The Future of the Fee Deferral Program

On April 23, the Board of Supervisors’ Land Use and Economic Development Committee held a hearing to consider the impacts and future of the Fee Deferral Program. The Fee Deferral Program commenced on July 1, 2010 and is scheduled to expire on July 1, 2013. The hearing was primarily an information-gathering session, and the Committee plans to take these issues up again in approximately six months. As such, the next six months will be very important in determining the political future of the Fee Deferral Program.

Critics of the Fee Deferral Program point to the deferred fees and express concern that affordable housing and infrastructure needs are not being met. The Fee Deferral Program was originally designed as a financial incentive to make development more affordable and encourage new projects in bad economy, the Program arguably a better way for the City to do business in any economy. Under the Program, a developer that chooses to defer payment of fees still pays a 15 or 20 percent down payment on the fees, and then pays the remainder of the fees prior to the issuance of the first certificate of occupancy with interest generally ranging from 2-3 percent. This can be a significant amount of money for big projects that pay up to $20 million in impact fees – with a 20 percent down payment, 2.5 percent of $16 million is $400,000.

Moreover, the only perceived problem presented by the Fee Deferral Program for the provision of affordable housing and infrastructure was that a “lag time” resulted between the time when the City previously received fees and when the City now receives fees. But the April 23 Committee hearing revealed that the City is now catching up and will soon completely close this lag time, and the City will be budgeting for and receiving impact fees just as it was before.

The benefits of the Fee Deferral Program are that the City receives a bit more in revenues; developers no longer have to pay significant carrying costs on up-front money; if investment still is necessary to pay the deferred fees, that investment is more secure because the project is closer to completion; and the City significantly reduces its risk of having to reimburse fees for stalled or failed projects.

We will continue to monitor the progress of the Fee Deferral Program as it could have a significant effect on the future of development in San Francisco.

On the Horizon: Van Ness Bus Rapid Transit

The planning and construction of the Van Ness Bus Rapid Transit (BRT) Project is taking a significant step forward over the next few weeks as staff from the San Francisco County Transportation Authority (Authority) and San Francisco Municipal Transportation Agency (SFMTA) is recommending a Locally Preferred Alternative (LPA) for the Project. Construction of the BRT Project is significant not only because of the changes it will produce for public transit along Van Ness Avenue, but also because of its potential impacts on other construction projects along the Van Ness corridor.

According to the Project’s Draft EIS/EIR, the LPA recommended by staff has the longest construction schedule at an estimated 21 months. The Project will extend for two miles along Van Ness between Lombard and Mission Streets. Construction of the BRT stations, transit way, and medians would take place in an approximate 43-foot-wide area in the center of the roadway. Two traffic lanes would generally remain open on either side of the construction area. If necessary, the parking lane on both sides of the street would be closed during the construction work. When parking lanes or a second travel lane is closed, construction will be staged in three-block segments. Construction could begin in 2015.

The Draft EIS/EIR reviewed three build alternatives for consideration: one that had the transit line running along the outside lane (Alternative 2), and two center lane options (Alternatives 3 and 4). Staff’s LPA is a hybrid of Alternatives 3 and 4: a center-running line with right side boarding, a single median, and limited left turns. The BRT is intended as an affordable approach to creating rapid transit along Van Ness, and would incorporate the following features:

• A dedicated bus lane separated from regular traffic;
• All-door, level boarding, and proof of payment to promote faster boarding and de-boarding;
• Shelters with seating;
• Pedestrian safety enhancements;
• Transit signal priority with traffic signals recognizing an approaching BRT vehicle; and
• “Traffic signal optimization,” a timing technology for all traffic lights in the corridor.

The LPA recommendation is scheduled to be considered by the Authority Plans and Programs Committee on May 15, and by the Authority Board on May 22. It is also scheduled to be considered at the SFMTA Board on May 15. Once the LPA is selected, it will be analyzed in the Final EIS/EIR, which is scheduled to be completed this Summer. The Authority and Federal Transit Administration will certify the Final EIS/EIR in Fall 2012, and SFMTA ultimately has approval authority for the Project.

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

 

 

After five years of study and outreach, the Transit Center District Plan (“TCDP” or “Plan”) is in the home stretch. This week, the Planning Commission and Historic Preservation Commission (“HPC”) will consider whether to formally “initiate” the various ordinances that will implement the TCDP. On May 24th, the Planning Commission will vote on the certification of the Final TCDP Environmental Impact Report (“EIR”), and make a recommendation on the TCDP ordinances to the Board of Supervisors. If all goes according to schedule, the TCDP will be before the Board of Supervisors in June or July.

The TCDP aims to transform the area surrounding the proposed Transbay Transit Center into the new heart of downtown. The Plan includes a package of zoning changes, including height increases, expanded protections for historic buildings, and the elimination of maximum floor area ratio (“FAR”) limits. The Plan also includes an ambitious program of public improvements to be financed by an equally ambitious package of impact fees and exactions on new development.

Regional Smart Growth Goals

According to the Association of Bay Area Governments, San Francisco needs to build 23.5 million square feet of downtown office space over the next 25 years to meet regional smart growth goals. This is the minimum amount of office space that San Francisco needs just to maintain its current share of regional employment, which declined from 27 percent in 1970 to 16 percent today.

