, it provides Los Altos and other cities in California with a clear warning that unsubstantiated project denials will not be upheld in court.

After attempting to obtain approval through the standard discretionary review process since 2013, the developer changed course and submitted an application for the project under SB 35 in 2018. SB 35 requires streamlined ministerial approval for projects providing a certain amount of affordable housing in cities that are not meeting their Regional Housing Needs Allocation (RHNA) goals. Under SB 35, a project that meets the affordability requirement can be denied if the city provides written documentation of the project’s inconsistencies with “objective planning standards” within a specified time frame.

In response to the application, the City claimed that the developer had submitted two separate applications, one for streamlined review under SB 35 and one for standard discretionary review, one of which would need to be withdrawn. Nevertheless, staff responded to the SB 35 application stating that it was not eligible for streamlined review because it failed to provide the correct amount of affordable housing, which the City later conceded was an error. The letter also noted that the project failed to provide sufficient parking and lacked adequate access to the proposed parking. The City replied to what it characterized as the discretionary review application with a separate incomplete letter. After some additional correspondence, the City informed the developer that an administrative appeal was required despite provisions to the contrary in the Municipal Code, and that the deadline for filing an appeal was that same day. The developer managed to file a timely appeal, but it was ultimately denied.

The Court held the City’s response to the application did not comply with SB 35 because the City failed to identify the objective standards it was relying on in denying the application. The project exceeded the amount of parking required under SB 35, and the City had not provided any explanation justifying the need for additional parking. As for access, the Court found that absent any specific requirements in the Code, this was not an objective standard that could be applied to the project under SB 35. The Court also rejected the City’s argument that the incomplete letter relating to what it determined to be a separate discretionary review application included other objective standards that the project failed to meet. The Court stated that the City was required to be held to the reasoning articulated in the SB 35 denial letter. Because the City failed to provide adequate notice of any inconsistencies within the time frame permitted under SB 35, the project was deemed to comply with the objective standards. Any claims of inconsistencies made outside that time frame were not entertained by the Court.

The Court also found that the City’s denial violated the Density Bonus Law for a number of reasons. Most notably, the Court rejected the City’s argument that more evidence was required to determine whether the concessions would result in cost reductions. The Court found that the burden was on the City to support their denial by making a finding that the concession would not result in a cost reduction. The onus was not the developer to prove otherwise.

Lastly, the Court held that the City failed to show it complied with the Housing Accountability Act, which requires cities to make specific findings before denying certain housing projects that comply with objective zoning standards. Under the HAA, cities must provide a written determination that the project is inconsistent with applicable zoning standards within a certain time period. As noted above, the City did not find the SB 35 application incomplete. Instead, they denied the SB 35 application outright and failed to provide a valid explanation for the alleged inconsistencies with objective zoning standards. As such, the Court found that the City acted in bad faith under the HAA because the denial of the application was “entirely without merit.”

By bolstering SB 35 and the Housing Accountability Act, this case serves as a victory for developers and pro-housing advocates, and a cautionary tale for cities. It suggests that denials of SB 35 projects must strictly comply with the letter of the law to be upheld.

 

Authored by Reuben, Junius & Rose, LLP Attorney Sabrina Eshaghi

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.

 

 

 

 

 

 

 

 

Senator Wiener Takes Aim at Single-Family Zoning

ousing

After SB 50 failed to pass earlier this year, Senator Scott Wiener introduced a new housing bill that aims to increase density across the state and provide cities a streamlined process for upzoning certain areas of their communities. Although more modest than the sweeping overhaul that was proposed under SB 50, this bill would effectively eliminate single-family zoning statewide by allowing two to four units per lot depending on the size of the city. In response to concerns that SB 50 interfered with local decision-making, this bill takes a more tempered approach by reducing obstacles to upzoning transit-oriented and job-rich infill areas to allow up to 10 units without prescriptively requiring cities do so.

