Downtown Oakland Specific Plan Approved

Oakland

Last month, the Downtown Oakland Specific Plan (“DOSP”) was adopted by the Oakland City Council, with the DOSP environmental impact report being certified July 16 and the implementing Planning Code, Zoning Map, and Municipal Code amendments passing on second read July 30.  The DOSP is intended to guide development over the next twenty years, to meet the projected housing and employment needs in Oakland’s downtown.  The plan encompasses approximately 850 acres, and is generally bounded by 27th Street to the north, I-980, Brush and Market Streets to the west, Embarcadero and Jack London estuary waterfront to the south, and Lake Merritt and Channel to the east.

Approval of the DOSP is the culmination of a near decade-long process.  As previously reported, the preliminary draft DOSP was released in 2019 with the draft zoning amendments released in April 2022 and the Zoning Incentive Program released in July 2022.  The delay in adoption of the DOSP was to allow for enhanced community engagement, adapting to the evolving social and economic conditions stemming from the COVID-19 pandemic.  The DOSP has been designed to help prevent displacement of both people and culture, while encouraging development of downtown.

The DOSP projects the addition of approximately 18.3 million square feet of new commercial space, 1.3 million square feet of new institutional space, and 500,000 square feet of new industrial space, resulting in approximately 57,000 jobs and $41 million in impact fees to fund affordable housing and transportation improvements.  In addition, 29,000 new housing units are planned for by the DOSP, including approximately 4,000-7,000 income-restricted affordable units, that would generate approximately $480-544 million in one-time impact fees to fund affordable housing.

Some changes to the DOSP since publication of the draft include:

  • Preservation of industrial land uses closest to the West Oakland industrial area, removing the “Green Loop” and other non-industrial improvements from Howard Terminal now that the Howard Ballpark is no longer going forward.
  • Development intensity changes clustered in five small areas, including portions of the West of San Pablo Planning sub-area, specifically from Grand Avenue to 20th Street and east to Martin Luther King Jr. Way (height increases from 85 feet to 175 feet in the Final Draft Plan, 7.5 FAR to 12.0, and from 200 square feet of lot area per unit for residential density to 110 square feet of lot area per unit), as well as between 14th and 15th Street between Martin Luther King Jr. Way and Jefferson Street (height increases from 175 feet to 275 feet in the Final Draft Plan, 12.0 FAR to 12.0/17.0, and from 110 square feet of lot area per unit for residential density to 90 square feet of lot area per unit).
  • Prohibiting demolition of the principal building at the sending site leveraged for the transfer of development rights program.
  • Requiring ten percent of the affordable housing Zoning Incentive Program benefit to be provided as an in-lieu fee rather than allowing entirely on-site benefits where projects propose at least 125 units above the base.
  • Creation of a new alcohol use special permit, relaxing controls in the non-residential districts within the plan area, removing the need for a major conditional use permit for alcohol permits.

There are too many specifics of the DOSP to include in an email update. Please contact us if you have any questions.

 

Authored by Reuben, Junius & Rose, LLP Attorney, Justin A. Zucker.

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.

Transfer Tax Waiver Proposed by Mayor

exemption

Last week, Mayor London Breed proposed a ballot measure aimed at encouraging conversion of office to residential use in San Francisco’s Downtown by eliminating transfer tax for certain converted residential space. The measure would complement the Commercial to Residential Adaptive Reuse Program, effective as of August this year, which we previously provided an overview of on April 19, 2023.

Currently, the City’s Transfer Tax is as high as 6% for transactions over $25 million (Article 12-C, San Francisco Business and Tax Regulations Code (the “Transfer Tax”)). If approved by the voters, any deed, instrument, or writing that effects a first transfer of converted residential property, that would have been subject to the Transfer Tax, is exempt from the Transfer Tax. However, the exemption only applies up to the first 5,000,000 square feet of converted residential space. Above the 5,000,000 gross square feet limitation, the Transfer Tax would apply to the proportional value of or consideration for the property, based on the floor area over 5,000,000 square feet.

