On February 19, 2009, the Planning Commission held an informational hearing to discuss its policy on previously approved entitlements that have time-restricted performance conditions pertaining to commencement of construction. The Planning Department staff recommended a favorable policy on expired entitlements citing and recognizing the impacts the current global economic crisis has on land-use development projects. We support the Planning Department staff’s timely and sound proposal and urge the Commission to adopt it. The Commission is expected to hold a second hearing in on March 26, 2008, when they will take the issue up again and may take action.
The way it is now
As of today, all office developments that propose more than 25,000 sq.ft. of new office space are required to commence construction within 18 months after obtaining their Section 321 “Prop M” office allocation from the Planning Commission. Projects that fail to start construction within this period risk being subjected to entitlement revocation proceedings. Residential tower projects in the Rincon Hill DTR district are subject to a similar 24-month condition. Conditional use authorizations for other types of development projects typically include a condition that requires permits and/or construction within 3 years of Commission approval. In 2002, Planning Commission adopted a policy, applicable only to office entitlements, whereby the Commission stated it would not seek to revoke entitlements for projects that have exceeded the 18 month deadline.
Why Adoption of a New Favorable Policy Makes Sense
Affirmation of the existing policy to not revoke office entitlements due to their failure to comply with the 18-month performance conditions and the adoption of a similar policy on other types projects is a good idea for several reasons:
1. Adoption of a favorable policy increases certainty for project sponsors, investors and lenders, particularly during the economic crisis;
2. Extension of existing entitlements provides an immediate inventory of projects that are able to commence construction upon improvement of the economy. These “shovel ready” projects will avoid delays in construction start-up, which in turn means faster creation of construction jobs, and sooner delivery of all of the economic benefits that derive from construction projects;
3. There is no need to revoke office entitlements at a time when there is no shortage of available Prop M office space (currently there is 2,601,223 sq.ft. of available allocation in the large office pool with only 891,150 sq.ft. in pending projects);
4. The average total “development time” for large projects in San Francisco exceeds the time of an average economic cycle. It has been difficult or impossible to acquire, design, entitle, prepare construction drawings, obtain a building permit and construct a project within one economic cycle. According to an survey completed in 2002 of recent office development projects in the north and south financial districts prepared in cooperation by Reuben & Junius, LLP and Grubb & Ellis, a typical large office project took an average of 46 months from the entitlement approval date to the commencement of construction;
5. In the past, most downtown high-rise developments have ultimately been constructed despite exceeding their performance conditions;
6. Revocation of entitlements would send a wrong, anti-growth message to the development community.
If you would like more information about this issue, or would like to know how to contact the Planning Department or Planning Commission to show your support for extensions, please contact us.
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.