Under existing zoning, only about 5.8 million square feet of new office space can be built downtown. The implications of the shortfall are significant. It means that San Francisco risks losing its position at the center of the Bay Area’s economy. Regional sustainability goals will be jeopardized as jobs move to suburban locations where commute patterns generate result in much higher greenhouse gas emissions and other pollution.

The Plan’s liberalized development rules will move the City closer to meeting its smart growth obligations. However, significant shortfalls will remain. The Plan proposes a modest increase of about 2.5 million square feet of new office development, or enough for roughly 10,000 workers. This would still leave the City 13 million square feet short of the projected citywide need for office space. As we recently reported, some of this shortfall will be met by planned Central Corridor upzoning focused on the Fourth Street Corridor and new Central Subway.
New Development Controls

The Plan includes detailed design guidelines and zoning controls to shape new development and achieve the City’s job creation goals:

• Height Increases. Height increases are among the most publicized aspects of the TCDP. On the site of the proposed Hines-Pelli Transit Tower, the height limit will increase to nearly 1000 feet to make way for the City’s tallest building. Smaller increases, ranging from 50 feet to 300 feet, would allow a handful of buildings on other sites to exceed the area’s current 550-foot height limit. The TCDP would also create new height exemptions to allow decorative architectural elements to extend well above the height limit.

• FAR Limit Eliminated. Right now, most properties in the Plan Area are subject to an FAR limit of 18-to-1. The TCDP would eliminate this cap, i.e., there would be no express restriction on floor area. To ensure that key opportunity sites are not under built, sites larger than 15,000 sq. ft. would have to achieve a minimum FAR of 9-to-1.

• Simplified Bulk Controls for Towers. Most TCDP properties fall within an “S” Bulk District. The “S” controls mandate “wedding-cake” buildings with three discrete sections: a base, a lower tower and an upper tower. These bulk restrictions are difficult to comply with in practice and exceptions are the norm. Under the TCDP, a new S-2 District will simplify and relax controls for buildings over 600 feet. Partial setbacks from street frontages would be required to help define the streetwall, but lower tower bulk would not be otherwise restricted. At the upper tower (the top third), average floor plates would have to be 75 percent of the average floor-plate size in the lower tower.

• Limits on Non-Commercial Uses. Projects on development sites larger than 15,000 sq. ft. within a defined “core area” would be required to provide at least two square feet of commercial space for every one square foot of residential space. This is a somewhat more liberal standard than the 3-to-1 ratio proposed in the first version of the Plan.

• Pedestrian-Oriented Design. Improving the “bleak” pedestrian environment is among the Plan’s major goals. Below 20 or 25 feet in height, buildings should include façade treatments that create a “pedestrian zone.” The street frontage devoted to lobbies would be restricted. Active retail or open space uses would be required at the rest of the ground-floor frontage. Certain non-active uses (notably banks and gyms) would not be allowed at the ground-floor.

• New Historic Designations and Additional TDR Supply. The New Montgomery-Second Street Conservation District would be extended to the west to include several properties along Mission and Howard Streets. New individual ratings would be applied to buildings throughout the district. The Plan will also expand the supply of TDR in two ways. First, newly designated historic buildings will be eligible to participate in the TDR program. Second, the amount of TDR that may be transferred from buildings will be increased. Thus, even buildings that have sold off TDR already will be eligible to sell an additional increment.

• Parking. The Plan includes many new regulations intended to discourage the number of cars entering and traveling through the area. These include new rules on the quantity and pricing of parking in commercial developments, as well as restrictions on the points of access to parking garages. Ultimately, the Plan calls for an absolute maximum on parking in the area. Until the cap is established, the Plan would limit accessory parking to 3.5 percent of a commercial building’s gross floor area, i.e., half of what is currently allowed. In addition, new curb cuts on Mission Street, Second Street, and several pedestrian alleys would be prohibited. A conditional use approval from the Planning Commission and approval by the Board of the Municipal Transportation Agency would be required for new curb cuts on First and Fremont Streets or for non-accessory parking. New surface parking lots would prohibited, even as temporary uses.

Fees and Public Improvements.

The TCDP includes several new fees and exactions to fund public improvements, including the CalTrain Downtown Extension, streetscape and open space projects, and other transit upgrades. The Planning Department estimates the Plan’s revenue measures could generate more than $575 million over the life of the Plan.

The new fees proposed are an Open Space Fee (“OSF”) and a Transportation & Street Improvement Fee (“TSIF”). These fees are in addition to current impact fees that are approximately $38 per square foot for office use, and somewhat less for non-office uses. The OSF and TISF would vary by use and would increase with a Project’s FAR.  For example, for office uses, fees would total $7 for each square foot under an FAR of 9-to-1, $33.50 for square footage between 9-to-1 and 18-to-1 FAR, and $43.50 for FAR above 18:1. Fees for retail uses would be similar. Residential and hotel fees would be less.

The new fees would be partially offset by changes to the TDR program. Under current rules, TDR must be purchased to build above the base FAR limit of 6-to-1 or 9-to-1, depending upon location. TDR prices have historically ranged from $15-$35 per square foot; present market value is about $25 per square foot. Under the TCDP, all developments would have to purchase TDR for square footage between 6-to-1 and 9-to-1 FAR. Above 9-to-1, TDR would no longer be required.