Under the ballot measure, converted residential property is the property or portion of property that received a first certificate of occupancy after conversion from nonresidential property to residential property (“Converted Residential Property”), and meets the following requirements:

  1. Either (1) the first development application for conversion is approved or (2) the first site or building permit is issued, before January 1, 2030. Note, in cases where there is an appeal, the approval/issuance must be upheld before January 1, 2030;
  2. A certificate is requested from the Planning Department, before January 1, 2030, showing the square footage of the proposed conversion, to be within the 5,000,000 square foot limitation (“Qualifying Certificate”);
  3. A first construction document is received within three years after final approval of the conversion; and
  4. At the time of the transfer, the gross floor area of the improvements divided by the lot area is at least one.

Those who seek to claim the proposed Transfer Tax exemption must take the following steps:

  • Request, after final approval of the property conversion, a Qualifying Certificate;
  • Request an exemption certificate from the Planning Department for each transfer for which an exemption will be claimed; and
  • For each exemption claimed for each transfer, submit the exemption certificate to the recorder at the time the Transfer Tax Affidavit is submitted.

According to the Mayor’s Office, 30 million square feet, or 34% of the office market, is currently vacant in the City. The proposed ballot measure aims to assist projects on the edge of financial feasibility through elimination of tax that would be due on the sale of a converted building. Voters will decide whether to approve this proposed ballot measure at the upcoming March 5, 2024 election.

 

Authored by Reuben, Junius & Rose, LLP Attorney Kaitlin Sheber.

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.

Plan Updates in Oakland and SF

Downtown Plan

This week, we discuss Oakland’s most recent status report on its proposed Downtown Specific Plan and San Francisco’s kickoff of its own General Plan update.

Oakland’s Downtown Plan Progresses, with Changes

Oakland’s sixth area plan—and the first to focus exclusively on the downtown area—is moving forward again, but with modifications based on feedback provided on the draft Environmental Impact Report (“Draft EIR”) and in response to Covid’s impacts on urban life, including efforts to address the City’s acute housing shortage and homelessness and affordability crisis. The City now anticipates City Council review of the Plan by the end of the calendar year.

The Downtown Oakland Specific Plan (“DSOP” or “Plan”) has been in the works since the mid-2010s. The Plan and accompanying Draft EIR were published in August 2019; they envisioned and evaluated 29,100 new residential units, approximately 17 million square feet of office, nearly 2.5 million square feet of retail, and over 1 million square feet of “flex” commercial and industrial space. It covers many different neighborhoods and districts in downtown, including Kono, Uptown, San Pablo, the “central core” of Downtown, Lakeside, Old Oakland, Jack London and the surrounding area south of I-880, and Laney College.

The City’s brief summary update a few weeks ago explains that changes to the Plan’s proposed zoning controls will “address the changing nature of retail” presumably brought on (or exacerbated, depending on your perspective) by the pandemic, identify and regulate priority areas for arts and institutional cultural uses, and encourage increased development in exchange for enhanced community benefits. This voluntary “Zoning Incentive Program” as proposed will set clear metrics for public benefits necessary to achieve enhanced density, such as affordable housing, reduced rent for non-profits and arts organizations, and homelessness services.

Oakland is also undertaking a study on options to fund more housing. These include potential new or increased impact fees, an inclusionary housing requirement that could be more robust than the City’s current policies, and infrastructure financing.

The City anticipates three more phases of planning before the Project and accompanying environmental review are considered by Council: first, revising the DSOP, responding to comments on the Draft EIR, drafting new zoning regulations, and analyzing housing funding options in the Winter and Spring of 2021; next, completing the revised DSOP, responding to EIR comments, completing the housing funding analysis and updated zoning regulations in the Spring and Summer of 2021; and finally, holding adoption hearings on the final DSOP, EIR, zoning amendments, and housing funding program in the Fall and Winter of 2021.

Reuben, Junius, & Rose LLP has experience with entitlement projects and land use diligence throughout Oakland, and we are pleased to have worked on some of the largest housing projects approved in the city over the last several years. We will continue to track this significant rezoning and community planning effort as it moves forward.

San Francisco Kicks Off General Plan Update

Later this month, the San Francisco Planning Department will hold a series of virtual public meetings kicking off an update to San Francisco’s General Plan. 12 meetings are scheduled to run from March 15-26. City staff will discuss topics such as housing, transportation, climate resilience, environmental justice, and racial and social equity. The introductory session is set for Monday, March 15, and one or two events per day focusing on a specific aspect of the General Plan will follow. We are monitoring the update closely and will keep you up to speed as the City releases more information.