This is consistent with a larger movement to eliminate single-family zoning across the country. In 2018, Minneapolis became the first major city to vote to eliminate single-family zoning policies citywide. Last year, Oregon approved a bill allowing duplexes in all cities with at least 10,000 people and up to four units in larger cities. Austin has eased restrictions that would allow greater density in single-family zoning districts. Seattle was able to ban single-family zoning, but only in about 6% of the city. Most recently, a bill was introduced in Washington state that would eliminate single-family zoning in most cities. Even the United Nations has warned of the social and environmental impacts of single-family zoning. It’s clearly becoming more and more recognized that there are significant drawbacks to single-family zoning districts that outweigh their justification as “preserving neighborhood character.”

SB 902 would extend this movement to California by authorizing multifamily housing “by right” on all properties zoned for residential use, with few exceptions. Ministerial approval under the legislation would exempt such projects from CEQA. The number of units permitted per lot depends on the city’s population, as follows:

  • Two units in unincorporated areas and cities with up to 10,000 people;
  • Three units in cities with between 10,000 and 50,000 people; and
  • Four units in cities with more than 50,000 people.

Although the bill would allow for increased density, projects would still need to meet local height and setback limits, which would ensure compatibility with the existing scale of development. Projects would also need to meet local demolition standards. The legislation would not apply in very high fire hazard severity zones or where the project would involve the demolition of affordable housing, rent controlled units, housing that has been rented out in the past seven years, or buildings listed in a national or state historic register.

Aside from eliminating single-family zoning statewide, the legislation would also ease some of the difficulties associated with rezoning parcels to allow greater density. The legislation would allow cities to rezone parcels for up to 10 units in transit-rich and jobs-rich areas, as well as on urban infill sites. Such rezoning ordinances would not be subject to CEQA, which would significantly streamline the legislative process. This provides cities with a flexible tool they can use to allow higher density projects where appropriate.

SB 902 was originally scheduled for the Senate Housing Committee hearing on March 31st, but it was postponed when the legislative session was suspended due to COVID-19. The Senate is currently set to reconvene on May 4th, although that date is subject to change. The path ahead for SB 902 and other housing bills is unclear, as the legislature will undoubtedly be focused on COVID-19 related legislation once they are back in session. Stay tuned.

Notable Upcoming Virtual Events:

  • DBI Bluebeam Applicant Training – Tuesday, April 21, 1-3pm – A two-hour virtual training of the electronic plan review process using Bluebeam Studio Projects and Sessions
  • DBI Customer Update and Q&A – Friday, April 24, 11-12pm – A discussion regarding the transition to digital permitting with Patrick O’Riordan, DBI Interim Director, and Melissa Whitehouse, Permit Center Director in the City Administrator’s Office

Authored by Reuben, Junius & Rose, LLP Attorney Sabrina Eshaghi

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.

 

Updated City Agency Operations and Procedures During Shelter in Place

City Agencies

San Francisco Boards, Commissions, and Departments have begun to adapt their operations and procedures in response to the Shelter in Place restrictions, and for land use practitioners, this means project processing activity is on the rise.

By contrast, on March 31 the Department of Public Health issued an Order that further restricted allowed construction to the following: healthcare projects directly related to addressing the COVID-19 pandemic; housing and mixed use projects that include at least 10% affordable housing (the City Attorney has interpreted this to mean on-site affordable housing); projects that provide services to vulnerable populations; projects required to maintain safety, sanitation, and habitability of residences and commercial buildings; and construction necessary to secure an existing construction site that must shut down.

The March 31 Order also extended the deadline of the Shelter in Place Order from April 6, 2020 to May 3, 2020.

Board and Commission Hearings

Board of Supervisors:  The Board of Supervisors and Board Committees continue to hold their regular meetings by videoconference.  Board and Committee agendas are being limited to urgent matters, matters subject to statutory deadlines, and matters related to essential services and COVID-19 policies.

Planning Commission:  The Planning Commission held its first hearing by videoconference yesterday, April 9.  Hearings are expected to continue on a regular weekly basis every Thursday.  Agendas for now generally are limited to projects concerning essential services and multi-unit residential projects.

Historic Preservation Commission:  The Historic Preservation Commission will begin to hold hearings by videoconference April 15.

Variance Hearings:  The Planning Department has indicated that the Zoning Administrator intends to hold the April 22 Variance hearing by videoconference, but this has not been confirmed yet.