In addition to the new impact fees, a Mello-Roos District would be established and a supplemental property tax of 0.55 percent would be levied on new developments. This would effectively increase the property tax rate in the TCDP by 50 percent over current levels. According to the Planning Department’s estimates, the annual occupancy cost for a $1 million condo would increase by $5,500 each year, about 5.8 percent. If the cost of the tax increase is passed along to an office user paying $66 per square foot, the increase in annual occupancy would be about 5 percent or $3.33 per square foot.

Although the Plan contains a lengthy discussion of the feasibility of new fees, its conclusions are largely based on 2007 property values and rental rates. Though these rates are certainly increasing, they have not yet reached their previous levels. The feasibility studies also fail to account for the fact that new buildings will be at a disadvantage compared to existing buildings that paid lower exactions and that pay a much lower property tax rate.

The Unresolved Shadow Issue

If built out to the full potential of the proposed height limits, new buildings in the TCDP would be the tallest in the City. The Plan identifies “the creation of a new crown to the skyline” as an important objective and counts on taller buildings to meet revenue and job creation goals. However, it fails to remove a major impediment to the construction of tall buildings: shadow budgets for downtown parks.

Under a voter-approved initiative (“Prop K”), new buildings over 40 feet in height cannot be approved if they would have a significant and adverse impact on the use of property under the jurisdiction of the Recreation and Park Commission. A policy jointly adopted by the Planning Commission and Recreation and Park Commission in 1989 set “shadow budgets” for several downtown parks, notably including Union Square, St. Mary’s Square and Portsmouth Square. Under the 1989 budgets, no additional shadow is permitted on St. Mary’s Square or Portsmouth Square, and only one-tenth of one percent of additional shading is allowed on Union Square.

According to the EIR, the worst-case under the Plan would result in minor amounts of shade on these and other protected parks, ranging from zero to about one-quarter of one percent. The new shadow on the three squares would be limited to morning hours (before 9 am), primarily during the winter months when cloud cover and rain are most prevalent. However, even these minor increases in shadow aren’t allowed under the City’s current zero-tolerance policies.

Though the Recreation and Park Commission and Planning Commission could adjust budgets to allow for the shadow that would be created by the TCDP, in the absence of a TCDP solution individual buildings will have to seek such adjustments on a project-by-project basis. As part of the plan adoption process, the City’s decision makers should consider, on a global basis, whether the benefits associated with the Plan-millions in public revenue, thousands of new jobs and more than eleven acres of open space-are a fair tradeoff for a small amount of new winter shade on a few public parks.

If you have any questions about the TCDP, please contact Daniel Frattin at 415.567.9000 or by email at dfrattin@reubenlaw.com.

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

 

 

Legislation to amend the Planning Code to encourage the production of new student housing and to prohibit the conversion of existing housing to student housing was introduced at the Board of Supervisors in January. Over the past four months, amendments were proposed by the Supervisors to create some limited exceptions to the total ban on conversion of existing housing to student housing. The amendments will be considered at the Planning Commission on May 17, and the Commission will make a recommendation on the proposed amendments to the Board.

The first amendment would allow the conversion of existing housing and SRO (“Single Room Occupancy”) buildings to student housing if (1) the existing housing was built by the post-secondary educational institution that will own, operate or otherwise control the student housing; (2) is in a convent, monastery or similar religious order facility; or (3) is on a lot adjacent to the post-secondary educational institution that will own, operate or otherwise control the student housing, provided that the lot has been owned by the educational institution for at least 10 years.

The second proposed amendment would allow residential and SRO buildings that have been vacant for at least one year, or have been underutilized for at least two years and have caused blight, could be converted to student housing with a conditional use authorization from the Planning Commission.

The definition of “student housing” in the current draft of the ordinance would not be changed. The ordinance defines student housing as a “living space for students of accredited post-secondary educational institutions that may take the form of dwelling units, group housing, or an SRO”. Student housing is permitted where dwelling units, group housing, or SROs are permitted in the underlying zoning district. Student housing must be owned, operated, or controlled by an accredited post-secondary educational institution. Student housing may consist of all or a part of a building.

The required dwelling unit mixed in RTO, NCT, DTR, and Eastern Neighborhoods Mixed-Use districts are waived for student housing. Conversion of an existing unit or units to student housing will not be considered by the Planning Department as a loss of a dwelling unit through merger or conversion pursuant to Planning code Section 317, only if the building was built by a post-secondary educational institution that will own or operate the student housing; is in a convent, monastery or similar religious order facility; or is on a lot adjacent to a post-secondary education institution that will own or operate the student housing, so long as the lot has been owned by the post-secondary education institution for at least 10 years.

Existing buildings in the C-3-G and C-3-S districts that are not designated as significant or contributory buildings under the historic preservation guidelines may be expanded above the base floor area ratio limits by construction of new student housing, subject to conditional use authorization from the Planning Commission.

Through this proposed ordinance, the City will be encouraging construction of new student housing, allowing some limited conversions where they make sense and don’t harm the existing housing stock, but still prohibit the conversion of most existing dwelling units, apartments, or condominiums.

