​In its continuing effort to maintain the City’s existing rental housing stock and rent-controlled units in particular, the San Francisco Board of Supervisors passed new legislation this week that tightly regulates buyout agreements between landlords and tenants.  When a landlord wants to vacate a rental unit without a cause recognized by the Residential Rent Stabilization and Arbitration Ordinance (the “Rent Ordinance”), the landlord may negotiate a “buyout” agreement with the tenant, whereby the landlord pays the tenant a lump sum in exchange for the tenant voluntarily vacating the rental unit.  Until now, such buyout agreements were unregulated by the Rent Ordinance-presumably because they involve a voluntary negotiation and agreement between a landlord and tenant.  

Under the new legislation, such buyout agreements are subject to strict regulation under the Rent Ordinance.  Prior to commencing a buyout negotiation, a landlord must now disclose to the tenant that the tenant (1) has a right not to enter into a buyout agreement, (2) may consult an attorney or the San Francisco Rent Board, and (3) may rescind a buyout agreement for up to 45 days after full execution of the agreement.  Failure to provide the required disclosure may result in civil actions against a landlord for actual damages and civil penalties, which civil actions may be filed not just by the tenant, but also by the City Attorney or a tenant rights group.  Landlords must also file with the Rent Board copies of executed buyout agreements so that the Rent Board may compile the agreements into a searchable database accessible to the public and provide annual reports to the Board of Supervisors regarding tenant buyouts.  Strict timeframes apply to the required filings.  The public will now have access to information about the number, location, and terms of buyout agreements in the City that was otherwise not disclosed to the public prior to the new legislation.     

The new legislation also amends the San Francisco Subdivision Code to restrict or prohibit buildings from entering the condominium conversion lottery if owners have entered into certain buyout agreements.  Prior to the new legislation, landlords could vacate rental units using tenant buyout agreements with no impact on condominium conversion of the building.  Because a tenant buyout is not a regulated no-fault eviction, there was no restriction on conversion in a building in which buyouts had occurred.  Under the new legislation, an owner is prohibited from converting a building into condominiums where seniors, disabled, or catastrophically ill tenants have vacated a unit under a buyout agreement after October 31, 2014, or where two or more tenants entered into a buyout agreement after October 31, 2014 and within 10 years prior to submittal of a condominium conversion application.  These new rules are in addition to existing provisions of the Subdivision Code that restrict conversions of buildings where certain evictions have occurred.

The new legislation does not prohibit tenant buyout agreements.  It adds new restrictions to buyouts that were previously unregulated.  Except with respect to condominium conversions, the new regulations are largely procedural in nature.  So long as a landlord follows the rules closely, tenant buyouts remain an option for a landlord wishing to vacate a unit or building.

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.

​Proposed Restrictions on New Office Use along Second Street.

Late last month, Supervisor Jane Kim introduced legislation aiming to insulate ground-floor retail businesses on a popular stretch of Second Street in SOMA from displacement by effectively prohibiting most new office use without Planning Commission approval.

The interim prohibition applies to most new ground-floor office use for a five-block stretch along Second Street from King Street in front of AT&T Park to Folsom Street, unless the office use is approved by the Planning Commission as a conditional use.  Buildings that reserve at least 1,500 square feet of retail space will be allowed to bring in new office tenants without going through the time-consuming and expensive conditional use process, allowing some flexibility for large-floorplate sites.

A similar ground-floor retail requirement already applies to most of Downtown as part of C-3 zoning.  However, ground-floor office is currently permitted without conditional use throughout the Second Street corridor (which is zoned Mixed Use – Office) although new offices over 25,000 square feet still need Planning Commission approval.

If the ordinance passes, the control will last for a year and a half.  Supervisor Kim indicated at this week’s Land Use Committee hearing that the upcoming Central SOMA plan’s rezoning will include a similar restriction.  With the Central SOMA plan set for adoption by the City in 2015, Supervisor Kim’s legislation will effectively become a permanent restriction.

Another interesting aspect of Supervisor Kim’s ordinance is that it would deem existing ground-floor office use along this corridor that is inactive for 90 days “abandoned,” and prohibit new offices from moving into these spaces without conditional use authorization.  This timeline could prove tricky for new ground-floor office tenants, which would seemingly need to start occupying new space within 90 days of the prior tenant leaving the unit.  For comparison, in parts of the City where new office use is no longer permitted, existing office is considered abandoned only after it is discontinued for three years.

It remains to be seen how this control will be implemented in the Central SOMA plan.  Much of Central SOMA is slated to be re-zoned to Mixed Use Office.  Will this restriction be limited to the Second Street corridor?  Could it be extended to all Mixed Use Office zoning, which would include a ten-block area stretching from Second to Sixth Street along Townsend up to Bryant and Harrison Streets?  Will new office tenants be able to take over an existing office space quickly enough to avoid the time-consuming and expensive conditional use process?