Board of Appeals:  The Board of Appeals has canceled its April 8 and April 15 hearings.  All briefing deadlines still are in effect even if the hearing has been canceled.

Planning Department Noticing Procedures and Reinstatement of Enforcement Actions 

Planning Code Section 311 Notices Mailed Prior to the Shelter in Place Order

(‘Clock’ starts April 7, 2020) All building permit neighborhood notifications (known as “311s”) that had already been issued were placed on hold, and no new notifications were issued, as of March 17 when the Shelter in Place Order first took effect.  On April 7, the Department will resume the ‘clock’ for all neighborhood notifications that were previously issued.  If a project’s Section 311 notification period began prior to the Shelter in Place Order, the Project Sponsor must put a note on the 311 poster(s), or add an additional poster stating that the 311 notice period will be extended by the number of days such notice fell within the original Shelter in Place Order. For example, if a 311 notice started on March 1 and was set to expire on March 31, that notice would continue for another 15 days once the clock restarts on April 7. Project Sponsors should also communicate this extension to any parties that contact them regarding information about the project.

Planning Code Section 311 Notices Mailed After the Shelter in Place Order

On April 7, 2020, the Department will begin issuing new Building Permit neighborhood notifications (known as “311s”) for essential projects only.

Pre-Application Meetings Noticed Prior to the Shelter in Place Order

If a project’s Pre-Application meeting is scheduled to take place during the Shelter in Place Order, the project sponsor must post a notice at the site on the meeting date that says the meeting was canceled, but that anyone who wants to discuss the project can contact the project sponsor, along with accurate contact information during the Shelter in Place Order.  This will still allow interested parties to stay aware of a project and engage with the project sponsor going forward.

Pre-Application Meetings for Which Notice is Provided During the Shelter in Place Order

Project Sponsors should use the standard form, process, and 14-day notice period.  However, they must also include a copy of the project plans in the mailing. They must also e-mail applicable registered neighborhood organizations.  If there is no email address provided on the Department’s list, standard mail is acceptable.  No in-person meetings should be conducted during the Shelter in Place Order. The notice template should indicate a day and time period during which the Project Sponsor will be available to take phone calls from interested parties or host a video meeting.  The applicant should offer both options on the notice.

Planning Code Enforcement Notices Mailed Prior to the Shelter in Place Order

If a Notice of Violation or Notice of Penalty was issued prior to the Shelter in Place Order, any deadlines to respond to the Planning Department will be paused during the period of the Shelter in Place Order (i.e., March 17 through May 3). All such enforcement deadlines will be reinstated on May 4 and extended by the number of days that fell within the Order.

Planning Code Enforcement Notices Mailed During the Shelter in Place Order

A Notice of Violation issued during the Shelter in Place Order will not require action to abate the violation until 1) the Shelter in Place Order expires, and 2) all relevant City agencies are operating at a level necessary to abate the violation.

Department of Building Inspection (DBI) Permit Processing

For essential projects only, DBI began accepting addenda and revised plans for existing building permit applications electronically on April 1, and started working to convert some previously submitted projects from paper to digital files.  DBI is accepting and processing building permit applications where the construction addresses urgent habitability needs.

Starting April 9, applicants can submit online for the following expanded list:

  1. Completing the permit process for essential and nonessential previously submitted projects (e.g., send addenda, revisions, and requests to convert previously submitted paper plans to electronic plans)
  2. Submitting a new permit for the following:
    • Essential construction projects
    • Accessory Dwelling Units
    • Permits or scope that only need Fire plan/life safety review

DBI hopes to expand new project and permit intake to a larger universe of both essential and nonessential projects by the end of April.

 

Authored by Reuben, Junius & Rose, LLP Attorney Thomas Tunny

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.

Mayor Breed Takes Proposal to Streamline Affordable Housing to the Voters

Mayor London Breed recently introduced the “Affordable Homes Now Initiative,” which would streamline approvals for both 100% affordable housing projects and market-rate projects that exceed the City’s affordability requirements. The proposed ballot measure needs signatures equivalent to at least 10% of the total number of registered voters to be on the November 2020 ballot. Eligible projects would be ministerially approved if they meet the requirements summarized below. Because ministerially approved projects are not subject to environmental review, the ballot initiative would dramatically shorten approval timelines and mandate that both the Planning and Building Departments approve eligible projects within 180 days of submittal.