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

 

 

 

Legitimization Program Extended to November

Mayor Lee has signed an ordinance that will extend the Eastern Neighborhoods Legitimization Program through November 12, 2012. The program, which grants “amnesty” to uses established prior to the Eastern Neighborhoods rezoning but had not received proper permits, had expired this past January.

Beyond extending the program’s deadline, the ordinance also requires that legitimization applicants, after receiving their letter of eligibility from the Zoning Administrator, must submit all materials to complete legitimization (e.g. Prop M office allocation application, building permit application) within 90 days of the letter’s issuance.

Owners of buildings in the Eastern Neighborhoods with office tenants should make sure they have the proper permits for office use. Once the program expires, buildings without proper permits could be subject to enforcement action. Legitimizing now may be the only way to maintain a legal office use into the future. You can contact our office with any questions you may have about the program.

Hallelujah, Hallelujah! Restaurant categories in the Planning Code drop from Thirteen to Three!

While everyone talks about the need to cut “red tape” to get rid of inefficient and ineffective government regulations, seldom do you see clear, successful examples of this happening. But that’s exactly what Supervisors Weiner and Olague have done with their recent amendment to the Planning Code, which, among other things, reduces the number of restaurant definitions from 13 to 3.

It’s become a public joke in the past few years how convoluted the restaurant controls are in the Planning Code (“will you be toasting bagels on-site?”). This was brilliantly captured in a video created by Aaron Starr at the Planning Department last year (for anyone who has been through the entitlement process in San Francisco, this is a must watch: http://www.youtube.com/watch?v=QOreHYVTHGA). The restaurant ordinance removes all of the confusing and out-dated distinctions between food uses and creates three categories: Limited-Restaurant, Restaurant, and Bar. A Limited-Restaurant is any restaurant that serves food but does not serve beer or wine for on-site consumption. A Restaurant is any restaurant that serves food, including those that serve beer, wine or liquor for on-site consumption. A Bar is, well, a bar.

The ordinance doesn’t just improve the restaurant classifications of the Planning Code though. It also amends the use controls for each Neighborhood Commercial and mixed-use district, and in many cases makes restaurants principally permitted where they were formerly permitted with a conditional use, or makes restaurants permitted with a conditional use where they were formerly not permitted. The ordinance is truly transformative in terms of simplifying the process for this critical sector of the City’s economy.

We commend Supervisors Weiner and Olague for co-sponsoring this legislation. San Francisco’s restaurant industry could really use a shot in the arm right now – especially considering neighboring Oakland’s restaurant scene has been gaining on San Francisco in the hipness category, and many chock that up to Oakland’s more permissive zoning and other governmental regulations.

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

 

There’s been a lot of news about San Francisco’s new Central Subway line. Less has been reported about the new, transformative planning efforts for the area surrounding the subway.  After obtaining a key approval from the Federal Government in January, major components of the subway’s construction have begun (as anyone who has done some shopping in Union Square recently will have clearly noticed). When completed (estimated in 2019), the subway will extend the T-Third Street line from the King Street Caltrain station to Chinatown.

Staying true to its name, the Planning Department is already spending considerable time and effort to modernize the zoning in the area around the subway to take advantage of this new transit corridor. Dubbed the “Central Corridor Plan,” the rezoning process has been going on for close to a year. So far, the efforts have been focused on studying the area, conducting outreach with neighborhood residents, owners and businesses, and developing zoning and infrastructure proposals to upgrade the neighborhood. Several proposed scenarios for new zoning and height controls have been made public.

The Central Corridor Plan is smart growth at its best. Anyone who has gotten a degree in Urban Planning in the past decade will tell you that the number one priority in planning new development is taking advantage of transit-rich areas by allowing for higher density housing and workspace. By providing homes and jobs close to transit, residents and workers will be able to live with no- or low-dependence on an automobile. According to the EPA’s most recent annual greenhouse gas inventory, transportation is the second-largest contributor to the U.S.’s greenhouse gas emissions – contributing significantly more of these gasses than even the industrial sector. Reducing Americans’ reliance on automobiles has got to be part of a realistic plan to reduce greenhouse gasses, and the Central Subway is a unique opportunity, as underscored by the Feds’ close-to-$1 Billion investment in the project.

The Central Corridor Plan, bounded by Mission, Townsend, 2nd and 6th Streets, could potentially up-zone the entire area to mixed-use zoning districts (allowing both residential and office uses) and could increase height limits to 85 feet in much of the plan area. This would be a big improvement on the Western SoMa Plan rezoning, currently expected for enactment this year, which would maintain most of the current zoning between Harrison Street and Townsend Street, prohibiting new housing or office – likely preserving surface parking lots in the area for the foreseeable future. Under the Western SoMa rezoning, the Planning Department expects that both housing units and jobs in the area would decrease from current levels. Depending on its final form, the Central Corridor Plan is expected to more than double the number of housing units in the area and to increase the jobs in the area by more than a third of those existing.You can find the proposed rezoning maps at http://www.sf-planning.org/index.aspx?page=2557.

