Proposed Restrictions on New Office Use along Second Street.
Late last month, Supervisor Jane Kim introduced legislation aiming to insulate ground-floor retail businesses on a popular stretch of Second Street in SOMA from displacement by effectively prohibiting most new office use without Planning Commission approval.
The interim prohibition applies to most new ground-floor office use for a five-block stretch along Second Street from King Street in front of AT&T Park to Folsom Street, unless the office use is approved by the Planning Commission as a conditional use. Buildings that reserve at least 1,500 square feet of retail space will be allowed to bring in new office tenants without going through the time-consuming and expensive conditional use process, allowing some flexibility for large-floorplate sites.
A similar ground-floor retail requirement already applies to most of Downtown as part of C-3 zoning. However, ground-floor office is currently permitted without conditional use throughout the Second Street corridor (which is zoned Mixed Use – Office) although new offices over 25,000 square feet still need Planning Commission approval.
If the ordinance passes, the control will last for a year and a half. Supervisor Kim indicated at this week’s Land Use Committee hearing that the upcoming Central SOMA plan’s rezoning will include a similar restriction. With the Central SOMA plan set for adoption by the City in 2015, Supervisor Kim’s legislation will effectively become a permanent restriction.
Another interesting aspect of Supervisor Kim’s ordinance is that it would deem existing ground-floor office use along this corridor that is inactive for 90 days “abandoned,” and prohibit new offices from moving into these spaces without conditional use authorization. This timeline could prove tricky for new ground-floor office tenants, which would seemingly need to start occupying new space within 90 days of the prior tenant leaving the unit. For comparison, in parts of the City where new office use is no longer permitted, existing office is considered abandoned only after it is discontinued for three years.
It remains to be seen how this control will be implemented in the Central SOMA plan. Much of Central SOMA is slated to be re-zoned to Mixed Use Office. Will this restriction be limited to the Second Street corridor? Could it be extended to all Mixed Use Office zoning, which would include a ten-block area stretching from Second to Sixth Street along Townsend up to Bryant and Harrison Streets? Will new office tenants be able to take over an existing office space quickly enough to avoid the time-consuming and expensive conditional use process?
Encouraging retail uses on the ground-floor is certainly an important aspect of any growing neighborhood, particularly in this part of SOMA where an influx of residents and employees can support a growing number of retail options. Striking a balance between growth on one hand and preserving neighborhood services can be tricky. This stretch of Second Street may yet become the pilot program for ground-floor use in a large swath of Central SOMA.
Court Throws Out San Francisco’s Two-Year Tenant Buyout Requirement; Is Prop. G Next?
In July of this year, the City implemented controversial legislation requiring landlords pay tenants displaced by the Ellis Act a lump sum payment of up to twenty-four (24) times the difference between the unit’s then-current rent and the market rate for a comparable unit. The legislation was debated and fought over in City Hall for months before it finally had enough support to be enacted into law. And just like that, on Tuesday a federal judge invalidated the payment program. In short, the court reasoned that the payment was simply too high on too few landlords to justify its stated purpose of protecting tenants.
The effect of the legislation was clear: make life difficult for landlords with longtime tenants that use the Ellis Act to free their building of tenants. Obviously, preserving San Francisco’s existing rental housing stock—particularly for longtime tenants who cannot afford to relocate within City boundaries—deserves high priority, and the Board of Supervisors should be commended for its many well-meaning efforts to address the City’s housing crisis. The court’s summary invalidation of the law within five months of its implementation shows that the City should always be mindful of overstepping its constitutional authority.
The result may also prove a harbinger of Proposition G on this November’s ballot, should voters enact it into law. Any San Francisco resident who has checked his or her mailbox in the last month knows Prop. G is being strongly contested by advocates on both sides. Parallels to the buyout program do not stop there. Like the tenant buyout legislation—which dramatically increased the existing payment requirement—Prop. G would require many owners of buildings with two to 30 units who sell within five years of purchasing to pay a “surtax” up to 24% of the sale price. The City’s current transfer tax ranges from 0.5% to 2.5% of the sale price. Setting aside the possible unintended outcome of incentivizing owners to keep rental properties off the market and thereby exacerbate the housing crisis, Prop. G could be vulnerable to a similar criticism as the buyout program: that the exaction it requires from individual property owners far exceeds the problem it seeks to address.
On Wednesday, the City announced it would appeal the buyout decision to the federal appeals court. For Prop. G, round one will be decided by voters at the ballot box on November 4th. Round two could be in a courtroom shortly thereafter. Will there be a knockout punch?
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.