New Guidelines for In-Kind Agreements to be Considered by Planning Commission

As many readers are already aware of, over the past few years the city has begun to identify specific areas for neighborhood-based rezoning. These efforts have led to the Rincon Hill, Market/Octavia and Eastern Neighborhoods plans, to name a few. These plans impose an impact fee on all new development located within their boundaries. When subject to an impact fee, the Planning Code provides project sponsors the option of waiving the fee if an “in-kind” infrastructural improvement is provided in conjunction with a project. Examples of such in-kind improvements include new parks, child care centers or streetscape improvements. At today’s meeting, the Planning Commission will consider a new policy that will provide the Planning Department and the public guidance on how to pursue an in-kind agreement. The policy was developed by the Planning Department with consultation from area plan Citizens Advisory Committees (CAC).

In general, the new guidelines ensure that all relevant parties have a chance to weigh in on a proposed in-kind improvement. The policy requires early notification and consultation with the plan area CAC as well as review by relevant city agencies before a proposed in-kind agreement is considered by the Planning Commission (which must ultimately approve any such agreement). The policy emphasizes (but does not require) that a proposed in-kind agreement should be endorsed by the local CAC. Many CACs will have prepared a list of community improvements that they have prioritized to give project sponsors an idea of what they would like to have built. The Planning Department will also review the proposed in-kind improvement to ensure its value covers the cost of the waived impact fee and to make sure there is a plan in place to maintain the improvement. An important note: if this policy is put in place, project sponsors will be required to complete the in-kind improvement before the first certificate of occupancy is approved for the principal project. Let us know if you would like a copy of the policy.

And Then There Were 4…Big San Francisco Bookstores

Regular readers will remember that we published an update in July discussing the future of big bookstores in San Francisco. We observed that while these large retailers were struggling throughout the Bay Area and nationwide, San Francisco’s stores appeared to be weathering the storm. Well less than two months later we’ve found the need to update that assessment. First reported on August 24 by the blog www.livesoma.com, the Borders bookstore at 200 King Street has posted store closing sale signs in its windows and will finally shut down on Saturday, October 16. So much for our observation that the store appeared to be humming along, and so much for San Francisco avoiding the bookstore closure wave. What could possibly fill this soon to be vacant space?

Community Involvement

Our managing partner Kevin Rose serves on the Solo and Small Firm Committee of the Bar Association of San Francisco. This committee is sponsoring a CLE event titled “Strategies for Launching and Running a Small Law Firm.” This seminar will be held on Saturday, October 23, and is targeted at lawyers looking to start their own practice, or as a refresher for newer firms or attorneys that have recently hung their own shingle. Please contact Kevin for more information.

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 leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Copyright 2010 Reuben & Junius, LLP. All rights reserved.

 

 

Transferable of Development Rights (TDR) Changes in the Works

Next Monday, the Board of Supervisors Land Use and Economic Development Committee will hold a hearing on a proposed ordinance that would make some substantial changes to the way TDR sales are treated.

TDRs were created when the Downtown Plan was enacted in 1985. A survey done in conjunction with the plan rated buildings in the downtown area from I to V, based on their historic importance. Buildings rated “significant” or “contributory” had significant development restrictions placed on them. In exchange, owners of these properties were granted TDRs, measured in the number of square feet of developable space that the Planning Code permitted minus the amount of actual improvements on that lot. TDR could be sold to other downtown property owners to increase the amount of space that can be developed on the buyer’s development site. In the 25 years since the TDR program was created, hundreds of thousands of square feet of development rights have been traded downtown, and there are few large blocks left. During the last big development cycle, there was a concern that the shrinking supply of TDR would begin to limit downtown development.

The proposed changes, an outgrowth of an attempt to help finance the continuing seismic retrofitting of Old Saint Mary’s Church, would do the following:

1. Currently, the transfer of TDR between lots is limited depending on the type of C-3 zoning district the transferring lot and receiving lot are located in. The proposed ordinance would allow the transfer of TDR between any two lots located in any C-3 districts if the transferring lot is also a designated an individual landmark (i.e. the landmark must be downtown) and the receiving lot is not within a Redevelopment Agency project area. There remain 24 landmarks in C-3 districts that have yet to sell TDR, so this would broaden the group of buyers for these TDR. The Planning Department has indicated it is limiting this loosening of TDR sale rules to individual landmarks in order to study the effects of such a change. If successful, further loosening of the rules for significant or contributory buildings could be proposed.

2. The proposed ordinance would require that the net proceeds of any TDR sale after July 1, 2010 “first be used to pay for or finance the preservation, rehabilitation, and ongoing maintenance of the building” on the transferring lot, as well as to correct any outstanding notices of violation issued by the Department of Building Inspection. There are only limited examples of what this work could entail provided in the ordinance, such as seismic retrofitting and improving access for the disabled. Guidance on exactly what type of maintenance and repair would be required in these situations would be prepared by the Planning Department in the event the proposed ordinance passes. The intent of this provision is to require owners of transferring lots to bring the existing building into working condition.