The Plan does more than just rezoning. It will significantly increase the “livability” of the neighborhood for its new residents and workers. New bike lanes will be installed, pedestrian safety measures will be implemented (this is one of the most dangerous areas in the entire city for pedestrians), and new open space will be created. In short, the plan will leverage the $1.6 Billion investment in the new Central Subway to transform this worn-down part of town into a full-functioning city neighborhood.

Based on the Association of Bay Area Governments Housing Allocation goals, San Francisco is on the hook to provide 31,193 new housing units between 2007 and 2014. The Central Corridor plan will put a significant dent in that number, by paving the way for high-density housing in an area of the city that can handle the new residents while also taking advantage of the new Central Subway, which will connect area residents to a transit network that can take them as far as Gilroy and Pittsburg without ever stepping in a car.  The Central Corridor Plan is expected to be released within the next few months, and must then undergo environmental review, expected to begin this spring or summer. This likely means the Plan will go into effect sometime in 2014. We will keep you posted as the process continues.

Take That NYC!

SF-ers now have a new piece of data to use in their never-ending debate over “best US city” rights with New York. According to the 2010 census, the San Francisco/Oakland region is the second most densely populated city in the United States, after West Coast-neighbor L.A. New York City ranked just fifth in the nation.

In 2010, San Francisco/Oakland averaged 6,266 people per square mile. San Jose was just behind in third with 5,820 people per square mile. Beyond bragging rights, these figures highlight the opportunity we have in Bay Area to provide an example of what the future of smart-growth development should look like. Between a world-class transit system and plenty of growth opportunity, the Bay Area has the ability to provide for more residents without expanding the physical borders of our urbanized area. Just hop off BART at Balboa Park (where the new 5-story, 173-unit, lot line Avalon Bay development is just wrapping up), at MacArthur Station in Oakland (where Phase I of the new 624-unit Transit Village is just underway), or at Civic Center (where Twitter’s new lobby is already open) and its clear there is enormous opportunity to grow from within.

In fact, the 2010 census also concluded that urbanized areas in the U.S. grew at a faster rate than the country as a whole in the past 10 years, 12.1 percent to 9.7 percent, respectively. This is the future of U.S. development.
According to the 2010 census, the top five most densely populated cities in the U.S. are

1. Los Angeles-Long Beach-Anaheim: 7,000 people per square mile (ppsm)
2. San Francisco-Oakland: 6,266 ppsm
3. San Jose: 5,820 ppsm
4. Delano, Calif.: 5,483 ppsm
5. New York-Newark: 5,319 ppsm

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

 

 

In a case of both local and statewide interest, on March 21, 2012, the California Supreme Court denied review of a Court of Appeal decision involving a San Francisco ordinance. Aiuto v. City and County of San Francisco (201 Cal.App.4th 1347 [Cal.App. 1 Dist., December 15, 2011]) involves a challenge to the City’s Condominium Conversion BMR Program (“BMR Program”) by owners of certain BMR units restricted under the Program. As discussed below, the Aiuto decision indicates the broad applicability of a 90-day statute of limitations contained in the California Subdivision Map Act (“SMA”) for claims concerning subdivisions.

Long before the City’s current inclusionary housing ordinance, the City established the BMR Program in 1979 under the authority of the SMA by adopting Sections 1341 and 1385 of the San Francisco Subdivision Code. The BMR Program was created in an effort to limit perceived tenant displacement in connection with condominium conversions and to provide opportunities for first-time home buyers, and required owners converting their buildings from apartments to condominiums to designate a certain number of the units as below market rate (“BMR”) units. These BMR units were then typically sold to low or moderate income buyers.

After a dispute arose between the City and owners of certain BMR units regarding the terms of the BMR Program, the City adopted Ordinance No. 320-08 (“Ordinance”) in December 2008, which amended the BMR Program and added new regulations. Five months after the effective date of the Ordinance, a number of BMR unit owners filed a lawsuit challenging the Ordinance on various grounds, and seeking release of their units from the Program.

While the plaintiffs’ claims were being litigated, the Superior Court issued a preliminary injunction delaying the City’s enforcement of the Ordinance against the plaintiffs until the case was decided by the court. On the City’s appeal of the lower court’s issuance of the preliminary injunction, the Court of Appeal reversed the lower court’s decision and invalidated the preliminary injunction. In deciding that the injunction was improperly granted, the court based its decision on the 90-day statute of limitations contained in SMA Section 66499.37, which requires that any action challenging a legislative body’s decision concerning a subdivision must be filed with the court within 90 days of the effective date of the decision. As the plaintiffs filed their lawsuit five months after the effective date of the Ordinance, the court reasoned that plaintiffs’ claims were time barred.

Although the BMR Program dated back to 1979, because the Program was adopted under the authority of the SMA, and because the City adopted the Ordinance as an amendment to the Program, the court determined that SMA Section 66499.37 served to bar the plaintiffs’ claims challenging the Ordinance. While the court’s decision was technically limited to the preliminary injunction, and the case was sent back to the Superior Court for further proceedings, the Court of Appeal’s rationale may signal the ultimate resolution of the plaintiffs’ claims. If the lower court follows this rationale, the plaintiffs’ claims would be denied for failure to file the lawsuit before the 90-day deadline, irrespective of the merits of the plaintiffs’ underlying challenges to the Ordinance.

