The Treasure Island Development Authority (“TIDA”) pitches the 404-acre island as “San Francisco’s Newest, Greenest Neighborhood.”  With up to 8,000 homes, 3 hotels, a ferry terminal, and 300 acres of parks and open space, Treasure Island is an ambitious undertaking.  Unfortunately, it may be a while before the greenest new neighborhood emerges from the red tape.  After having its lawsuit to overturn the EIR for Treasure Island rejected at trial and in the First District Court of Appeal, the Citizens for a Sustainable Treasure Island (CSTI) have asked the California Supreme Court for a third bite at the apple.  As with most things having to do with CEQA, the issues are convoluted.  CSTI is urging the Court to overturn the EIR for Treasure Island because: The City should have used a “Program EIR” rather than a “Project EIR” because not all of the hypothetical details of development on the island have been resolved.  Although the Treasure Island Plan includes detailed development standards, the City built in defined – and limited – flexibility regarding the siting of some features.  This, alleges CSTI, precludes the use of a Project EIR. By using a Program rather than a Project EIR, the City has telegraphed its intentions to unfairly curtail future environmental review. CSTI claims that further environmental review is more likely—and the legal standard for mandating additional environmental review lower—when there is a Program EIR. The Draft EIR should have been recirculated due to the addition of mitigation to prevent the disruption of Coast Guard radar and radio by tall buildings.  CSTI argues that the mitigation, which was devised in “private” meetings between the City and the Coast Guard, violated public disclosure requirements and deprived the public an opportunity to comment on significant impacts. In plain English, CSTI is asking the Supreme Court to send the City back to the drawing board for the EIR it already completed, and to make it easier to do so when individual buildings are approved on Treasure Island in the future. However, if the decisive opinion from the Court of Appeal is any indication, CSTI is fighting an uphill battle. First, the Court said there is “no authority” that requires the City to prepare a Program rather than a Project EIR.  The principal difference between the two is that a project-level EIR focuses on site-specific impacts where all phases of development are defined.  Although the plans for Treasure Island are flexible in some regards—e.g., the exact siting of tall buildings within defined “flex zones” – they were sufficiently detailed to serve as the basis for a Project EIR.  Though the Court did not give specific examples, Project EIRs have been widely used for other large-scale projects in San Francisco, including Park Merced, Mission Bay, and Phase II of the Candlestick-Hunters Point Shipyard. Second, the Court rejected the idea that City engaged in an “unlawful attempt to prospectively evade” further environmental review.  CSTI’s allegation in this regard is based on the “flawed legal premise” that individual projects following a Program EIR are evaluated under the fair argument standard—a low threshold favoring the preparation of an EIR—while Project EIR’s are not.  The Court instead found that both Program and Project EIR’s are subject to the same standard: further environmental review is not required unless there are substantial changes in a project or underlying circumstances that require major revisions of the EIR.  And in determining whether these conditions are present, courts defer to the City’s judgment rather than giving credence to any “fair argument” of impacts made by a member of the public. Finally, the Court found that the City’s agreement to consult the Coast Guard regarding the siting of tall new buildings that could interfere with radar/radio communications is “the way CEQA is supposed to work – the public comment process may reveal new…insights…that will affect the final Project design.” However, the agreement to consult with the Coast Guard did not rise to the level of “significant new information” requiring recirculation of the EIR. In essence, the Court of Appeal found CSTI’s claims to be much ado about nothing.  The Supreme Court has until mid-October to decide whether to accept CSTI’s petition for review. 