Encouraging retail uses on the ground-floor is certainly an important aspect of any growing neighborhood, particularly in this part of SOMA where an influx of residents and employees can support a growing number of retail options.  Striking a balance between growth on one hand and preserving neighborhood services can be tricky.  This stretch of Second Street may yet become the pilot program for ground-floor use in a large swath of Central SOMA.

Court Throws Out San Francisco’s Two-Year Tenant Buyout Requirement; Is Prop. G Next?

In July of this year, the City implemented controversial legislation requiring landlords pay tenants displaced by the Ellis Act a lump sum payment of up to twenty-four (24) times the difference between the unit’s then-current rent and the market rate for a comparable unit.  The legislation was debated and fought over in City Hall for months before it finally had enough support to be enacted into law.  And just like that, on Tuesday a federal judge invalidated the payment program.  In short, the court reasoned that the payment was simply too high on too few landlords to justify its stated purpose of protecting tenants.

The effect of the legislation was clear: make life difficult for landlords with longtime tenants that use the Ellis Act to free their building of tenants.  Obviously, preserving San Francisco’s existing rental housing stock—particularly for longtime tenants who cannot afford to relocate within City boundaries—deserves high priority, and the Board of Supervisors should be commended for its many well-meaning efforts to address the City’s housing crisis.  The court’s summary invalidation of the law within five months of its implementation shows that the City should always be mindful of overstepping its constitutional authority.

The result may also prove a harbinger of Proposition G on this November’s ballot, should voters enact it into law.  Any San Francisco resident who has checked his or her mailbox in the last month knows Prop. G is being strongly contested by advocates on both sides.  Parallels to the buyout program do not stop there.  Like the tenant buyout legislation—which dramatically increased the existing payment requirement—Prop. G would require many owners of buildings with two to 30 units who sell within five years of purchasing to pay a “surtax” up to 24% of the sale price.  The City’s current transfer tax ranges from 0.5% to 2.5% of the sale price.  Setting aside the possible unintended outcome of incentivizing owners to keep rental properties off the market and thereby exacerbate the housing crisis, Prop. G could be vulnerable to a similar criticism as the buyout program: that the exaction it requires from individual property owners far exceeds the problem it seeks to address.

On Wednesday, the City announced it would appeal the buyout decision to the federal appeals court.  For Prop. G, round one will be decided by voters at the ballot box on November 4th.  Round two could be in a courtroom shortly thereafter.  Will there be a knockout punch?

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.

​Legacy Businesses

Supervisors Campos and Farrell introduced legislation last week designed to provide for the recognition, study, and promotion of longstanding, community-serving businesses, so-called “Legacy Businesses.”  

The proposal is an ordinance that would direct the City’s Small Business Commission to establish and maintain a registry of Legacy Businesses in San Francisco.  A Legacy Business is a business that meets four criteria:

• It is a bar, restaurant, retail store, arts space, performance venue, or a business primarily engaged in Production, Distribution, and Repair activities;

• It has operated in San Francisco for 30 or more years, with no break in San Francisco operations exceeding two years.  The business may have operated in more than one location or jurisdiction, but must have been established and currently be based in San Francisco;

• It has contributed to the neighborhood’s history and/or the identity of a particular neighborhood or community; and

• It is committed to maintaining the physical features or traditions that define the business, including craft, culinary or art forms.

Among other promotional and support measures, the proposal would establish a rebate program for Legacy Businesses that purchase the real property at which they operate their businesses.  The program also would provide rebates to landlords that purchase real property at which Legacy Businesses operate their businesses and extend the term of the Legacy Businesses’ leases by at least an additional ten years.  The amount of the rebate would be equal to the transfer tax paid on the purchase of the property (or portion of the property) at which the Legacy Businesses operate.

Surprisingly, the total combined rebates paid to all qualified Legacy Businesses and landlords in any one year would be capped at $400,000.  One wonders how much of an impact this proposal can have on Legacy Businesses with this significant limitation in place.

Changes to CEQA Transportation Analysis

Many California jurisdictions, including San Francisco, use “level of service” standards in their CEQA analysis to measure potential transportation impacts of development projects and long range plans.  Commonly known as LOS, level of service measures vehicle delay at intersections and on roadways.

The use of LOS analysis has been criticized for discouraging infill development and construction of infrastructure for transit, cycling, and walking.  Urban infill projects, for example, often rate poorly in traffic studies because they increase population and potential traffic in a given area.  However, evidence shows that the residents and consumers who live, work, and shop in these areas are less likely to rely on cars for their transportation needs.  In addition, LOS analysis focuses on a social impact (driver delay), not on environmental impacts.