Eligibility Requirements

  1. Affordability

100% affordable housing projects include residential buildings, as well as mixed-use residential developments with ground floor nonresidential uses. For such projects, all of the residential units must be affordable with up to a maximum overall average of 120% area median income (“AMI”) across all units. However, the maximum rent or sales price for these affordable units cannot be higher than 20% below median market rents or sales prices for the neighborhood in which the project is located.

The ballot measure would also extend streamlined approvals to increased affordability housing projects (“IAHP”) as follows:

  • Projects with less than 25 units must exceed the on-site affordable housing requirement under the City’s Inclusionary Affordable Housing Program (“Inclusionary Program”).
  • Projects with 25 or more units must comply with the Inclusionary Program and provide additional on-site affordable units equal to 15% of the number of units required under the Inclusionary Program.

For example, a 100-unit project with a 24% on-site requirement would be required to provide 24 on-site units under the Inclusionary Program. In order to qualify as an IAHP, an additional 15% of the required 24 units, or 4 units, would need to be provided on-site for a total of 28 below market rate units.

For both 100% affordable projects and IAHPs, each on-site unit cannot exceed a maximum purchase price or rent of 140% AMI. For rental projects, the rent cannot exceed 30% of the applicable household income limit; For ownership projects, the annual housing cost cannot exceed 33% of the applicable income limit. Finally, the units must be restricted as affordable for the life of the project, or a minimum of 55 years, through a recorded regulatory agreement.

  1. Code Compliant

Any eligible housing project must also comply with objective standards of the Planning Code or state law, including height and bulk requirements. Conditional use requirements that might otherwise require Planning Commission approval for height or large lot developments, for example, are waived with the exception of conditional uses for non-residential use, parking, modification of dwelling unit mix requirements, and location of curb cuts. In addition, project sponsors of eligible projects may request certain exceptions as-of-right, and available density bonus programs can be used in conjunction with this streamlining measure.

  1. Additional Requirements

Finally, eligible affordable housing projects cannot involve the removal of existing residential units, demolition of certain designated historic buildings, or construction on lots under the jurisdiction of the Recreation and Parks Department, and must be in a zoning district that allows dwelling units. Projects with more than 30 units must also pay prevailing wages to construction workers.

Streamlined Ministerial Approval

Prior to submitting a development application for a streamlined affordable housing project, the project sponsor must place a poster at the property for 30 days, describing the project and stating that the project is expected to be subject to the streamlined review process. After a complete development application is submitted, the Planning Department would have a 60-day period to: (1) determine whether the project is eligible for streamlining and (2) complete design review.

Projects that meet these eligibility requirements would be ministerially approved and exempt from any discretionary approvals and review by the City, including by the Planning Commission, Historic Preservation Commission, Arts Commission, Board of Supervisors, and Board of Appeals. Any building permits must also be ministerially approved by the Planning Department and issued by the Department of Building Inspection within 180 days of submittal of a complete development application. The Board of Appeals would still have jurisdiction over appeals of building permits issued to eligible affordable housing projects, but would only narrowly consider whether the permits comply with objective standards in the Building Code.

Because these projects would be approved ministerially, environmental review under CEQA would not apply. Project opponents often appeal CEQA determinations to the Board of Supervisors, resulting in both subjective political decision-making and significant delays to entitlement schedules. As a result, the ballot initiative would allow eligible affordable housing projects to be approved much faster than they are currently.

We will continue track the progress of Mayor Breed’s proposed ballot measure.

Authored by Reuben, Junius & Rose, LLP Attorney Tiffany Kats

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.

Supervisor Ronen Proposes to Remove Most Office Uses in UMU Districts

Office Use

On Tuesday, February 11th, Supervisor Ronen introduced legislation that would greatly curtail the amount of office use that can go into buildings in Urban Mixed Use (“UMU”) Zoning Districts.  The legislation, available here, will prohibit all general office and allow “client-oriented” office uses at the ground floor with a Conditional Use Authorization.