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 developers have become accustomed to the potential for post-approval delays caused by appeals of a project’s entitlement or CEQA determination.  But recently, a new avenue for project opposition has sprouted up from a less expected source…the urban forest. In 2006, the City enacted an Urban Forestry Ordinance (Public Works Code, Article 16).  The Ordinance aims to protect San Francisco’s approximately 670,000 trees, a.k.a the Urban Forest.  One of the ways this is accomplished is by requiring property owners to obtain a permit from the Department of Public Works (“DPW”) before removing both street trees located in the public right of way, and also any trees on private property that meet the Code’s definition of a “significant.”    Despite what this weighty appellation suggests, a tree does not need to have any special aesthetic, cultural or historical significance to qualify as “significant.”  Instead, that term covers  any tree on private property within 10 feet of a public right of way that has at least one of the following:  (a) a diameter at breast height exceeding 12 inches; (b)a height exceeding twenty feet; or (c) a canopy in excess of fifteen (15) feet.  If these criteria are met, a permit is required for the tree’s removal, whether it is alive, dead, or hazardous. If a permit is required, a public process is triggered.  First, a removal application must be filled out and submitted to DPW.  In response, a DPW inspector will inspect the tree and issue a determination of whether removal is merited.  This is based on weighing a number of Code criteria, including the tree’s: (a) size, age and species; (b) visual and aesthetic quality; (c) cultural or historic significance; (d) ecological characteristics; (e) locational characteristics, such as whether it is in a high-traffic or low tree density area; (f) whether it is a hazardous tree; and (g) whether it has been properly maintained.   If DPW recommends removal, notice is posted on the tree for 30 days.  If objections to the tree’s removal are received, DPW will schedule a public hearing on the matter.  Likewise, if DPW recommends denial of the removal application, the applicant can request a public hearing.  In either event, DPW’s final decision can then be appealable to the Board of Appeals for 15 days. This process can raise concerns for developers, because an inability to remove existing trees on private property could necessitate a major project redesign and significantly limit the developable area of a site. There is also the potential for savvy opponents to use of the tree removal process as a tool for opposing or delaying a project’s initial entitlement.  In the past, the Planning Department has typically held off on requiring developers to obtain tree removal permits until after a project’s Planning Commission approval.  However, the Department’s recent requirement that the developers of a residential project obtain a tree removal permit before entitlement approval led to an unexpected branch of opposition. At the Department’s request, the developers sought and obtained a permit to remove two “significant” Eucalyptus trees on the property.  However, before the Planning Commission hearing approve the project’s Section 329 Authorization, a small group of neighbors appealed the tree removal permit to the Board of Appeals.  These opponents used the tree issue as a basis for opposing the project’s proposed design, arguing that because the trees were located in the typical rear yard area and were regarded as a public amenity, a major project re-design should be required to accommodate their retention.     The timing of this appeal was concerning, as the project’s design had not yet received Planning Commission approval, rendering it more vulnerable to proposed modifications.  After significant discussion and consideration of detailed accounts from certified arborists on both sides (and multiple hearings), the Board ultimately upheld the removal permit, but did propose to condition its decision on the project’s receipt of final entitlement approval.  Key factors in the Board’s final decision were the general condition of the trees, coupled with the fact that their retention was anticipated to result in a 16% reduction in the project’s overall residential density.   For more information on the Urban Forestry Ordinance and tree removal permit requirements, visit: http://sfdpw.org/index.aspx?page=656. 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.