This legislation gives a little, and takes a lot. On the one hand, some downtown landmark buildings are getting some benefit here, as it should be easier for them to sell their TDR. But on the other hand, every TDR transfer going forward (whether a landmark building or not) will be required to spend some of the money generated by the sale on the historic building. That second bit is a major policy change, is not necessary, and will be an incredible headache for both the property owners and the Planning Department to administer.

The Planning Commission and Historic Preservation Commission have both approved the proposed ordinance, which now requires Board of Supervisors’ approval as it is an amendment of the Planning Code. We’ll keep you posted on the status of the legislation. To see a copy for yourself, visit:

“http://sf-planning.org/ftp/files/Commission/CPCPackets/2009.1180TZM_v2.pdf”

And Then There Were Five…

You may have missed it while on your August vacation, but two Planning Commissioners’ terms have expired and there are now only five sitting members of the Commission.

Commissioners Bill Lee and Gwyneth Borden terms expired on July 1, but the City Charter allows a member to continue to occupy their seat for 60 days if no replacement or reappointment has been made. That 60 days ran at the end of August. As of today, the Mayor has reappointed Commissioner Borden. Since the reappointment must go through the Board of Supervisors Rules Committee and then be approved by the full Board, the earliest Planning Commission hearing she could sit at would be on October 7. No reappointment or new appointment has been made for Commissioner Lee’s seat, meaning it may sit vacant for some time.

This diminished Planning Commission can have serious effects. Fewer Commissioners mean less diversity of voices that consider and discuss the projects that come before the Commission. And of course, a project typically must receive at least 4 votes to be approved, regardless of the number of sitting Commissioners. With only 5 members on the Commission, a supermajority must vote in favor of any project, large or small, to be approved.

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 leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Copyright 2010 Reuben & Junius, LLP. All rights reserved.

 

 

 

 

Mayor Gavin Newsom and Supervisor Bevan Dufty recently proposed an energy efficiency ordinance which would impact “nonresidential” buildings in San Francisco. While the City has already established high environmental performance standards for new construction, it has yet to do the same for existing buildings. According to the ordinance, building energy use accounts for 63% of the City’s carbon dioxide emissions. The ordinance purports to reduce citywide carbon dioxide emissions by more than 70,800 tons within the first five years after its adoption while also providing the private sector with a net present value exceeding $600 million dollars. Most significantly, the proposed ordinance would require nonresidential building owners to: (1) Prepare energy efficiency audits once every five years, and (2) Measure and disclose their buildings’ energy performance each year.

Energy Efficiency Audit

The energy efficiency audit would require owners of nonresidential buildings with gross areas of 5,000 square feet or greater to conduct a comprehensive energy efficiency audit for each building once every five years. These audits would be performed by, or under the supervision of, an energy professional, which is defined under the ordinance and includes some building engineers. Building owners would then file a confirmation of the energy efficiency audits with the San Francisco Department of the Environment (the “Department”). Building owners would also be required to submit a summary of which measures they have implemented and the sum of estimated energy costs and savings. The Department would make this information available to the public. Buildings constructed within the last five years, buildings that have received the US Energy Protection Agency’s Energy Star Label, and Leadership in Energy and Environmental Design (“LEED”) certified buildings are exempted from this requirement. The specific compliance dates will be specified by the Department of the Environment on a rolling basis over five years.

Annual Reporting of Energy Use

The annual reporting provision would mandate that owners of nonresidential buildings with a gross area of 5,000 square feet or greater use the U.S. Energy Protection Agency’s Energy Star Portfolio Manager to track the building’s total energy use for each 12 month period and obtain an Energy Star Portfolio Manager Energy Performance Rating (“Annual Energy Benchmark Summary”). This Annual Energy Benchmark Summary must be provided to all tenants occupying buildings affected by the ordinance. Depending on the square footage of a building, with the larger buildings prioritized, the initial submission date of the Annual Energy Benchmark Summary to the Department would be on April 1 of either 2011, 2012 or 2013, and then submitted annually every year thereafter. For example, buildings with a gross square footage of over 50,000 square feet would be required to initially submit an Annual Energy Benchmark Summary by April 1, 2011.

Extensions of up to one year for filing the Annual Energy Benchmark Summary could be granted depending on whether the building is financially distressed, or if a building owner owns three or more buildings with due dates that fall within the same 12 month period.

Confidentiality Protection

When building owners inform the Department in writing at the time of submission that the information submitted is the confidential business information of the building owner, the Department will keep confidential any submitted information based on the existing legal definitions of “trade secrets”. Moreover, lists of cost-effective energy efficiency measures and estimated costs and benefits for individual buildings shall be presumed confidential.

Enforcement

In the event a building owner fails to file the required information for 30 or more days after the deadline, the Director of the Department (the “Director”) would indicate that building’s non-compliance status on line. If 45 days passes after the issuance of a written warning from the Director for a violation of any provision of the ordinance, the Director may impose administrative fines of up to $500 for each violation.

