In the ever-changing landscape of San Francisco real estate development, where demand for office space continues to gain momentum, conversion of property in PDR zoning districts to office space has received recent attention.
Currently, the Planning Code permits the conversion of designated landmark buildings in PDR districts to office use. This exception to the general prohibition of office use recognizes the need to ensure the economic viability of historically significant buildings.
In June, Pinterest reportedly signed a lease for the building at 2 Henry Adams Street, which houses the San Francisco Design Center in Showplace Square, with plans to convert a large portion of the building to office use. Pinterest’s offices are currently housed at 808 Brannan Street, having been in the vanguard of technology firms moving from Silicon Valley to San Francisco. Once here, these firms face difficulty growing their operations in a city where large office spaces are scarce and much space under construction is already pre-leased to technology firms such as Trulia, Salesforce, LinkedIn and Dropbox.
Showplace Square, which straddles Potrero Hill and SoMa, has a concentration of warehouses, showrooms, and related PDR uses, such as the design showrooms at 2 Henry Adams. The landlord of the four-story, 329,000 square-foot warehouse building is currently seeking historic landmark designation for the building, which would clear the way for the office conversion. This was already seen as a challenge, as the Planning Commission would have to grant an office allocation to the building, something it has recently expressed reluctance towards for buildings in industrial districts.
In some ways, Pinterest is a logical fit for the space, as many of the showroom businesses at the Design Center already showcase products on the website. Not surprisingly, however, the Pinterest deal has faced pushback from some of the businesses, many of which would be required to move, with some relocation assistance promised by the landlord. In the meantime, the Historic Preservation Commission has recommended historic landmark designation of the building to the Board of Supervisors, and the issue is set to be heard by the Land Use and Economic Development Committee of the Board of Supervisors this Monday, July 7.
Last week, Supervisor Malia Cohen proposed legislation that would impose interim controls to limit the conversion of buildings to office space in PDR districts. The legislation would subject such conversions to the conditional use process. The process would require applicants to present the economic and fiscal impact of the conversion, with a complete economic impact analysis prepared by a licensed professional. It would further require applicants to present information regarding the availability of space for PDR uses, compatibility of office at the location, and the effects of displacement of existing tenants, including providing to the City a proposed tenant relocation plan. The matter is set to be heard Monday along with the landmark designation of the 2 Henry Adams building. The controls are currently proposed to be in effect for 18 months.
The issue of conversion of PDR uses to office space has quickly become a hot button issue in the world of San Francisco land use, as the City seeks to preserve existing industrial spaces from the increasing demand for new office space. The case of 2 Henry Adams Street presents a particularly challenging case, where the company that provides the technology through which many customers of PDR businesses browse and shop is encroaching on the space where those PDR businesses operate. One thing is becoming increasingly clear: the conversion of industrial buildings to office use, commonly approved in recent years, is no longer a sure thing.
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.