After five years of study and outreach, the Transit Center District Plan (“TCDP” or “Plan”) is in the home stretch. This week, the Planning Commission and Historic Preservation Commission (“HPC”) will consider whether to formally “initiate” the various ordinances that will implement the TCDP. On May 24th, the Planning Commission will vote on the certification of the Final TCDP Environmental Impact Report (“EIR”), and make a recommendation on the TCDP ordinances to the Board of Supervisors. If all goes according to schedule, the TCDP will be before the Board of Supervisors in June or July.
The TCDP aims to transform the area surrounding the proposed Transbay Transit Center into the new heart of downtown. The Plan includes a package of zoning changes, including height increases, expanded protections for historic buildings, and the elimination of maximum floor area ratio (“FAR”) limits. The Plan also includes an ambitious program of public improvements to be financed by an equally ambitious package of impact fees and exactions on new development.
Regional Smart Growth Goals
According to the Association of Bay Area Governments, San Francisco needs to build 23.5 million square feet of downtown office space over the next 25 years to meet regional smart growth goals. This is the minimum amount of office space that San Francisco needs just to maintain its current share of regional employment, which declined from 27 percent in 1970 to 16 percent today.
Under existing zoning, only about 5.8 million square feet of new office space can be built downtown. The implications of the shortfall are significant. It means that San Francisco risks losing its position at the center of the Bay Area’s economy. Regional sustainability goals will be jeopardized as jobs move to suburban locations where commute patterns generate result in much higher greenhouse gas emissions and other pollution.
The Plan’s liberalized development rules will move the City closer to meeting its smart growth obligations. However, significant shortfalls will remain. The Plan proposes a modest increase of about 2.5 million square feet of new office development, or enough for roughly 10,000 workers. This would still leave the City 13 million square feet short of the projected citywide need for office space. As we recently reported, some of this shortfall will be met by planned Central Corridor upzoning focused on the Fourth Street Corridor and new Central Subway.
New Development Controls
The Plan includes detailed design guidelines and zoning controls to shape new development and achieve the City’s job creation goals:
- Height Increases. Height increases are among the most publicized aspects of the TCDP. On the site of the proposed Hines-Pelli Transit Tower, the height limit will increase to nearly 1000 feet to make way for the City’s tallest building. Smaller increases, ranging from 50 feet to 300 feet, would allow a handful of buildings on other sites to exceed the area’s current 550-foot height limit. The TCDP would also create new height exemptions to allow decorative architectural elements to extend well above the height limit.
- FAR Limit Eliminated. Right now, most properties in the Plan Area are subject to an FAR limit of 18-to-1. The TCDP would eliminate this cap, i.e., there would be no express restriction on floor area. To ensure that key opportunity sites are not under built, sites larger than 15,000 sq. ft. would have to achieve a minimum FAR of 9-to-1.
- Simplified Bulk Controls for Towers. Most TCDP properties fall within an “S” Bulk District. The “S” controls mandate “wedding-cake” buildings with three discrete sections: a base, a lower tower and an upper tower. These bulk restrictions are difficult to comply with in practice and exceptions are the norm. Under the TCDP, a new S-2 District will simplify and relax controls for buildings over 600 feet. Partial setbacks from street frontages would be required to help define the streetwall, but lower tower bulk would not be otherwise restricted. At the upper tower (the top third), average floor plates would have to be 75 percent of the average floor-plate size in the lower tower.
- Limits on Non-Commercial Uses. Projects on development sites larger than 15,000 sq. ft. within a defined “core area” would be required to provide at least two square feet of commercial space for every one square foot of residential space. This is a somewhat more liberal standard than the 3-to-1 ratio proposed in the first version of the Plan.
- Pedestrian-Oriented Design. Improving the “bleak” pedestrian environment is among the Plan’s major goals. Below 20 or 25 feet in height, buildings should include façade treatments that create a “pedestrian zone.” The street frontage devoted to lobbies would be restricted. Active retail or open space uses would be required at the rest of the ground-floor frontage. Certain non-active uses (notably banks and gyms) would not be allowed at the ground-floor.
- New Historic Designations and Additional TDR Supply. The New Montgomery-Second Street Conservation District would be extended to the west to include several properties along Mission and Howard Streets. New individual ratings would be applied to buildings throughout the district. The Plan will also expand the supply of TDR in two ways. First, newly designated historic buildings will be eligible to participate in the TDR program. Second, the amount of TDR that may be transferred from buildings will be increased. Thus, even buildings that have sold off TDR already will be eligible to sell an additional increment.