In addition to the proposed ordinance, Assembly Bill 1103, signed by Governor Schwarzenegger in 2007, also imposes energy tracking and disclosure requirements on nonresidential buildings at the state level. The bill requires electric and gas utilities to maintain records of energy consumption of nonresidential buildings as of January 1, 2009, and once they have received the affected building owner’s approval, to upload such findings to the U.S. Environmental Protection Agency’s Energy Star Portfolio Manager. In addition, nonresidential building owners or operators must disclose their building’s Energy Star Portfolio Manager benchmarking data and ratings for the most recent 12 month period to any prospective buyer, tenant, or lender. However, a recent Assembly Bill passed in 2009, AB 531, delayed the initial start date for these disclosure obligations (which was January 1, 2010) until the California Energy Commission has the opportunity to develop an implementation schedule.

Although well intended, the proposed San Francisco ordinance would impose greater tracking and reporting responsibilities on building owners, which would further increase the cost of doing business in San Francisco. Building owners should prepare themselves for these new requirements.

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 leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Copyright 2010 Reuben & Junius, LLP. All rights reserved.

 

Real Estate Tax Appeal Deadline is September 15, 2010

Owners whose property values have declined as of January 1, 2010 are eligible to file a “decline in value” appeal with the San Francisco Assessment Appeals Board for the 2010-2011 tax year. If successful, the property tax bill would be retroactively reduced, and the taxpayer would receive a refund of any excess taxes that were paid. These appeals must be submitted or postmarked by September 15, 2010 and include the necessary filing fee. Please note that filing an appeal will not excuse the obligation to pay real estate taxes when due. If you would like more information about this process, or if you would like Reuben & Junius to file your appeal, please contact Kevin Rose.

Proposed Ordinance Would Exempt Student Housing from City Affordable Housing Program

Earlier this week, Supervisor Dufty introduced a new ordinance that would exempt new student housing projects from the City’s affordable housing program. Currently, virtually all new housing projects with five or more units are subject to an affordable housing fee, with the option of providing on-site or off-site affordable units in certain situations. This would appear counter-intuitive when applied to student housing, since housing provided by colleges and universities to students is normally considered “affordable housing,” when compared to market-rate rents. The justification for placing an affordable housing exaction on student housing is much weaker than for market-rate housing.

The ordinance makes a relatively simple amendment to the affordable housing program. If passed, it would exempt from the program new housing provided by an accredited post-secondary institution, where at least 30% of students living at the housing project receive need-based financial aid. We’ll keep you posted on this as it makes its way through the legislative process.

Fee Deferral Program May Be Expanded to Apply to Earlier-Approved Projects

Last week, the Mayor introduced an ordinance that would make minor tweaks to the fee deferral ordinance. Importantly, one change would affirm that projects approved before the effective date of the fee deferral program, July 1 of this year, are eligible to take advantage of the program, even if the conditions of approval for the project required payment of all development fees prior to the issuance of a building or site permit. All projects, whether approved before or after July 1, need stimulative help right now, and this change ensures a broad pool of projects will be eligible for the fee deferral program.

In addition, the ordinance would expressly exclude from the program those projects that have already pulled a building or site permit, which ultimately expired, and obtained a refund of fees.

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 leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Copyright 2010 Reuben & Junius, LLP. All rights reserved.

 

 

You could say our real problem is that we have it too good in the Bay Area. Our lifestyle, weather, geography and environment have made it so desirable to live here that the mere number of people hampers our ability to move about in cars during peak driving times. Currently, one million daily trips are made into the downtown, SoMa and Civic Center areas of San Francisco, half of which are by car. As a result, 60% of surface streets in downtown have average car speeds of less than 10 miles per hour during peak times. Traffic is manageable at best right now, but with 150,000 more residents and 230,000 more jobs expected in the city in the next 25 years, serious planning will be needed to avoid total gridlock. To see an extreme example of what happens when cities don’t plan for future traffic growth, see this recent New Yorker article and accompanying video on traffic in Moscow, where bread lines have been replaced by traffic lines: “http://mytinyurl.com/tf27fvyckg”.

Congestion and traffic is a growing threat to cities and communities throughout the country. As of 2005, the Federal Highway Administration calculates that roughly 2.9 billion gallons of fuel are wasted and 4.2 billion hours of time is lost by American commuters each year due to congestion and traffic. As a result, the FHWA has been dangling millions in study grants and hundreds of millions in implementation dollars to cities throughout the country, enticing them to implement strategies to reduce congestion. The most publicized of these strategies is called “congestion pricing.” Simply put, congestion pricing charges cars and trucks a fee for crossing into a heavily trafficked business district of a city during peak drive hours. Normally, the charge is collected through an automatic and electronic system similar to FasTrak. Instead of attacking traffic on the supply side, by constructing new lanes and roads, congestion pricing attempts to alter the demand side of traffic, by reducing the number of vehicles driven.

Successes Abroad, an Attempt at Home

While congestion pricing isn’t new (it was first established in Singapore in 1975), it has been gaining momentum over the first decade of the century. Probably the most well-known example is London, which in 2003 established a congestion pricing system that charged drivers $16 a day to enter into a central city zone. The program resulted in a decrease in travel delays of 30%, an increase of average automobile speed from 5 to 10 miles per hour and reduced CO2 emissions by 16% without significant displacement of traffic onto local roads outside the central zone.