 

Authored by Reuben, Junius & Rose, LLP Attorney Mark Loper.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

COVID-19 Business Assistance and Eviction Moratorium

Covid-19

Local governments, the State of California, and the federal government have or will soon pass a number of measures meant to protect businesses from the economic effects of the coronavirus. This week, we summarize several business assistance programs and available funding sources, as well as San Francisco’s moratorium on commercial evictions. (San Francisco has also put in place residential eviction protections, which we do not address in this summary.)

Commercial Evictions

In response to the emerging COVID-19 pandemic, on March 16, California Governor Gavin Newsom took the extraordinary step of issuing Executive Order No. N-28-20, authorizing local governments to, in part, effectively halt monetary evictions for commercial tenants through May 31, 2020 unless extended. Two days later, San Francisco Mayor London Breed issued a Fourth Supplement to Mayoral Proclamation Declaring the Existence of a Local Emergency dated March 18, 2020, implementing a temporary local moratorium on the commercial evictions of qualifying tenants (the “Eviction Moratorium”).

The following provides a summary of key terms of the Eviction Moratorium and looks at other avenues of equitable relief that commercial tenants may also consider following its expiration or as a means to reduce rent.

Eviction Moratorium Rules and Duration

The Eviction Moratorium applies to commercial tenants with $25 million or less in combined worldwide gross receipts for the 2019 tax year (each, a “Qualifying Tenant”). This amount will be prorated for Qualifying Tenants that operated for only part of the year.

Commercial landlords may not recover possession of a Qualifying Tenant’s premises for non-payment of rent due on or after March 17 without first providing the Qualifying Tenant with proper notice and an opportunity to cure. This required notice must give Qualifying Tenants at least thirty days to cure from the date of receipt of the notice. During the cure period, Qualifying Tenants may either pay rent or provide documentation of its inability to do so due to the “financial impact” of COVID-19. Financial impact is defined as meaning a substantial decrease in business income due to illness, disruption, reduced hours or consumer demand, or temporary closure.

If a Qualifying Tenant provides the required documentation, the cure period is automatically extended by thirty days to allow for the parties to engage in the good faith negotiation of a payment plan. There is no guidance on what qualifies as sufficient documentation, creating what appears to be a low threshold for Qualifying Tenants to satisfy. If the parties are unable to agree on a payment plan, the cure period is extended for another thirty days, provided the Qualifying Tenant submits additional documentation of its inability to pay due to COVID. In total, the cure period may be extended in this manner for up to six months.

At the end of a Qualifying Tenant’s cure period, if it has not paid all outstanding rent the landlord may commence eviction proceedings. The Eviction Moratorium also does not relieve Qualifying Tenants of their underlying obligation to pay rent or restrict landlords’ ability to eventually recover rent that is otherwise due. Further, the Eviction Moratorium does not preclude landlords from seeking to recover rent through means “other than eviction for non-payment of rent”, which would seem to leave open the door for landlords to immediately seek monetary damages through civil litigation when rent becomes delinquent. However, due to court closures and delays in processing, this remedy is unlikely to be productive.

The Eviction Moratorium is effective until April 17 but may be extended an additional thirty days by Executive Order from Mayor Breed. The above-described cure period requirements survive expiration of the Eviction Moratorium.

San Francisco’s Office of Economic and Workforce Development has been tasked with developing implementation guidelines for the Eviction Moratorium and may also grant waivers for landlords who demonstrate that an inability to evict nonpaying Qualifying Tenants “would cause significant financial hardship (e.g. default on debt or similar enforceable obligation).” In negotiating payment plans with Qualifying Tenants, Landlords should anticipate the potential duration of cure periods for Qualifying Tenants they lease to and evaluate their own likelihood of being granted a waiver.

The Eviction Moratorium Expired – Now What?

As mentioned, the Eviction Moratorium does not mean Qualifying Tenants are now completely off the hook for paying rent while the Eviction Moratorium is in effect, as commercial landlords retain the right to collect all delinquent rent and may still seek non-eviction relief. Considering this eventuality, commercial tenants and landlords alike may wonder what other avenues of relief commercial tenants might seek on the basis of financial hardship from COVID-19.