Roadway widening is the typical mitigation for projects that lower LOS.  However, wider roads can result in adverse environmental, public health, and fiscal impacts.  Wider roads are more expensive to maintain and enable driving at faster speeds, which leads to more pollution, noise, and higher risks to bicyclists and pedestrians.  And widening roads is not at all possible in dense jurisdictions such as San Francisco, meaning that transportation impacts cannot be mitigated.

The Governor’s Office of Planning and Research (“OPR”) recently proposed amendments to the CEQA Guidelines to provide an alternative to LOS for evaluating transportation impacts.  The new analysis focuses on vehicle miles traveled, or “VMT”.  Particularly within areas served by transit, the new analytic criteria must promote the reduction of greenhouse gas emissions, the development of multimodal transportation networks, and a diversity of land uses.  Measurements of transportation impacts may include vehicle miles traveled, vehicle miles traveled per capita, automobile trip generation rates, or automobile trips generated.

Once the CEQA Guidelines are amended to include those alternative criteria, vehicle delay will no longer be considered a significant impact under CEQA.  Transportation impacts related to air quality, noise and safety must still be analyzed under CEQA where appropriate.

The public comment period for the proposed new Guidelines ends on November 21, 2014.  We will continue to monitor their development and report to readers.

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.

​Six years after the Eastern Neighborhood rezoning passed, Supervisor Jane Kim seems intent on opening Pandora’s box and restarting the debate that took more than ten years to resolve the first time through.  This week Supervisor Kim introduced legislation that will immediately halt projects impacting existing industrial space in the Central SoMa Plan Area.

The legislation, if enacted, will place a 45 day moratorium on any projects resulting in the loss of PDR space, either through conversion or demolition, in the Central SoMa Plan Area.  Specifically, the area in question is bounded by Market to the north and Townsend to the south, 2nd Street to the east and 6th Street to the west.  Certain exemptions to the moratorium apply, including downtown zoning districts, and projects that had their environmental evaluation applications on file prior to September 1, 2014.  The heart of the proposed moratorium simply states “Neither the Planning Department nor the Planning Commission shall issue an approval or authorization for any change to or replacement of PDR use by a non-PDR use in the proposed Central SoMa Plan Area.”

As market pressure continues to build in San Francisco for available space of any kind for residential, office and other projects, Supervisor Kim steps into the fray to stem the tide that seems inevitable: the slow evolution of South of Market from a former industrial and warehouse district to a high-density, mixed office and residential neighborhood near transit and jobs.  This is a perfect model of “smart growth,” and in fact is necessary in order to fulfill San Francisco’s obligations under the Bay Area Plan – a region-wide plan enacted to create new jobs and housing near public transit in order to ease the environmental impacts from the inevitable growth of the Bay Area over the next 25 years.

The debate over where to put PDR uses was supposed to have ended when the City adopted the Eastern Neighborhoods Plan.  Under those rules, significant areas of the City were down-zoned for the express purpose of saving space for PDR businesses.  As many have come to realize, there is almost no legal use of these PDR-zoned buildings other than light industrial activities.  And PDR zones cover large amounts of area in Showplace Square, the Mission, Potrero Hill, and the Central Waterfront.  

The Eastern Neighborhoods Plan took a decade or more to finalize.  While many people are not satisfied with how the Eastern Neighborhood plan turned out (including, but not limited to, the property owners whose buildings were down-zoned and are now vacant because of it), there at least seemed to be an understanding that this issue was settled.  Apparently not.

It is expected that the initial 45-day term of the interim moratorium will be extended to be in effect until the Central SoMa Plan passes.  No one should be surprised if PDR protection and replacement measures are incorporated into the ultimate rezoning of Central SoMa – many of the Planning Commissioners have already recommended staff do so in hearings this summer.  These could include restricting the amount of space in a PDR building that can be converted to office (even in a zoning district that principally permits office use) or replacement of PDR space in new projects when they demolish existing PDR buildings.

The emergency ordinance requires the Planning Department submit to the Board of Supervisors “a written report describing the measures taken to alleviate the conditions that led to the adoption of the ordinance.”  This is all supposed to happen within 25 days.  Given that it took the City a decade to get the Eastern Neighborhoods Plan done in the first place, we are not sure what the Planning Department can do in 25 days that wasn’t already studied during that time.

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.

The Treasure Island Development Authority (“TIDA”) pitches the 404-acre island as “San Francisco’s Newest, Greenest Neighborhood.”  With up to 8,000 homes, 3 hotels, a ferry terminal, and 300 acres of parks and open space, Treasure Island is an ambitious undertaking.  Unfortunately, it may be a while before the greenest new neighborhood emerges from the red tape. 