Another recent example comes from Stockholm, where drivers are charged between $1.50 to $3 to cross into or out of the City Center zone. This has reduced Stockholm’s traffic by 22% and reduced CO2 emissions by 10%. While business owners within City Center feared the effect of the congestion program on their bottom lines, studies have shown that sales at businesses within the zone actually increased by 5% since the program’s enactment.

In 2008, the City of New York came very close to enacting a congestion pricing program proposed by Mayor Bloomberg in Manhattan south of 60th Street. Cars would have been charged $8 and trucks $21 to enter into this zone during weekdays from 6 a.m. to 6 p.m. With the support of numerous business, environmental, labor and public health organizations (and the majority of votes in favor coming from the other boroughs) New York’s City Council passed the measure. The New York State Legislature, however, failed to even bring it up for a vote, thereby killing the measure due to lost federal funding.

A Future in San Francisco?

The federal government has awarded San Francisco’s transportation authority a grant of $1 million to study the feasibility of a congestion pricing program in the city. The study is nearing completion and several public workshops have been held this summer leading up to the planned publication of the final study this fall. Preliminary study results have been provided at these workshops. Specifically, the study suggests a “cordon” zone that is bounded by Laguna Street, 18th Street and the Bay to the north and the east. A smaller zone more narrowly focused on the Central Business District is also put forward in the study. Crossing into or out of the zone during the hours of 6 a.m. to 9 a.m. and 3 p.m. to 7 p.m. would cost drivers $3, with a maximum of $6 a day. Certain exemptions and reductions for emergency vehicles, low-income and disabled drivers, and cordon zone residents would apply. In the cordon zone, the city expects the program to reduce automobile trips by 12%, reduce total delay times by 21%, reduce CO2 emissions by 16%, reduce collisions by 12%, increase the ride/bike share of transportation by 5% and increase the public transit share of transportation by 7%. Fees are estimated to total up to $80 million a year, which would be used to fund traffic improvements and upgrade public transportation. Several limited pilot programs are also promoted as ways to test the program before fully implementing it.

Will congestion pricing work, or is it needed, in San Francisco? While the vastly-larger London is not a good comparison, Stockholm has roughly the same population as San Francisco. However, peak drive time commuters already pay a $6 toll to cross the Bay Bridge and a $5 toll to cross the others, and pay up to $30 a day to park downtown. Will a congestion pricing program that charges $6 a day to commuters that enter and leave the downtown area during peak times really discourage drivers that are paying up to $36 a day to drive there already?

Congestion pricing won’t be established in San Francisco overnight. Approval by the Board of Supervisors and the state of California and local and federal environmental clearance will be necessary before the program takes effect. To learn more, go to the San Francisco County Transportation Authority’s website at “http://www.sfcta.org/content/view/302/148”.

REMINDER: Grandfathering Deadline Approaching for Projects in the Eastern Neighborhoods

The Eastern Neighborhoods area plan established new zoning, fees and affordable housing requirements applicable to future development projects. Some projects that submitted an application prior to the enactment of the EN plan are eligible to be “grandfathered” out of some of these new requirements. You can see if your project is grandfathered by referring to this helpful chart: “http://www.sf-planning.org/Modules/ShowDocument.aspx?documentid=1431”.

These grandfathering provisions don’t last forever. Grandfathered projects must obtain Planning Commission or Department approval by January 19, 2011. For projects that require Planning Commission or Zoning Administrator approval, such approval must be obtained by this date. For projects only requiring a building permit, the building permit must be signed off by Planning staff by this date (Section 311/312 notice must occur before then as well). If approval is not obtained before this date, the grandfathered status is lost, and all current zoning regulations, increased affordable housing requirements and the EN impact fee will apply.

Once Planning Commission or Department approval is obtained, building permits must be obtained for the project within three years of the approval.

Due to the length of time to obtain entitlements in San Francisco, we recommend all project sponsors of grandfathered projects that wish to take advantage of that status to pursue entitlements now. For more information, contact John Kevlin.

Planning Department Extends Applicable Date of Increased Planning Fees by Three Weeks

We reported to you last week that the annual increase in Planning Department fees would go into effect on August 9. Since then, the Planning Department has moved that date three weeks until August 30. You can view the new fee schedule here: “http://mytinyurl.com/wj4qw59dc5”.

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 leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Copyright 2010 Reuben & Junius, LLP. All rights reserved.

 

 

Ballot Measure to Tax Commercial Property Doesn’t Make the Cut – But Two Tax Measures Head to Voters

With the 2011 budget hole plugged, the Board of Supervisors already have an eye on next year’s inevitable budget deficit. The Board contemplated sending three new tax measures to the ballot this November. One measure, pushed by Supervisor Chiu, would have established a progressive payroll expense tax (thereby reducing the tax some employers would pay) in conjunction with imposing a gross receipts tax on the rental of commercial real estate. Another measure, pushed by Supervisor Mirkarimi, would have increased the tax on commercial parking garages to 35% and imposed a new tax on valet parking services. Finally, an increase of the real property transfer tax on sales of property valued at $5 million or more – specifically, the tax on sales of property valued at $5 million to $10 million would increase from 1.5% to 2% and the tax on sales of property valued at greater than $10 million would increase from 1.5% to 2.5%.