In applying the 90-day deadline in SMA Section 66499.37, rather than the various 2-5 year deadlines for claims urged by the plaintiffs under other state and federal laws, the court cited the California Supreme Court’s decision in Hensler v. City of Glendale ([1994] 8 Cal.4th 1) in stating that “any challenge to local legislative or administrative acts or decisions taken pursuant to ordinances enacted under the authority of the Subdivision Map Act [are subject to the 90-day statute of limitations in SMA Section 66499.37].” The court also noted the broad applicability of SMA Section 66499.37 to a variety of controversies, which may not seem to involve a subdivision subject to the SMA. (See e.g., McPherson v. City of Manhattan Beach (2000) 78 Cal.App.4th 1252, 1264-1265 [SMA Section 66499.37 applied to city’s grant of a conditional use permit allowing a developer of a condominium project to exceed city’s building height restriction]; Friends of Riverside’s Hills v. City of Riverside (2008) 168 Cal.App.4th 743, 754-756 [SMA Section 66499.37 applied to cause of action under California Environmental Quality Act that concerned a subdivision].

Given the court’s decision in Aiuto, and the broad applicability of SMA Section 66499.37 to a variety of controversies concerning land use and development even remotely related to the SMA, property owners and developers considering a challenge to a local legislative or administrative act or decision should carefully consider whether SMA Section 66499.37 will impose a 90-day statute of limitation on the filing of such a claim. Anyone considering such a challenge should seek legal advice to ensure compliance with any applicable deadlines.

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

 

Now that the demise of the San Francisco Redevelopment Agency is complete and transition plans are in place and gaining maturity, collateral issues are becoming the focus. The loss of the San Francisco Redevelopment Agency (“Agency”) jobs has caused concern and created friction during the transition. However, the single most attention-grabbing issue is the subtraction of the Agency as the catalyst and generator of subsidies for affordable housing in San Francisco.

For years, the Agency had been the most prolific creator and sponsor of affordable housing projects at all levels. Through the acquisition of land, earmarking the revenues generated by tax increment financing, and the creation of higher density opportunities through its Project Area Plans, the Agency had the tools and incentives to create affordable housing. All of the constituents including the Mayor’s Office, non-profit housing developers, market-rate housing developers, the Board of Supervisors, and others are in agreement that something should be done to fill in at least a part of the Agency’s affordable housing role.

Through the prompting of the Mayor’s Office, there have been a series of meetings of an informal working group known as the Housing Trust Fund Work Group. Although nothing has been decided and agreements are far from being reached (and there may never be agreement on this), many ideas have been floated to create a steady-and protected-revenue stream to fund affordable housing. Voters could be asked to weigh in on these ideas in upcoming ballot measures.

One proposal would simply create a funding set-aside out of existing revenues. Another proposal that seems to be gaining traction is establishing a Community Equity Increment Fund (“CEIF”). The CEIF would set aside a portion of the increased property tax revenue from the development of market-rate housing to fund new affordable housing construction. From that point, the discussions get dicey. In the initial years, the creation of tax increment, on its own, would raise small amounts of money, which would, over time, grow into a larger and relatively stable funding source. The Agency had been bonding tax increment income streams. This created additional up-front funding for affordable housing, but increases long-term debt obligations and financing costs. The talks within the Housing Trust Fund Work Group are varied. Many of the constituents would far prefer a “pay as you go” system simply using the actual dollars created. Others wish to use those funds for bonding purposes to produce more funding in the near term. As we understand it, the resolution is far from clear. A CEIF may or may not make it to the ballot, now, or possibly ever.

A related proposal that is gaining some interest has to do with the existing affordable housing requirements found at Sections 415 et. sec. of the Planning Code. Many of the participants in the talks are convincingly making the case that the existing affordable housing program is an impediment to creating market-rate housing because the cost of the inclusionary units or in-lieu fee requirements add a significant increment to the overall cost of housing production on the order of $50,000 to $70,000 a unit, depending on a variety of factors. There has been some discussion about reducing inclusionary requirements or continuing the inclusionary housing program but requiring that the Mayor’s Office of Housing use some of its CEIF to pay down the cost of those inclusionary units. Either approach could significantly boost the production of market-rate construction, and thereby increase revenue flowing to the CEIF and general fund. The outcome and probability of any agreement is again, unclear.

Finally, and by no means are we intending to be comprehensive in surveying the ideas that are being discussed, there has been some talk of an overall fee cap for new housing. As of now, in addition to the inclusionary housing requirements, depending on the location of the project within the City, there are school impact fees and PUC fees (which have gone up dramatically in the recent past). There is also talk of the imposition of a transit fee and an art fee on the production of housing. In addition, much of the proposed new housing is within relatively new and recently enacted “plan areas” which include their own infrastructure fees that can be in the range of $20 per square foot. Combined with the inclusionary housing mandate, total city fees clock in at $80,000 – $90,000 per unit in areas like Rincon Hill. Taken as a whole, those fees simply don’t pencil on many projects and create significant increased costs on those that get built. Unfortunately, some constituencies are resisting the very idea of a study that would comprehensively analyze the impact of all exactions on the feasibility of new housing production – a critical first step in determining whether a cap is needed, and, if so, at what level it would be set.