These interested parties should first look to the language of their lease. While uncommon in commercial leases, the presence force majeure clauses should be considered.  Also, the legal theories of frustration of purpose, impossibility or inability to perform clauses in real estate contracts and agreements may be applicable. In eviction or other civil proceedings to recover rent that became due as early as March 2020, commercial tenants (whether Qualifying Tenants or not) should be expected to assert similar equitable defenses, while landlords will posit their own equitable arguments of fairness. It remains to be seen how the courts will handle and evaluate these claims.

Finally, given how quickly state and local governments have moved to place a moratorium on monetary evictions, it remains to be seen if similar executive orders or legislation will be enacted with respect to other commercial lease and/or contract provisions, non-monetary or otherwise.

Business Assistance Programs

Following is a summary of state and local assistance programs to aid business during the coronavirus emergency. The federal stimulus bill is still being drafted but it is expected to pass within days; we have sourced news articles for its business and employee protection measures.

SAN FRANCISCO

  • Deferred Business Taxes for Small Businesses: For businesses with up to $10 million or less in gross receipts, the City is deferring payment of quarterly business taxes—gross receipts, payroll, commercial rents, and homelessness gross receipts—by nine months, from April 30, 2020 to February 2021, with no interest or penalties. This will provide immediate cash-flow assistance to 8,050 small businesses. (https://sftreasurer.org/covid19)
  • Deferred Business License Fees: The Office of the Treasurer & Tax Collector collects annual license fees on behalf of the Department of Public Health, Fire Department, Police Department, Entertainment Commission and the Office of Cannabis. The due date for license fees, March 31, 2020, is extended to June 30, 2020. (https://sftreasurer.org/covid19)
  • COVID-19 Small Business Resiliency Fund: The City established a fund administered by OEWD to offer emergency grants up to $10,000 for employee salaries and rent for microbusinesses (up to 5 employees). Businesses must be able to show a recent loss in revenue of 25% or more, and have less than $2,500,000 in gross receipts. (https://oewd.org/covid-19-small-business-resiliency-fund)
  • SF Emerging Business Loan Fund: offers loans ranging from $50,000 to $250,000 to qualifying commercial projects. The purpose of the Emerging Business Loan Fund is to originate commercial loans that support high impact businesses and projects with the potential to increase economic activity in San Francisco as well as create jobs for low to moderate income individuals. (https://www.mainstreetlaunch.org/san-francisco-launch/ and https://oewd.org/grant-and-loan-programs)
  • Paid Sick Leave – Workers and Families First Program: The City will contribute $10 million dollars for private businesses to provide up to 40 hours (5 days) of additional paid sick leave time to employees beyond existing policies through this program. This new program provides financial assistance to businesses and nonprofits and may support over 16,000 additional weeks of sick leave pay and coverage for up to 25,000 San Francisco employees. All San Francisco businesses are eligible, with up to 20% of funds reserved for small businesses with 50 or fewer employees. The City will contribute up to one week (40 hours) at $15.59 per hour (minimum wage) per employee, or $623 per employee. The employer will pay the difference between the minimum wage and an employee’s full hourly wage. (https://sfmayor.org/article/mayor-breed-announces-plan-provide-paid-sick-leave-workers-impacted-coronavirus and https://sfgov.org/olse/san-francisco-paid-sick-leave-coronavirus)

STATE:

  • Employment Development Division (EDD) Extension: EDD is granting a 60-day extension to file state payroll reports and/or deposit state payroll taxes without penalty or interest for employers experiencing hardship from COVID-19. (ca.gov/pdf_pub_ctr/de231sed.pdf)
  • Work Sharing Program: Employers can apply for the program if they are looking for alternative to layoffs due to reduced production, services, or other conditions. This program helps employers keep their trained employees so that when business conditions improve, they can avoid the expense of recruiting, hiring, and training new employees, and save employees the hardship of becoming fully unemployed. (https://www.edd.ca.gov/unemployment/Work_Sharing_Program.htm)
  • Rapid Response Service for Businesses: Rapid Response teams will meet with businesses/employers to help avoid layoffs where possible and support employees through the process. Services can include upgrades to current worker skills, customized training, career counseling, job search assistance, help with filing unemployment insurance claims, and information about education and training opportunities. (https://www.edd.ca.gov/pdf_pub_ctr/de8714rrb.pdf)