Likely recognizing that a full slate of new tax measures may doom each individual one, the Supervisors agreed to send only the transfer tax increase to voters in November. In addition, enough signatures were gathered to place the Hotel Fairness Initiative on the ballot this November, which would increase the hotel tax for tourists by 2%. Both measures are expected to bring in upwards of $36 million each into city coffers.

New Planning Fees Go Into Effect August 9 – With Increases Across the Board

The Planning Department has issued its 2010-2011 fee schedule that will go into effect August 9. As is expected, all fees have been increased modestly. One new fee stands out, though: A Class 32 categorical exemption from CEQA is now subject to a separate sliding scale fee. The previous fee was a $5,444 fixed fee. It will now be at least $10,375, and likely much higher, as it will be based on construction cost of the project. You can find the new fee schedule here: “http://mytinyurl.com/5681rgz3sp”

First Fee Deferral Monthly Surcharge Rate Released

This week, the Department of Building Inspection released the first monthly surcharge rate for the fee deferral program. The July rate is 1.84%.

In other fee deferral news, both the Public Utilities Commission and the San Francisco Unified School District have yet to agree to make the development fees they charge eligible for the fee deferral program. The PUC is expected to take this up at its next meeting, but there’s no word yet when the School District may consider the issue. Project sponsors will not be able to defer the fees charged by these two entities until they agree to participate in the program. We’ll keep you posted.

Zoning Administrator Position Posted; Planning Commission Seats Will Soon Be Vacant

Earlier this month, the city’s Department of Human Resources posted the job opening for the Planning Department’s Zoning Administrator position. Scott Sanchez is the interim Zoning Administrator. The “ZA” is a Charter position whose responsibilities include interpreting the Planning Code, advising the Planning Director and Planning Commission, managing the code enforcement unit, conducting variance hearings, among other things. Applications are being accepted through August 6. If you are curious, check out the job listing at “http://mytinyurl.com/k28q58xxy8.”

Planning Commissioners Bill Lee and Gwyneth Borden’s terms recently expired.  The Mayor has yet to nominate Lee or Borden or anyone else for these two important Commission seats.  As a result, on September 1, these seats will be vacant, and the Commission will be operating with just five Commissioners.

SoMa Leadership Council Goes on Hiatus

Last week, Jim Meko, chair of the SoMa Leadership Council, announced that the group would be going on hiatus, citing a lack of participation in its management. The Council was integral in the formation of the Western SoMa Citizens Planning Task Force, a city body that is guiding and consulting the planning initiative that will ultimately result in the rezoning of the West SoMa neighborhood. While the task force continues on without the Council, it is unclear what effects this development will have on the planning initiative. The Environmental Impact Report covering the rezoning is expected to be published early in 2011.

And Finally, a Race to Be Green

How quickly can buildings go green? That is the question the US Environmental Protection Agency was trying to solve when it established a green building “race” last year. The EPA estimates that, on average, 30 percent of the energy used in commercial buildings is wasted – a great motivator to the “racers.” Office buildings, dormitories, elementary schools, hotels, retail buildings, convention centers, airports, malls and other buildings originally applied to the contest, believing they could reduce their energy use intensity the most in one year. EUI of a building is calculated by dividing the total energy consumed by the building in one year by its floorspace. A pool of 200 applicants was recently whittled down to 14 finalists. Unfortunately, none are located in San Francisco or the Bay Area. San Francisco International Airport was one of the original applicants.

Final results will be announced October 26. You can read more and follow each finalist here: ” http://mytinyurl.com/fqp94ycm2d”

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 leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Copyright 2010 Reuben & Junius, LLP. All rights reserved.

 

 

Don’t look now, but the newspaper might not be your only reading source that is fighting for its life against new technology. Amazon.com reports that, in the past three month period, it has sold more e-books than print books – 143 e-books for every 100 print copies. While this has huge implications for the publishing industry, the tech industry, and the literary industry, it also affects real estate and land use decisions. As demand for physical books declines, some believe that large book retailers like Barnes & Noble and Borders could soon be vacating an enormous retail space near you, leaving a difficult-to-fill retail hole.

Stories of Barnes & Noble’s and Border’s jump into the e-reader market, and the battle between Barnes &Noble’s Nook, Borders’ Kobo, Amazon’s Kindle, Sony’s E-Reader and the IPad for dominance of that market further illustrate the evolution of the publishing industry towards a digital future. Add to that a digital transformation of these large booksellers’ other major sales item – music – and you have a recipe for brick and mortar bookstore troubles.

Some are already discussing what developments to expect in the near future. In their July 9, 2010 SCT Week on-line newsletter, The International Council of Shopping Centers (ICSC) wrote that many of these large stores – averaging about 25,000 square feet and maxing out around 60,000 square feet – will soon shrink or shut down. These are some of the largest and most unique retail spaces around and may be difficult to re-lease. The report suggests that many of these spaces will be forced to divide into 5,000 to 10,000 square foot segments. All is not lost yet, notes the author, citing the fact that bookstore chains still make up 27 percent of the book market, compared to the 20 percent online share of the market.