After having its lawsuit to overturn the EIR for Treasure Island rejected at trial and in the First District Court of Appeal, the Citizens for a Sustainable Treasure Island (CSTI) have asked the California Supreme Court for a third bite at the apple.  As with most things having to do with CEQA, the issues are convoluted.  CSTI is urging the Court to overturn the EIR for Treasure Island because:

• The City should have used a “Program EIR” rather than a “Project EIR” because not all of the hypothetical details of development on the island have been resolved.  Although the Treasure Island Plan includes detailed development standards, the City built in defined – and limited – flexibility regarding the siting of some features.  This, alleges CSTI, precludes the use of a Project EIR.

• By using a Program rather than a Project EIR, the City has telegraphed its intentions to unfairly curtail future environmental review. CSTI claims that further environmental review is more likely—and the legal standard for mandating additional environmental review lower—when there is a Program EIR.

• The Draft EIR should have been recirculated due to the addition of mitigation to prevent the disruption of Coast Guard radar and radio by tall buildings.  CSTI argues that the mitigation, which was devised in “private” meetings between the City and the Coast Guard, violated public disclosure requirements and deprived the public an opportunity to comment on significant impacts.

In plain English, CSTI is asking the Supreme Court to send the City back to the drawing board for the EIR it already completed, and to make it easier to do so when individual buildings are approved on Treasure Island in the future. However, if the decisive opinion from the Court of Appeal is any indication, CSTI is fighting an uphill battle.

First, the Court said there is “no authority” that requires the City to prepare a Program rather than a Project EIR.  The principal difference between the two is that a project-level EIR focuses on site-specific impacts where all phases of development are defined.  Although the plans for Treasure Island are flexible in some regards—e.g., the exact siting of tall buildings within defined “flex zones” – they were sufficiently detailed to serve as the basis for a Project EIR.  Though the Court did not give specific examples, Project EIRs have been widely used for other large-scale projects in San Francisco, including Park Merced, Mission Bay, and Phase II of the Candlestick-Hunters Point Shipyard.

Second, the Court rejected the idea that City engaged in an “unlawful attempt to prospectively evade” further environmental review.  CSTI’s allegation in this regard is based on the “flawed legal premise” that individual projects following a Program EIR are evaluated under the fair argument standard—a low threshold favoring the preparation of an EIR—while Project EIR’s are not.  The Court instead found that both Program and Project EIR’s are subject to the same standard: further environmental review is not required unless there are substantial changes in a project or underlying circumstances that require major revisions of the EIR.  And in determining whether these conditions are present, courts defer to the City’s judgment rather than giving credence to any “fair argument” of impacts made by a member of the public.

Finally, the Court found that the City’s agreement to consult the Coast Guard regarding the siting of tall new buildings that could interfere with radar/radio communications is “the way CEQA is supposed to work – the public comment process may reveal new…insights…that will affect the final Project design.” However, the agreement to consult with the Coast Guard did not rise to the level of “significant new information” requiring recirculation of the EIR.

In essence, the Court of Appeal found CSTI’s claims to be much ado about nothing.  The Supreme Court has until mid-October to decide whether to accept CSTI’s petition for review.

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.

​San Francisco developers have become accustomed to the potential for post-approval delays caused by appeals of a project’s entitlement or CEQA determination.  But recently, a new avenue for project opposition has sprouted up from a less expected source…the urban forest.

In 2006, the City enacted an Urban Forestry Ordinance (Public Works Code, Article 16).  The Ordinance aims to protect San Francisco’s approximately 670,000 trees, a.k.a the Urban Forest.  One of the ways this is accomplished is by requiring property owners to obtain a permit from the Department of Public Works (“DPW”) before removing both street trees located in the public right of way, and also any trees on private property that meet the Code’s definition of a “significant.”   

Despite what this weighty appellation suggests, a tree does not need to have any special aesthetic, cultural or historical significance to qualify as “significant.”  Instead, that term covers  any tree on private property within 10 feet of a public right of way that has at least one of the following:  (a) a diameter at breast height exceeding 12 inches; (b)a height exceeding twenty feet; or (c) a canopy in excess of fifteen (15) feet.  If these criteria are met, a permit is required for the tree’s removal, whether it is alive, dead, or hazardous.

If a permit is required, a public process is triggered.  First, a removal application must be filled out and submitted to DPW.  In response, a DPW inspector will inspect the tree and issue a determination of whether removal is merited.  This is based on weighing a number of Code criteria, including the tree’s: (a) size, age and species; (b) visual and aesthetic quality; (c) cultural or historic significance; (d) ecological characteristics; (e) locational characteristics, such as whether it is in a high-traffic or low tree density area; (f) whether it is a hazardous tree; and (g) whether it has been properly maintained.  

If DPW recommends removal, notice is posted on the tree for 30 days.  If objections to the tree’s removal are received, DPW will schedule a public hearing on the matter.  Likewise, if DPW recommends denial of the removal application, the applicant can request a public hearing.  In either event, DPW’s final decision can then be appealable to the Board of Appeals for 15 days.