We will continue to monitor and try to provide at least the most important ideas being discussed in subsequent E-letters. Certainly if any agreements are reached, they will be well-publicized and will probably be on the ballot for electorate consideration.

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

 

Easements are valuable property rights in many real estate acquisitions. A recent case decided by the Court of Appeal could provide clarification on damages valuation for the loss of an easement. Generally, for the loss of an appurtenant easement, damages are measured by the diminution in value of the dominant estate. SCI California Funeral Services, Inc. v. Five Bridges Foundation involves a situation where a real property purchase transaction disintegrated and the court awarded damages to the buyer for the loss of an easement right associated with the property based on the value of removal of the easement to the servient estate. (2012 WL 447991 (Cal.App. 1 Dist.)).

In SCI California Funeral Services, Inc., SCI, as the buyer, entered into a contract to purchase cemetery property from Five Bridges predecessor, as seller. In the purchase contract, the property was defined as the current cemetery property, as well as seller’s rights under an option agreement to purchase additional parcels of an adjacent property and an easement right to signage on a nearby property, both owned by Cypress Abbey. Unbeknownst to SCI, Five Bridges had previously entered into an oral agreement with Cypress Abbey to release its rights to the signage easement in exchange for the right to drill a well within the area burdened by such easement. Cypress Abbey further believed that the option to purchase the additional land was contingent on the release of the easement rights. After the purchase transaction closed with Five Bridges, SCI tried to exercise its option to the additional parcels but Cypress Abbey was unwilling to honor the option unless and until SCI agreed to release the signage easement based on Cypress Abbey’s agreement with Five Bridges.

Since SCI had entered into the agreement specifically to exercise its option for the additional land, which Cypress Abbey was unwilling to honor without the easement release, SCI sued Five Bridges for breach of contract, in addition to other causes of action. The lower court held that Five Bridges had breached the purchase agreement by failing to convey the easement to SCI. Since the purchase agreement did not specify how the parties valued the easement, the lower court turned to alternate means of valuing what SCI lost as a result of the breach by Five Bridges. The lower court stated that SCI was entitled to the “benefit of performance” for the loss of the easement. In determining the value of the “benefit of performance”, the court specially considered the easement’s potential value to SCI as a bargaining chip in its negotiations with Cypress Abbey since Cypress Abbey would not honor the option agreement without SCI’s release of the easement. The lower court ultimately settled on a damage amount to SCI of $1.7 million and Five Bridges appealed this determination.

On appeal, Five Bridges argued that the proper valuation of damages for the loss of an appurtenant easement is the diminution in value to the property that has the easement right (the dominant estate). Because SCI introduced no evidence valuing the easement under this methodology, Five Bridges argued that SCI did not prove any damages. The Court of Appeal recognized that in certain types of easements, such as easements which involve the right to pass over the land of another, the proper valuation is the diminution in value to the dominant estate.

However, in those cases there is no market for an appurtenant easement because it may not be severed from the dominant estate and separately transferred from it. Here, the Court of Appeal reasoned that the easement was an asset that could be sold or traded to the property owner burdened by the easement (the servient estate). The Court of Appeal found the easement had a great impact on Cypress Abbey’s property value because it prevented them from using the underlying land for its highest and best use. The Court of Appeal further held that this easement was uniquely valuable as an asset in negotiating with Cypress Abbey concerning the option to purchase the additional land. Therefore, the Court of Appeal upheld the $1.7 million dollar valuation in damages, which was based on the difference in value between the servient property encumbered by the signage easement and the unencumbered servient property.

It is appears that in SCI California Funeral Services, Inc, provided they use a reasonable value of computation, California courts will value the loss of an easement right differently depending on whether the easement is marketable on its own separate and apart from the dominant estate. In this case the Court of Appeal valued the easement based on the worth to the servient estate due to the fact it had market value on its own, whereas in other situations, like a right of way easement which specifically serves the dominant estate, it may find the value based on the loss of value to the dominant estate. Buyers who are purchasing property should be aware of any accompanying easements and their potential valuation of damages if ever there was a loss of such property rights.

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

 

As we reported a number of months ago, changes are in the works for the Planning Code’s Downtown Artwork requirements. Over the last two decades, this program has been extremely successful in bringing public art to private developments downtown. As originally conceived, one percent (1%) of the construction cost of any new downtown building or significant addition was required to be spent on original commissioned artwork. This artwork was required to be publicly accessible, and can be seen throughout the downtown area in the various privately owned public open spaces (POPOS) and many publicly accessible downtown office lobbies. We believe that much of the success of this program was derived from its simplicity: it required developers to spend a significant yet easily determinable sum on brand new artwork and place it in their building for the benefit of the public. While the Planning Department produced a series of guidelines to ensure that the public got art, and not things like architectural features to buildings or fancy outdoor seating, the program has worked exceedingly well by simply letting the various property owners bring art to the public in a manner they chose.

Last year we reported on coming changes to the Art Program. These changes would have included adding a layer of review and approval by the City’s Art Commission. As we discussed last year, we did not see the need for Art Commission oversight in what was a clearly successful program. It was a case of “If it ain’t broke, don’t fix it”. The legislation also created an option where a developer could satisfy the art requirement by simply paying the required fee that would have been spent on onsite art to an Art Commission fund.