The North Bay Business Journal has reported on the creative uses that are beginning to fill the vacant big box stores in Sonoma, Marin and Napa counties. Examples of adaptive uses include indoor cart racing in an old Linens ‘n’ Things, an ethnic grocer in an old Circuit City, a Trader Joe’s in an old Barnes & Noble. Some creative short-term uses have been employed, like a short term car dealership lot, but many aren’t worth the hassle of preparing the space, getting special insurance, and cleaning up that go along with them. You can find the article at: “http://mytinyurl.com/mmpccwtyzv.”

Big booksellers in San Francisco appear to be weathering the storm so far. Currently, there are four Borders and one Barnes & Noble in the City. Three are in downtown/SoMa, one is in Fisherman’s Wharf and one is at the Stonestown Galleria Mall. To date, they continue in business with no obvious signs of being negatively affected by the e-reader explosion. In fact, the Borders at the Westfield San Francisco Centre on Market Street opened just back in 2006.

Oakland, however, has not been so lucky. The Barnes &Noble in Jack London Square closed this past January, leaving a gaping whole in a neighborhood that appeared to be making a comeback. What’s happening with the space now? An “art salon” there a couple of weeks ago featured various still and moving image exhibits and a rock band made up of three girls that couldn’t have been older than 16 years old. A creative idea, but clearly not the highest and best use of the space. However, the Oakland Tribune’s Tammerlin Drummond has reported that there are rumors a Trader Joe’s could be moving into the space – one of the few retailers that could use a retail space that size. White knight tenants like this, though, can’t be expected to plug all of these holes.

Back in San Francisco, it doesn’t seem likely that any new big bookstores will be built any time soon. The fragile retail market and the burdened of the City’s conditional use requirement for chain stores in most parts of the City means new stores are unlikely, even in vacant spaces.

Hopefully San Francisco will be able to avoid a loss of any of its big box bookstores. Anyone who has been to the Borders by the ballpark recently would have no reason to think these businesses might be in trouble. However, as Amazon.com’s news reminds us, the bookstore market is anything but predictable right now. One thing is for sure: if one of these bookstores does go out of business, filling the space will take some creativity.

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 leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Copyright 2010 Reuben & Junius, LLP. All rights reserved.

 

 

As we recently reported (6/17/10 update: “Landmark New CEQA Guidelines For Greenhouse Gas and Particulate Matter”) the Bay Area Air Quality Management District (“BAAQMD”) adopted new CEQA Guidelines (“Guidelines”) at the beginning of June. By lowering the threshold of significance for air quality impacts, especially on construction-related emissions, the Guidelines and related regulations will significantly increase the burden of CEQA compliance on many San Francisco projects. Even relatively small projects will have to complete expensive air quality analyses and health risk assessments related to construction. Depending on the results, many would have to prepare Negative Declarations or EIRs simply to analyze these construction-related emissions.

Our previous update gave an overview of the BAAQMD Guidelines, including new standards for operational emissions of greenhouse gases emissions and toxic air contaminants. This week, we specifically focus on the Guidelines’ treatment of construction-related emissions and the implications for new development in San Francisco.

Overview

The Guidelines establish new and lower thresholds of significance for toxic air contaminants (TACs), a category which includes fine particulate matter (PM2.5), diesel particulate matter (DPM), and a number of other criteria pollutants that have deleterious effects on human health. The thresholds apply to all potential pollution sources associated with a project, including pollution generated by construction delivery vehicles and equipment used on site.

Impact Thresholds

For individual projects, construction activities cause a significant impact requiring preparation of an EIR or Negative Declaration where TAC emissions are expected to exceed threshold amounts (air quality impact) or where emissions create a risk to human health (health risk impact). Air quality impacts occur where emissions of ROGs (reactive organic gases), NOX (nitrogen oxide), or PM10 (fine particulate with a diameter of 2.5 micrometers or less) are expected to exceed 54 pounds per day, or where PM10 (respirable particulate matter with a diameter of 10 micrometers or less). Health risk impacts occur where a project is expected to cause (a) an excess cancer risk level of more than 10 in one million, (b) a non-cancer hazard index greater than 1.0; or (c) an incremental increase of more than 0.3 micrograms per cubic meter of annual average PM2.5.

Evaluating Impacts

The Guidelines call for a two-step process to evaluate both air quality and health risk impacts. First, a project is compared to BAAQMD’s screening criteria. The screening criteria provide a quick and standardized method for determining whether a project could have a significant environmental impact due to construction air quality.

In order for air quality impacts to be treated as less than significant under the screening criteria, projects must:

• Be under a certain size, which varies according to the type of project. In general, commercial projects cannot be larger than 277,000 sq. ft. and residential projects must contain 240 or fewer dwelling units.

• Not involve demolition, “extensive” material transport or site preparation, or simultaneous occurrence of more than two construction phases (e.g. paving and building construction) would not meet the screening criteria.

• With the exception of high-density infill development, not include simultaneous construction of more than one land use type.