FEDERAL STIMULUS PACKAGE (per New York Times):

  • Employee/unemployment benefits. Unemployment insurance will be extended by 13 weeks, and employee benefits will be enhanced for a period of four months. Workers will maintain their full salaries if forced out of work as a result of the pandemic. Freelances and gig workers will be offered these same benefits.
  • Small business loans with forgiveness for companies that keep employees. $350 billion in lending programs for small businesses that keep payrolls steady, and small businesses that pay their employees for duration of the crisis will have loans forgiven.
  • Federal Reserve loans. The Federal Reserve will leverage $425 billion for loans to help “broad groups of distressed companies.”

 

Authored by Reuben, Junius & Rose, LLP Attorneys Mark Loper and Michael Corbett

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

 

 

San Francisco Tax Battles Continue

San Francisco

Much has been written about the social ills facing the greater San Francisco Bay Area, what solutions have potential to make an impact, and to what extent the business community should be required to fund them.  Debate raged in advance of the November 2018 election, when approximately 61% of San Francisco voters passed a gross receipts tax on some businesses to fund homelessness and mental health services.  The arguments were revisited in June of 2018, when competing commercial rents tax measures were proposed to provide additional funds to housing and homeless services or fund childcare and early education.  The latter measure passed with approximately 50.87% of the vote.

The validity of both voter-initiated tax measures has been subject of litigation filed in the Superior Court for the City and County of San Francisco.  The actions claim that the initiatives cannot lawfully impose the special taxes because they received only a simple majority of the vote, in violation of the California Constitution’s requirement that taxes imposed by local governments receive a two-thirds supermajority.  The measures were also challenged under the San Francisco Charter.

On Friday, July 5, 2019, San Francisco Superior Court Judge Ethan P. Schulman upheld the validity of both initiatives, and determined that a simple majority of the vote was sufficient to support their passage.  The rulings are well summarized by the following comment from the order on the June 2018 measure:

the procedural two-thirds vote requirement . . . of the California Constitution that limit[s] the Board of Supervisors’ authority to impose new taxes does not apply to the voters’ initiative power, either directly under those provisions or indirectly under the San Francisco Charter.

The Court evaluated claims that the June 2018 measure was placed on the ballot by a member of the San Francisco Board of Supervisors in an effort to end-run the requirement of a supermajority vote.  The argument invited the Court to view the initiative as a legislative initiative rather than a voter initiative.  The Court rejected the arguments, based on a variety of earlier rulings regarding voter initiatives, including a 2017 decision by the California Supreme Court regarding an initiative that imposed licensing and inspection fees of medical marijuana dispensaries.  Similar analysis appears in the order regarding the November 2018 initiative.

Given the magnitude of the Court’s decisions, appeals are expected.

Coincidentally, the decision on the tax measures was issued on the same date on which the 2019 San Francisco Homeless Point-in-Time Count & Survey was released by the San Francisco Department of Homelessness and Supportive Housing.  The report concluded, that as of January 2019, there were over 8,000 homelessness people living in San Francisco, a 17% increase over the 2017 count, and a 14% increase between 2013 and 2019.”  It comments: “Unstable living conditions, poverty, housing scarcity, and many other issues often lead individuals to fall in and out of homelessness . . . [i.e.,] the experience of homelessness is part of a long and recurring history of housing instability.”  Although there has been suggestion that the survey actually undercounts the homeless population in San Francisco, there can be no question that homelessness is a problem that is getting worse.

There are myriad differences of opinion about how to address homelessness and other social ills facing San Francisco and other California jurisdictions.  However, the Court’s decision on the June 2018 and November 2018 tax measures will likely yield more efforts by state residents to tax the business community in an effort to fund possible solutions.

Commercial property owners should consider the financial risks associated with voter-initiated tax measures, and may wish to include provisions in their lease agreements that allow such special taxes to be passed through to commercial tenants as operating expenses.  As the characterization of such taxes continues to evolve – from payroll taxes, to gross receipts taxes, to commercial rent taxes – limited definitions of “operating expenses” may prevent property owners from recovering property-related expenses from commercial tenants, resulting in diminished property values.

Stay tuned.

 

Authored by Reuben, Junius & Rose, LLP Attorney, Corie Edwards

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.