This process can raise concerns for developers, because an inability to remove existing trees on private property could necessitate a major project redesign and significantly limit the developable area of a site.

There is also the potential for savvy opponents to use of the tree removal process as a tool for opposing or delaying a project’s initial entitlement.  In the past, the Planning Department has typically held off on requiring developers to obtain tree removal permits until after a project’s Planning Commission approval.  However, the Department’s recent requirement that the developers of a residential project obtain a tree removal permit before entitlement approval led to an unexpected branch of opposition.

At the Department’s request, the developers sought and obtained a permit to remove two “significant” Eucalyptus trees on the property.  However, before the Planning Commission hearing approve the project’s Section 329 Authorization, a small group of neighbors appealed the tree removal permit to the Board of Appeals.  These opponents used the tree issue as a basis for opposing the project’s proposed design, arguing that because the trees were located in the typical rear yard area and were regarded as a public amenity, a major project re-design should be required to accommodate their retention.    

The timing of this appeal was concerning, as the project’s design had not yet received Planning Commission approval, rendering it more vulnerable to proposed modifications.  After significant discussion and consideration of detailed accounts from certified arborists on both sides (and multiple hearings), the Board ultimately upheld the removal permit, but did propose to condition its decision on the project’s receipt of final entitlement approval.  Key factors in the Board’s final decision were the general condition of the trees, coupled with the fact that their retention was anticipated to result in a 16% reduction in the project’s overall residential density.  

For more information on the Urban Forestry Ordinance and tree removal permit requirements, visit: http://sfdpw.org/index.aspx?page=656.

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.

​What does the San Francisco waterfront mean to you?  This question was posed to a panel of speakers, which included developers and City officials, at Bisnow’s San Francisco Future of the Waterfront forum on Tuesday.  The answers were varied, but each speaker expressed the importance of access to and preservation of the historic and breathtaking 7.5 mile waterfront stretch.  

The Background

San Francisco voters enacted Prop B, also known as the “Waterfront Height Limit Right to Vote Act”, as a local initiative on June 3, 2014.  Prop B mandates a vote for any future increase in height limits applicable as of January 1, 2014, to the tide and submerged lands transferred by the State of California to the City and County of San Francisco for the public trust pursuant to the Burton Act, Chapter 1333 of the Statutes of 1968.  The Burton Act provides that the “San Francisco Harbor and facilities shall be under the administration and control of the Harbor Commission of the City and County of San Francisco.”  In response to the Legislature’s directive, the City established the Port Commission as the agency with day-to-day management authority over the lands.  The State, acting by and through the Port Commission, retains oversight authority over the lands granted to San Francisco by the Burton Act.   

Prop B is not the first attempt at regulating the height limits of the San Francisco waterfront, which generally range from 40 feet to 84 feet.  Aaron Peskin, former President of the San Francisco Board of Supervisors and supporter of Prop B, had a history of involvement in development-related matters along the waterfront.  In 2007, he unsuccessfully fought to guarantee that existing height limits along the waterfront be maintained in a bill by then-state Senator Carole Migden.  Under Senate Bill (SB) 815, designated seawall lots 328, 330, 337 and 347S, including a portion of Mission Rock Street, ceased being used for the public trust pursuant to the Burton Act, and the Port Commission became authorized to lease all or a portion of the seawall lots, so long as the term of any lease does not exceed 75 years.  Revenues generated from the leases are to be used exclusively to fund the preservation of historic piers and structures, and the construction and maintenance of waterfront open space.  The passage of SB 815, which has a sunset date of January 1, 2094, was a pivotal moment in the waterfront’s development history.  

Opposition to Prop B

Opponents of Prop B argue that the measure is inconsistent with the Burton Act and SB 815, and will jeopardize the preservation of the waterfront by requiring voter approval for every height limit increase, thereby potentially reducing the amount of waterfront development and revenue going into the port fund under SB 815.  Two lawsuits have already been filed challenging the validity of Prop B.  In February 2014, a group of individuals, backed by large developers and the San Francisco Giants, sued the City to restrain the Director of Elections from placing Prop B on the June 2014 election ballot.  The lawsuit claimed that Prop B would intrude on the jurisdiction of the State and the Port Commission over the shoreline and waterfront.  On March 19, 2014, Superior Court Judge Marla Miller ruled in favor of the defendants of Prop B and ordered the election to go forward.  The appeal of Judge Miller’s ruling was denied without a hearing on March 27, 2014.