UMU Districts were created through the Eastern Neighborhoods Area Plan, adopted by the Board of Supervisors in 2009.  The intent of the UMU Districts was to function as a buffer zone between the more restrictive residential and neighborhood commercial districts and the industrial PDR districts.  Uses such as light manufacturing, arts activities, laboratory, business service, and retail are encouraged. Housing is also permitted but is subject to higher affordability requirements.  UMU Districts are primarily located in Eastern Mission, Potrero Hill south of 16th Street, Showplace Square/West SoMa, and the Dogpatch neighborhoods. These areas have historically contained warehouse style buildings that contain a mix of uses interspersed with housing.

The intent in UMU Districts is to locate office use on the upper floors, keeping the ground floors available for more “public-facing” uses, such as traditional retail.  Only office uses that have a “client-oriented” business model, such as doctors offices, accountants, real estate brokers, and the like are permitted at the ground floor. General office use, such as an advertising agency and technology offices, are limited to the upper floors.

Currently, office uses are regulated in UMU Districts through “vertical controls” based on the height of a building.  A two-to-four story building can have 1 floor of office use; five-to-seven story building can have 2 floors of office use; and 8 or more story buildings can have 3 stories of office use.

Under Supervisor Ronen’s proposal office uses would be prohibited on the upper floors throughout UMU Districts.  Exceptions would still exist for qualifying landmark buildings.  The other notable change is that “client-oriented” office uses would be allowed at the ground floor but require a Conditional Use Authorization from the Planning Commission.  As proposed, there are no grandfathering provisions for projects currently under review.

Since the legislation was recently introduced, there are no Planning Department or Legislative Analyst reports or recommendations available.  The Planning Commission must review and make a recommendation on the proposed legislation within 90 days, after which it will return to the Board of Supervisors.  We will keep track of this legislation and provide updates when they become available.

 

 

Authored by Reuben, Junius & Rose, LLP Attorney Tara Sullivan

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, subdivisions and condominium work.

 

A Carrot and a Stick for New Housing

New Housing

Last week, Mayor London Breed proposed an initiative that would exempt San Francisco housing projects that comply with zoning and volunteer additional on-site affordable units from the arduous and sometimes frustrating discretionary entitlement process. A few days later, Supervisor Hillary Ronen announced plans to further restrict office projects in the UMU zoning district, with the aim to encourage property owners into residential redevelopment instead of commercial. They show different approaches—a carrot and a stick, perhaps—to encourage the production of new housing.

According to a campaign website, Mayor Breed’s latest effort to provide more housing would amend the San Francisco Charter to provide a “streamlined” six-month approval process for all 100% affordable housing projects, and for any code-compliant mixed-income project that provided 15% more affordable housing units on-site than required by code.  In exchange, it would get approvals and start construction months if not years earlier.

The ballot measure is not yet publicly available, but a San Francisco Chronicle article suggested qualifying projects will not require any hearings at the Planning Commission. Other details to track in the initiative include AMI levels for the additional affordable units; the degree of design flexibility regarding certain Code requirements such as unit exposure and rear yard size; workforce and prevailing wage requirements; how the streamlined process will interface with the realities of each project’s CEQA processing; and the amount of design input afforded to City staff.

Supervisor Ronen’s proposed legislation—which is also not yet publicly available—would ban new upper-story office space in parts of the Mission District, Potrero Hill, and Dogpatch that are zoned UMU. Instead of upper floor office, the Supervisor hopes her legislation will spur property owners and project sponsors to consider residential developments instead.

UMU zoning is meant to encourage a mix of uses including but not limited to office, residential, light manufacturing, institutional, arts activities, and retail. Office use is already limited by building height in UMU. It generally cannot be located on the ground floor, promoting retail and other non-office uses in the pedestrian realm. Buildings with 2-4 stories are permitted one floor of above-ground office; 5-7 story buildings can have up to two; and buildings with 8 or more floors can have up to three. So under current zoning any property owner or project sponsor that builds to the height limit already cannot do a 100% office project.

Interestingly, Planning Department data shows that residential development in the Eastern Neighborhoods over the last 10 years outpaced what was anticipated, and less office and other commercial development occurred. If passed, Supervisor Ronen’s legislation could further that trend.

We will continue to track each piece of legislation. Check back for updates.

 

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.