In addition, projects must comply with BAAQMD’s “Basic Construction Mitigation Measures”, which largely duplicate existing laws restricting idling vehicles and mandating dust control measures.

To meet the screening criteria for health risk impacts, projects must be a certain distance from “sensitive receptors.” Sensitive receptors include residential units, schools and other facilities used by persons especially sensitive to pollution, like children, the elderly and people with illnesses. The minimum distance varies according the type of project and size of the site. However, even the smallest residential project must be at least 311 feet from the nearest sensitive receptor to meet the screening criteria. Small commercial and industrial projects must be at least 328 feet away from sensitive receptors.

Projects meeting the above screening criteria have a less than significant impact and do not require a detailed air quality or health impact assessment. Unfortunately, the screening criteria are conservative and penalize development in dense, mixed-use settings like San Francisco. Many infill projects involve demolition of existing buildings and there are relatively few development sites in San Francisco that are less than 300 feet from a residence, school, medical facility or other “sensitive receptor.” Thus, many projects will now be required to conduct an air quality analysis and health risk assessment.

A project-specific air quality analysis and health risk assessment is an opportunity-albeit an expensive one-to more accurately estimate a project’s impacts. It can be conducted in one of two ways. It can use generic assumptions about construction emissions based on the type of project proposed. However, many of these assumptions are based on suburban development models and do not account for the lesser impacts of infill projects. Alternatively, if more detailed information can be provided by a project sponsor or contractor, the analysis can more accurately compare project-specific impacts to the significance thresholds.

Experience with the new Guidelines is limited. However, it is our understanding that many mid-sized projects will exceed the significance criteria if default assumptions are used in the air quality analysis and health risk assessment. For these projects, the ability to provide detailed information about construction plans and equipment may be critical to avoiding overstating environmental impacts and needlessly preparing EIRs. For other projects, it may be possible to mitigate impacts by committing to the use of state-of-the-art construction equipment that meets or exceeds the latest air quality standards. In either case, it will be key to have early input from a contractor about construction plans or the cost and feasibility of mitigation-an option that may not be available to all sponsors.

Is Relief on the Way?

During the comment period on the Guidelines, several governmental agencies-including the San Francisco and Oakland Planning Departments and the Association of Bay Area Government-raised concerns that the new rules could stifle infill development by adding new cost and complexity to the CEQA process. In San Francisco, the new regulations could undermine efforts to expand the use of Community Plan Exemptions for projects in areas like the Eastern Neighborhoods and Market-Octavia Plan Areas, where extensive plan-level environmental review has been completed. The Planning Department has continued to lobby BAAQMD for sensible changes to the Guidelines that would more accurately account for the lower impact profile of infill projects.

BAAQMD has responded to these efforts by stating that it intends to update its screening criteria methodology for health risk assessments. It has also given a grant to the San Francisco Department of Public Health (“DPH”) to assist it in developing a Community Risk Reduction Plan (“CRRP”). A CRRP would establish generally applicable measures to reduce emissions and associated health risks. Projects complying with a CRRP would not require an EIR or Negative Declaration to address air quality or health risk impacts. However, preparing a CRRP will not be a quick process, as it will itself require environmental analysis and consultations between BAAQMD, DPH and the Planning Department. In the meantime, developers in San Francisco will face yet another expensive hurdle.

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 leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Copyright 2010 Reuben & Junius, LLP. All rights reserved.

 

 

 

 

 

Fee Deferral Program Implementation Begins

At long last, the fee deferral program became effective on July 1, giving project sponsors a new tool to kick start projects and vastly reshaping the way fees are collected in the city. As is to be expected, we will be learning the details about how the new program will be implemented over the next few weeks.

First up, the Department of Building Inspection has posted a new city-wide fee register, listing all current development fees from all relevant agencies applicable to projects located in the city. The fee register can be found at: “http://sfdbi.org/Modules/ShowDocument.aspx?documentid=419”.

DBI will also begin issuing fee reports for each project that is subject to city development fees. The report will contain all fees that apply to a project and will also include the staff contact in charge of calculating each applicable fee. The fee report will be issued prior to the issuance of the first site or building permit for a project, and can be appealed to the Board of Appeals.

DBI has made some administrative changes in response to the program as well. Most important is a new policy, effective July 1, changing the date for determining a project’s compliance with the San Francisco Building Code. Previously, the rule was that the filing date of a site permit was the date of determining building code compliance. Now, the rule is that the filing date of the first site permit addenda is the date of determining building code compliance. Effectively, any changes in the building code between these two dates would now apply to a project. In addition, a site permit addenda now cannot be filed until after the site permit has been issued.

Another new rule is that projects that are subject to impact fees must now submit eight copies of building plans, instead of two.

The interest rate for project sponsors that defer fees has yet to be established yet, but is expected within the next few weeks. We’ll keep you posted.