On July 15, 2014, less than two weeks after Prop B became law, the State Lands Commission, comprised of three officials, including Lieutenant Governor Gavin Newsome, sued the City seeking an order and declaration that Prop B is invalid.  The lawsuit claims Prop B specifically targets State-owned tide and submerged lands over which the Legislature has expressly precluded the right of local initiative.  Public Resources Code Section 6009(d) requires the Port Commission to “manage the state’s tidelands and submerged lands…without subjugation of statewide interests, concerns, or benefits to the inclusion of local municipal affairs, initiatives, or excises.”  The Legislature adopted Section 6009 in 2010 “for the specific purpose of prohibiting local initiatives from interfering with the planning, management, and operations of California’s sovereign lands that had been granted by the Legislature to municipalities.”  Development of waterfront lands requires collaboration and flexible planning.  Prop B could hinder this process by providing voters a right of approval over every height limit increase.  The lawsuit also claims that Prop B is invalid under the exclusive delegation doctrine by stripping the Port Commission of its exclusive authority over the lands granted by the Burton Act.  In doing so, Prop B “usurps the [Port] Commission’s statutory mandated consultation and oversight roles and bestows them on the City and County of San Francisco electorate.”

Impact of Prop B

Prop B is already impacting waterfront development projects that have been in the pipeline for years.  The San Francisco waterfront is a valuable asset and provides special maritime, recreational, cultural, and historical benefits to people from all over the world.  As history has shown, the development and preservation of the waterfront have also been contentious issues.  With the passage of Prop B last month, many developers and officials fear that the initiative will have a chilling effect on waterfront development and will threaten to delay or halt projects that are essential to the economic well-being of the City and the State.  One such project is the mixed-used development at Pier 70 which would include several acres of new parks, 30% affordable housing, and newfound access to the waterfront.  The project also proposes a height limit increase from 40 feet to 90 feet.  Now that Prop B is the law of the land, the fate of the Pier 70 project, as well as other waterfront development projects, rests in the hands of the San Francisco electorate.  

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.

     

At this November’s general election, San Francisco voters will weigh in on a number of ballot measures that could have long-lasting impacts on real estate development and land use in the City if passed.  Coming on the heels of the 8 Washington vote in November of 2013 and the Prop. B vote in June, some of these initiatives would continue to stifle responsible growth, while others are designed to push back against these recent development-unfriendly measures.

A summary of these initiatives:

Competing Housing Metering Ordinances.  Two competing initiatives will affect the production of new housing in the City.  An initiative proposed by Supervisors Avalos, Campos, Kim, Mar and Yee would impose additional conditional use criteria on housing projects if the City’s ratio of affordable to market-rate housing falls below 30%.  Mayor Lee introduced his own counter-initiative that would prohibit additional red tape designed to prohibit, condition, or otherwise restrict new housing based on an affordability ratio.  Mayor Lee’s ordinance would apply to projects in area or redevelopment plans, such as the Transit Center District or in the Eastern Neighborhoods.

Importantly, projects that submit environmental applications before January 1, 2015 will not be subject to the Supervisors’ initiative.  For most projects, a prerequisite to filing an environmental evaluation application is receiving a Preliminary Project Assessment (“PPA”) letter from the Planning Department, which takes 60 days from submittal of a PPA application.  We recommend project sponsors submit PPA applications no later than the start of October in order to ensure they can receive a PPA letter and can submit an adequate environmental application prior to January 1, 2015.

There is still a possibility that the Mayor’s Office and the Supervisors will reach a compromise and pull the dueling initiatives from the ballot, but the time to reach a solution is fast approaching:  if at least two of the Supervisors sponsoring the initiative withdraw their support by Tuesday, July 29, the housing metering initiative will not appear on the ballot.  If all five Supervisors withdraw support, or if the Mayor wishes to remove his initiative, August 1 is the deadline.

“Surtax” on Sale of Residential Property within Five Years of Purchase.  Sponsored by Supervisors Avalos, Campos, Kim, and Mar—four of the five sponsors of the housing metering initiative—the so-called “anti-speculation” initiative would add a surtax to the sale of most residential buildings between 2 and 29 units in size, if the building owner buys and sells the building within a five-year period.  The surtax could be as high as 24% of the sale price if sold within one year of purchase, and declines to 14% if sold within five years.  After five years, there is no surtax.  A number of sales are exempt from the surtax, including owner-occupied housing, buildings sold at a loss, buildings sold as a result of the owner’s death, and new housing.  

Starting January 1, 2015, the surtax would apply to all sales made within five years of purchase, even those buildings first bought prior to January 1, 2015.  The City Attorney’s office has confirmed that there would be no “grandfathering” for properties purchased before January 1, 2015.  That means, for example, a family that put its life savings into a three-unit building in 2011 will be subject to the surtax.

Another obviously troubling issue is the staggeringly high amount of the surtax, which applies to the sale price itself, not just the difference between the purchase and sale prices.  If our family referenced above purchased the building for $2 million in 2011 and sells it for $2.5 million in four years, it will pay a surtax of $350,000.  If our family purchased the $2 million building in 2014 and sells it for $2.5 million within one year, it will pay a surtax of $600,000, meaning the family will actually lose money on the sale.