Sponsors of this ordinance have reconsidered and an amended ordinance is making its way through the process now. The requirement for Art Commission review of art installations required by the ordinance has been removed. The original option to comply by providing onsite public artwork remains. And the option of payment of an equivalent public art fee to an art trust fund will now also be available. The ordinance also extends the reach of the art requirement to non-residential projects in a variety of other zoning districts throughout the City, including many of the new Eastern Neighborhood zoning districts (such as UMU and MUO), as well as all of the new DTR districts and RC-3 and RC-4 districts (much of Van Ness Avenue is zoned RC-4). The expansion of the program to these other zoning districts will not take effect until January 1, 2013. The “trigger” will remain the construction of a new building or addition of floor area in excess of 25,000 square feet.

There are a number of other technical provisions that deal with various types of residential and non-residential projects. Please let us know if you’d like to see a copy of the ordinance.

We are happy to see that the core of the original ordinance will be retained allowing downtown developers to maintain control of their art installations. It will be interesting to see the effect of the program when it is spread to other zoning districts throughout the City and how much art will actually be created there, or whether smaller developers will choose to contribute to the art fund. Like the original ordinance, it will probably take a decade or more to see if it worked. Earlier the matter was as the Land Use Committee, and was continued to later in March. We will continue to track this legislation.

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.

 

 

 

Last week, the Planning Department presented to the Planning Commission its required Eastern Neighborhoods Monitoring Reports for the years 2006-2010. In receiving the Reports the Commission discussed several issues, the most significant of which was something many San Francisco land use practitioners have become increasingly aware of, that establishing businesses and creating jobs in the Production, Distribution and Repair (“PDR”) sector has proven difficult under the Eastern Neighborhoods zoning controls. It may already be time for the City to take a hard look at these controls to see what can be done to bring more PDR businesses and jobs to the Eastern Neighborhoods.

As many readers know, the Eastern Neighborhoods Program was adopted in late 2008 and early 2009. Part of the implementing legislation requires the Department to produce five-year monitoring plans, with the first one looking back to 2006 in order to get a sense of the initial transition to the new zoning controls.

The Eastern Neighborhoods Program consists of area plans covering four neighborhoods: Central Waterfront, East SoMa, Mission, and Showplace Square/Potrero Hill. The basic thrust of the Eastern Neighborhoods Program was to transition about half of the existing industrial areas in these four neighborhoods to mixed use zones that encourage new housing. The remaining half would be reserved for PDR districts.

The Eastern Neighborhoods Program recognized that PDR activities, occurring largely in the Eastern Neighborhoods part of the City, provide critical support to the drivers of San Francisco’s economy, including the tourist industry, high tech industry and financial and legal services, to name a few. PDR businesses tend to provide stable and well-paying jobs for the 50% of San Francisco residents who do not have a college degree.

Given the importance of PDR to the Eastern Neighborhoods Program, the Planning Commission expressed its concern in receiving the first Monitoring Reports that San Francisco is not getting enough PDR in the Eastern Neighborhoods. The Reports showed the following:

• New Development and PDR Loss: Approximately 118,550 square feet of new PDR space was built in the Eastern Neighborhoods between 2006 and 2010. This represents over half of new PDR space built in the last five years. However, commercial development projects in the pipeline will result in the loss of approximately 325,300 square feet of PDR space in the Eastern Neighborhoods, representing two-thirds of all PDR space loss citywide.

• Development Pipeline: The Eastern Neighborhoods will be a small contributor to new commercial development in San Francisco with just over 1% of proposed commercial development square footage in the Eastern Neighborhoods. The major addition to the San Francisco General Hospital – just under 548,800 square feet – makes up the bulk of commercial projects under construction in the Eastern Neighborhoods. Construction of new commercial space is being offset by conversion or demolition of existing commercial space, mostly in the light industrial PDR sector.

• New Commercial Construction: New commercial development built in the Eastern Neighborhoods between 2006 and 2010 can support approximately 2,670 retail and office jobs. An additional 128 light industrial PDR jobs are expected to be accommodated in the new PDR space built.

• Commercial Pipeline: Assuming an average employee density of 350 square feet, an estimated 1,670 office and retail jobs can be accommodated in the proposed commercial development pipeline in the Eastern Neighborhoods. Proposed conversion of light industrial PDR space to residential or other commercial space, however, could mean the loss of about 680 PDR jobs.

The Commission and members of the public discussed a variety of possible solutions to the PDR problem, the common denominator of which was to increase flexibility in the PDR controls. One specific suggestion was an easing of the square footage controls for Small Enterprise Workspaces (SEW). Another suggestion was to ease the limitations on Integrated PDR. Yet another suggestion was to loosen the definition of what qualifies as PDR.

Concerns were raised about “moving too fast” on changes to zoning controls in the Eastern Neighborhoods. It is our hope that the City will keep an open mind about these issues and take needed action sooner rather than later, particularly considering San Francisco’s immediate economic needs. If the City were to show flexibility with PDR, there are plenty of worthy projects out there that could and would happen to the great benefit of the Eastern Neighborhoods and the City as a whole.

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, 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.

Copyright 2012 Reuben & Junius, LLP. All rights reserved.