Transferable Development Rights – Recent Changes, More On The Way

​Transferable Development rights or “TDR”, are valuable tool for developers looking to build in downtown San Francisco. Essentially it allows developers to exceed the allowable floor area ratio (“FAR”) for their development site, by purchasing development rights from historic buildings.  Although the TDR concept is fairly simple, there are some very strict rules about which properties are eligible to transfer and receive TDR.  Recently there have been some changes in the Planning Code regarding TDR in Downtown Commercial, or “C-3” districts, and more changes are likely on the horizon, with legislation currently at the Board of Supervisors.

How does TDR work in C-3 districts?

Currently, TDR can be transferred downtown only between buildings in the Same C-3 district, with some very specific (and slightly complicated) exceptions that apply in a limited number of cases. In most districts there are maximum floor area ratios (“FAR”). Once that maximum is reached, no further development is permitted at the site.  While this system worked well for a while, TDR is running out, but the need for it is increasing, as development in downtown is booming after the recession.  With an eye toward intensifying development in downtown San Francisco, several changes are being made to these policies.

Recent changes to TDR Rules

With a focus on making San Francisco the major business and transportation hub of the West, there have been some changes to allow denser commercial development around the Transbay Terminal.  The Downtown Office Special Development (“C-3-O (SD)”) district which is located south of Market Street, and centers around Transbay Terminal, has no maximum allowable FAR. Instead, in the C-3-O (SD) district, TDR must be purchased to exceed the base FAR  of 6.0 to 1, up to a ratio of 9.0 to 1. Developers are not permitted to use TDR above the FAR of 9.0 to 1, and instead may increase FAR without restriction through participation in the Transit Center District Mello-Roos Community Facilities District, which requires fees to be paid based on square footage of the building. This allows very dense development around the Transbay Terminal without the struggle of searching for significant amounts of TDR to meet development needs.

Future changes In the Works

This week, the Board of Supervisors Land Use and Economic Development Committee, recommended legislation that would relax TDR policies in C-3 districts. The proposed ordinance would allow TDR to be transferred freely throughout C-3 districts, instead of only allowing transfers between buildings in the same exact C-3 district.  This ordinance would also permit TDR to be transferred into C-3 districts from the South of Market Extended Preservation District, and would eliminate all of the complicated exceptions found in the existing law.  If passed this ordinance would allow TDR to be easily transferred to the parts of downtown where it is most needed, making development of large commercial buildings just a little bit easier.  The Board of Supervisors should be voting on this ordinance sometime in April or May of 2013.

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.