Speaking at a recent public hearing, Supervisor David Campos acknowledged that if the initiative passes, the City expects it to be challenged in court.  The sponsors have until July 29th, or August 1st in the case of unanimous agreement, to withdraw the initiative.

Pier 70 Re-Zoning.  One of the projects hit hardest by June’s Prop. B requiring voter approval to increase height limits along the City’s waterfront was Forest City’s Project at Pier 70.  Its 28-acre mixed-use development—which will create nine acres of waterfront parks and add between 300 to 600 new affordable and middle-class homes on a dilapidated pier—is dependent on a site-specific height limit re-zoning from 40 feet to 90 feet.  

With Prop. B currently the law of the land in San Francisco, Forest City has to submit its rezoning request to the San Francisco voters, essentially creating a referendum on the project similar to 8 Washington.  Committed to working under Prop. B, Forest City gathered enough signatures to qualify an initiative onto the November ballot raising the height limit and paving the way for the project to move forward.  Supporters of increased low and middle-income housing and smart growth will be following this ballot measure closely.

Another twist in the Pier 70 project came earlier this month when the State of California’s Lands Commission filed a lawsuit against San Francisco challenging the legality of Prop. B altogether, on the ground that the City’s obligation to manage Port property in public trust cannot be overridden by the local initiative process.  It did not go unnoticed among political insiders that former Mayor Gavin Newsom sits on the State Lands Commission.  The lawsuit’s effect on the Pier 70 re-zoning is uncertain at this point, but Forest City is moving forward with the ballot initiative.

We will continue to monitor the progress of these initiatives.

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.

​Land use practitioners in San Francisco need to be aware of significant new amendments to the City’s Lobbyist Ordinance that will take effect on July 26, 2014.  The Lobbyist Ordinance and its regulatory and public disclosure requirements concerning lobbying activities serve an important purpose.  These measures speak to the preservation of our democratic principles.  The new amendments, however, go too far.  They impose such drastic reporting and record-keeping requirements on the everyday business of typical land use practitioners that they likely will have a chilling effect on public participation in the political process.  These new measures will only further insulate our City government from the populace and its participation in the governing process.  

Moreover, not surprising for San Francisco, the new amendments reflect blatant political favoritism.  Officers or employees of non-profits are excluded from the new requirements.  Apparently, the City’s interest in political reform extends to everyone except the non-profit community.

One group particularly hard hit by the new amendments will be the City’s so-called “permit expediters.”  The new amendments impose significant burdens on anyone who provides assistance to others in obtaining permits, which will add to the cost of doing business, slow down the permitting process, and deliver another regulatory blow to the production of housing.  Just when the City is in the midst of a housing crisis.

A summary of the new amendments is as follows.

Lobbyist Qualification Threshold

The new rules change the lobbyist qualification threshold, which is now based entirely on the number of compensated lobbying contacts an individual has with a City officer.  More specifically, an individual must register and report as a lobbyist if he or she makes:

• one or more compensated lobbying contacts in a calendar month with a City officer on behalf of a client, or

• five or more compensated lobbying contacts in a calendar month with City officers on behalf of the individual’s employer (unless the individual owns 20 percent or more of the employing entity).

Exemptions from Lobbyist Registration

An officer or employee of a 501(c)(3) non-profit nonprofit organization (or any organization it fiscally sponsors) is not subject to the lobbyist registration and reporting requirements when the officer or employee is communicating on behalf of that organization.  Also exempt are such communications by officers and employees of 501(c)(4) non-profit organizations that file either an IRS Form 990-N or an IRS Form 990-EZ.

The new rules also narrow the current exemption for communications in connection with bidding on a City contract, negotiating the terms of a City Contract, or administering a City contract.  The exemption for communications by a “party or prospective party” to a contract no longer applies to a City contractor’s outside consultants or independent contractors.

Permit Consultants (aka Permit Expediters)

The new rules create registration and reporting requirements for “permit expediters.”  These new requirements are similar to, but not exactly the same as, those for lobbyists and will take effect on January 1, 2015.

Developer Disclosures

The new rules require developers of major City real estate projects to file reports with the Ethics Commission disclosing donations of $5,000 or more to nonprofit entities that have lobbied the City regarding the developers’ projects.  The filing requirement applies to real estate development projects costing over $1,000,000 and is triggered by the certification of an environmental impact report under the California Environmental Quality Act.

Covered City Officials

The new rules expand the list of those City officials with whom compensated lobbying contacts will trigger lobbyist registration and reporting.  Whereas previously the covered City officials were limited to the Board of Supervisors, Planning Commission, Building Inspection Commission, and the like, the new officials include members of the following boards and commissions:

• Successor Agency to the former Redevelopment Agency of the City and County of San Francisco

• Oversight Board of the Successor Agency

• Office of Community Investment and Infrastructure Commission

• First Five Commission

• Health Authority Board

• Housing Authority Commission

• Law Library Board of Trustees

• Local Agency Formation Commission

• Parking Authority

• Relocation Appeals Board

• Workforce Investment San Francisco Board    

Also included is any person appointed as a department head by any City board or commission.