- Parking. The Plan includes many new regulations intended to discourage the number of cars entering and traveling through the area. These include new rules on the quantity and pricing of parking in commercial developments, as well as restrictions on the points of access to parking garages. Ultimately, the Plan calls for an absolute maximum on parking in the area. Until the cap is established, the Plan would limit accessory parking to 3.5 percent of a commercial building’s gross floor area, i.e., half of what is currently allowed. In addition, new curb cuts on Mission Street, Second Street, and several pedestrian alleys would be prohibited. A conditional use approval from the Planning Commission and approval by the Board of the Municipal Transportation Agency would be required for new curb cuts on First and Fremont Streets or for non-accessory parking. New surface parking lots would prohibited, even as temporary uses.
Fees and Public Improvements.
The TCDP includes several new fees and exactions to fund public improvements, including the CalTrain Downtown Extension, streetscape and open space projects, and other transit upgrades. The Planning Department estimates the Plan’s revenue measures could generate more than $575 million over the life of the Plan.
The new fees proposed are an Open Space Fee (“OSF”) and a Transportation & Street Improvement Fee (“TSIF”). These fees are in addition to current impact fees that are approximately $38 per square foot for office use, and somewhat less for non-office uses. The OSF and TISF would vary by use and would increase with a Project’s FAR. For example, for office uses, fees would total $7 for each square foot under an FAR of 9-to-1, $33.50 for square footage between 9-to-1 and 18-to-1 FAR, and $43.50 for FAR above 18:1. Fees for retail uses would be similar. Residential and hotel fees would be less.
The new fees would be partially offset by changes to the TDR program. Under current rules, TDR must be purchased to build above the base FAR limit of 6-to-1 or 9-to-1, depending upon location. TDR prices have historically ranged from $15-$35 per square foot; present market value is about $25 per square foot. Under the TCDP, all developments would have to purchase TDR for square footage between 6-to-1 and 9-to-1 FAR. Above 9-to-1, TDR would no longer be required.
In addition to the new impact fees, a Mello-Roos District would be established and a supplemental property tax of 0.55 percent would be levied on new developments. This would effectively increase the property tax rate in the TCDP by 50 percent over current levels. According to the Planning Department’s estimates, the annual occupancy cost for a $1 million condo would increase by $5,500 each year, about 5.8 percent. If the cost of the tax increase is passed along to an office user paying $66 per square foot, the increase in annual occupancy would be about 5 percent or $3.33 per square foot.
Although the Plan contains a lengthy discussion of the feasibility of new fees, its conclusions are largely based on 2007 property values and rental rates. Though these rates are certainly increasing, they have not yet reached their previous levels. The feasibility studies also fail to account for the fact that new buildings will be at a disadvantage compared to existing buildings that paid lower exactions and that pay a much lower property tax rate.
The Unresolved Shadow Issue
If built out to the full potential of the proposed height limits, new buildings in the TCDP would be the tallest in the City. The Plan identifies “the creation of a new crown to the skyline” as an important objective and counts on taller buildings to meet revenue and job creation goals. However, it fails to remove a major impediment to the construction of tall buildings: shadow budgets for downtown parks.
Under a voter-approved initiative (“Prop K”), new buildings over 40 feet in height cannot be approved if they would have a significant and adverse impact on the use of property under the jurisdiction of the Recreation and Park Commission. A policy jointly adopted by the Planning Commission and Recreation and Park Commission in 1989 set “shadow budgets” for several downtown parks, notably including Union Square, St. Mary’s Square and Portsmouth Square. Under the 1989 budgets, no additional shadow is permitted on St. Mary’s Square or Portsmouth Square, and only one-tenth of one percent of additional shading is allowed on Union Square.
According to the EIR, the worst-case under the Plan would result in minor amounts of shade on these and other protected parks, ranging from zero to about one-quarter of one percent. The new shadow on the three squares would be limited to morning hours (before 9 am), primarily during the winter months when cloud cover and rain are most prevalent. However, even these minor increases in shadow aren’t allowed under the City’s current zero-tolerance policies.
Though the Recreation and Park Commission and Planning Commission could adjust budgets to allow for the shadow that would be created by the TCDP, in the absence of a TCDP solution individual buildings will have to seek such adjustments on a project-by-project basis. As part of the plan adoption process, the City’s decision makers should consider, on a global basis, whether the benefits associated with the Plan-millions in public revenue, thousands of new jobs and more than eleven acres of open space-are a fair tradeoff for a small amount of new winter shade on a few public parks.
If you have any questions about the TCDP, please contact Daniel Frattin at 415.567.9000 or by email at dfrattin@reubenlaw.com.
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, 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.
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