Northeast Embarcadero Study Released

Its hard to fathom the changes that the stretch of the Embarcadero from North Point to Washington Street has undergone in the past century. During World War II, the waterfront was used as a military logistics center. The infamous Embarcadero expressway was completed in the 1960’s, which led to an all-out revolt against new freeways in the city. Unsurprisingly, the elevated freeway drastically reduced the desirability and usability of the area by separating the waterfront from the local neighborhoods. In fact, Steve McQueen’s safehouse in the movie Bullitt was located just a few blocks south of here, enshrining it as a location to be avoided. After the Loma Prieta earthquake, the freeway came down and the Ferry Building was restored, paving the way for a rejuvenated northeast waterfront.

This being San Francisco, many people have different feelings about how this area should be rejuvenated. Everyone appears to agree that Port’s parking lots along the west side of the Embarcadero have to go. Existing residents see these parcels as future public open spaces, while housing advocates see new infill development opportunities.

To help in guiding the transition of this area, Supervisor David Chiu requested that the Planning Department conduct a study, focusing on creating a unique waterfront experience while ensuring strong connections between the neighborhoods to the west of the Embarcadero and the Bay. That report was released recently, and the Planning Commission held a public hearing earlier today.

In general, the study envisions a west side of the Embarcadero with retail businesses along the ground floor, limited parking and automobile access, with residential uses above to enliven the area with new residents. New open space would be reserved amongst these developments. Density limits would be eliminated and height limits would be increased on a handful of parcels near the southern, more heavily developed end of the area.

The study does a good job at analyzing and illustrating its recommendations for each one of the existing parking lots. While not legally binding like the Planning Code, the study outlines the Planning Department’s recommendations for the area and would serve as a guideline for future development.

The Northeast Embarcadero Study can be found at: “http://www.sf-planning.org/index.aspx?page=1662”.

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 leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Copyright 2010 Reuben & Junius, LLP. All rights reserved.

 

 

Board of Supervisors President David Chiu wants to put a commercial rent tax for voter approval on the November ballot. The proposition also would revise the payroll expense tax to establish a progressive rate structure and reduce selected payroll expense tax rates. Proponents of the proposed commercial rent tax claim that this tax will create substantial revenue for San Francisco, approximately $24,500,000 in the first year, and that any additional costs to commercial landlords could be passed through to their tenants. Proponents also look to recover taxes from banks and insurance companies since they are exempt from the payroll tax. Those opposed to the commercial rent tax argue that it imposes an additional economic burden on businesses and hinders job growth. San Francisco Mayor, Gavin Newsom, who is against the proposed tax, maintains that its passage would stunt the nascent economic recovery. The proposed tax will be heard at a Rules Committee hearing at the Board of Supervisors on July 15, 2010.

The legislation would tax all “gross receipts” received by commercial landlords. “Gross receipts” would be defined as (1) cash, credit, property or other consideration from the rental of commercial property and (2) all payments made to a person subject to the tax, and/or paid to third parties on behalf of a person subject to the tax as part of a rental agreement, including insurance proceeds, mortgage payments, taxes, expenses and cash value of services to or on behalf of the landlord in lieu of rental payments. (The ordinance does not explain how a landlord would “receive” mortgage payments.) The schedule of percentage tax imposed on the total “gross receipts” would be as follows:

2011: 0.632%

2012: 1.263%

2013 and subsequent years: 1.895%

For example, if a landlord received $1,000,000 in gross receipts for the 2013 tax year, the tax due for that year would be $18,950. Residential and small commercial landlords whose gross receipts do not exceed $200,000 per tax year would be exempt from the tax.

The timing of the tax payments would depend on the amount owed by the taxpayer. For any amounts between $2,500 and $50,000, the tax would be paid in two installments, one in August and one in February. If the amount of tax is in excess of $50,000 then the tax would be paid in four installments.

Proponents of the tax have argued that it will have a limited impact on commercial owners since the owners can simply pass the additional costs through to its tenants. However, this ignores the fact that many existing leases, especially those negotiated in a more “tenant friendly” environment, do not include landlord favorable provisions that allow the landlord to pass through new taxes or fees. Many leases do not address this issue at all, which could lead to disputes and possible litigation, further depressing productivity. Even if the taxes are passed through, commercial tenants, including many small businesses, would then bear the burden of this new expense. Either way, the cost of doing business will increase – again. In a recent editorial, Supervisor Chiu pointed out that many other California cities have imposed a commercial rent tax. While this may be true, it does not take into consideration all of the other regulatory costs of doing business in San Francisco. Owners are justifiably concerned that yet another expense will hinder the anticipated recovery of the San Francisco real estate market.

The San Francisco Controller – Office of Economic Analysis estimated in its June 28, 2010 report that the commercial rent tax will cause approximately 600 – 700 job losses per year, but that this would be offset by the changes to the payroll tax that are part of the proposed ballot measure. However, the complete offset is not expected to occur for 15 years. The Controller anticipates that higher government spending will save about 200 jobs per year in the public and private sectors.

We will keep you updated once the Board of Supervisors makes their decision. We expect the ordinance to reach the ballot.  Please contact Kevin Rose or Lindsay Petrone if you would like a copy of the proposed ordinance or if you have any questions.

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 leases, purchase and sale agreements, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Copyright 2010 Reuben & Junius, LLP. All rights reserved.