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.

​Meet the New Planning Commissioner

Whether we like it or not, time marches on…and with it, Planning Commissioner Gwyneth Borden has completed her second term on the Commission, and has been appointed by the Mayor to the Municipal Transportation Agency Board of Directors.  Commissioner Borden was known for providing a practical and personal perspective at the Commission, something that added greatly its debates over the years.  We wish her well in her new role.

In her place, the Mayor has appointed, and the Board of Supervisors has confirmed, Christine Johnson to the Commission.  Commissioner Johnson comes from a strong professional background that straddles the private, non-profit and public sectors.  On the private side, she has worked as a financial analyst, specializing in public finance, consulting Bay Area cities and transportation authorities as well as providing economic analysis for major arena projects in Washington, D.C. and Phoenix.  On the non-profit side, she has served in various positions at local community development corporations and other community organizations.  And on the public side, she has been the chair of the Commission overseeing the former Redevelopment Agency since 2012.  You can find her hefty resume at:  http://mytinyurl.com/kcfr3f4wcm.  Commissioner Johnson comes to the Planning Commission with significant experience in the financial side of economic development, which should give her a good perspective on the difficulty of doing development in San Francisco.

Planning Commissioner Rodney Fong was also confirmed by the Board of Supervisors for a second term on Tuesday.  We will keep you posted on developments with Kathrin Moore and Bill Sugaya, whose current terms also expire this summer.

2 Henry Adams Goes Down…

The proposed office conversion of the 250,000-square-foot building at 2 Henry Adams Street came to an abrupt halt this week, when the BOS Land Use Committee tabled indefinitely the necessary landmarking legislation.  The building is located in a PDR district, which generally prohibits office use, but allows it without restriction in buildings that are designated City landmarks.  The policy behind the exception is based in historic preservation – in order to provide cash flow to a historic building, use exceptions are provided to allow for higher-rent tenants.  These relaxed historic controls apply to varying degrees in many zoning districts, but no zoning district has a higher threshold than the PDR district – City landmarks are the most important historic resources in the City and require Board of Supervisors approval.

Since 2 Henry Adams is not currently landmarked, it needed to go through that process – the first project in recent years to seek a landmark designation for the express purpose of converting the building to office.  The project seemed to have some momentum with the Historic Preservation Commission recommending the designation, and the subsequent lease of the entire building by tech-giant Pinterest.  But in the end, the surreal proposal came to an abrupt defeat.  Citing concerns with the displacement of 127(!) design/showroom tenants, the Land Use Committee tabled the landmarking legislation indefinitely.

In fact, the 2 Henry Adams project was sailing against some powerful political winds.  The PDR zoning was put into place for the express purpose of protecting space for design/showroom and other industrial tenants from encroaching residential and office development.  In recent weeks, the Planning Commission has expressed concern about exactly these type of industrial building conversions – and in significantly more modest cases.  Keep in mind 2 Henry Adams would have had to get a large office allocation from the Planning Commission even if the landmarking had gone through.  And the icing on top was probably the visual of Pinterest leasing the entire building – and the image of tech displacing tenants, in all contexts, represents potentially the biggest policy concern these days for those on the progressive side of the aisle in the City.

Moving forward, it will likely be very difficult to get an office conversion approved in “PDR-protection” zoning districts such as SLI, SALI, and PDR.  The Planning Commission has even asked the Planning Department to study some tools to prevent PDR-use loss in the Central SoMa plan.  Oh yeah, and the Land Use Committee did pass one related measure:  a conditional use requirement for office conversions in the PDR district that require an economic impact analysis be prepared prior to approval:  Message Received!

Berkeley Joins San Francisco in Ballot Initiative Mayhem

The combination of the 8 Washington vote in November, the Warriors move to Mission Bay, the Prop B vote in June, and the handful of development-unfriendly measures headed to the ballot this November has certainly gotten San Francisco economic-growth proponents in a funk.  But doesn’t it always feel better when you’re not feeling like that alone?  Well, in fact, we’re not alone!  An initiative in Berkeley that just qualified for the ballot would – among other things – reduce height limits in the downtown area.  This isn’t just a downzoning though, it’s essentially a rollback of the Berkeley Downtown Plan that took 6 years to develop between 2005 and 2011, was rescinded once by the City Council after a 9,000-signature petition opposing the plan was drafted, was approved a second time and then ratified by 64% of voters in an advisory ballot initiative.  Add to that the fact that if the current measure passes in November, the only way to change it is with another ballot initiative.  

They say Bay Area land use is a blood sport, and, no doubt, there is a battle raging.

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.