​What does the San Francisco waterfront mean to you?  This question was posed to a panel of speakers, which included developers and City officials, at Bisnow’s San Francisco Future of the Waterfront forum on Tuesday.  The answers were varied, but each speaker expressed the importance of access to and preservation of the historic and breathtaking 7.5 mile waterfront stretch.   The Background San Francisco voters enacted Prop B, also known as the “Waterfront Height Limit Right to Vote Act”, as a local initiative on June 3, 2014.  Prop B mandates a vote for any future increase in height limits applicable as of January 1, 2014, to the tide and submerged lands transferred by the State of California to the City and County of San Francisco for the public trust pursuant to the Burton Act, Chapter 1333 of the Statutes of 1968.  The Burton Act provides that the “San Francisco Harbor and facilities shall be under the administration and control of the Harbor Commission of the City and County of San Francisco.”  In response to the Legislature’s directive, the City established the Port Commission as the agency with day-to-day management authority over the lands.  The State, acting by and through the Port Commission, retains oversight authority over the lands granted to San Francisco by the Burton Act.    Prop B is not the first attempt at regulating the height limits of the San Francisco waterfront, which generally range from 40 feet to 84 feet.  Aaron Peskin, former President of the San Francisco Board of Supervisors and supporter of Prop B, had a history of involvement in development-related matters along the waterfront.  In 2007, he unsuccessfully fought to guarantee that existing height limits along the waterfront be maintained in a bill by then-state Senator Carole Migden.  Under Senate Bill (SB) 815, designated seawall lots 328, 330, 337 and 347S, including a portion of Mission Rock Street, ceased being used for the public trust pursuant to the Burton Act, and the Port Commission became authorized to lease all or a portion of the seawall lots, so long as the term of any lease does not exceed 75 years.  Revenues generated from the leases are to be used exclusively to fund the preservation of historic piers and structures, and the construction and maintenance of waterfront open space.  The passage of SB 815, which has a sunset date of January 1, 2094, was a pivotal moment in the waterfront’s development history.   Opposition to Prop B Opponents of Prop B argue that the measure is inconsistent with the Burton Act and SB 815, and will jeopardize the preservation of the waterfront by requiring voter approval for every height limit increase, thereby potentially reducing the amount of waterfront development and revenue going into the port fund under SB 815.  Two lawsuits have already been filed challenging the validity of Prop B.  In February 2014, a group of individuals, backed by large developers and the San Francisco Giants, sued the City to restrain the Director of Elections from placing Prop B on the June 2014 election ballot.  The lawsuit claimed that Prop B would intrude on the jurisdiction of the State and the Port Commission over the shoreline and waterfront.  On March 19, 2014, Superior Court Judge Marla Miller ruled in favor of the defendants of Prop B and ordered the election to go forward.  The appeal of Judge Miller’s ruling was denied without a hearing on March 27, 2014. On July 15, 2014, less than two weeks after Prop B became law, the State Lands Commission, comprised of three officials, including Lieutenant Governor Gavin Newsome, sued the City seeking an order and declaration that Prop B is invalid.  The lawsuit claims Prop B specifically targets State-owned tide and submerged lands over which the Legislature has expressly precluded the right of local initiative.  Public Resources Code Section 6009(d) requires the Port Commission to “manage the state’s tidelands and submerged lands…without subjugation of statewide interests, concerns, or benefits to the inclusion of local municipal affairs, initiatives, or excises.”  The Legislature adopted Section 6009 in 2010 “for the specific purpose of prohibiting local initiatives from interfering with the planning, management, and operations of California’s sovereign lands that had been granted by the Legislature to municipalities.”  Development of waterfront lands requires collaboration and flexible planning.  Prop B could hinder this process by providing voters a right of approval over every height limit increase.  The lawsuit also claims that Prop B is invalid under the exclusive delegation doctrine by stripping the Port Commission of its exclusive authority over the lands granted by the Burton Act.  In doing so, Prop B “usurps the [Port] Commission’s statutory mandated consultation and oversight roles and bestows them on the City and County of San Francisco electorate.” Impact of Prop B Prop B is already impacting waterfront development projects that have been in the pipeline for years.  The San Francisco waterfront is a valuable asset and provides special maritime, recreational, cultural, and historical benefits to people from all over the world.  As history has shown, the development and preservation of the waterfront have also been contentious issues.  With the passage of Prop B last month, many developers and officials fear that the initiative will have a chilling effect on waterfront development and will threaten to delay or halt projects that are essential to the economic well-being of the City and the State.  One such project is the mixed-used development at Pier 70 which would include several acres of new parks, 30% affordable housing, and newfound access to the waterfront.  The project also proposes a height limit increase from 40 feet to 90 feet.  Now that Prop B is the law of the land, the fate of the Pier 70 project, as well as other waterfront development projects, rests in the hands of the San Francisco electorate.   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

At this November’s general election, San Francisco voters will weigh in on a number of ballot measures that could have long-lasting impacts on real estate development and land use in the City if passed.  Coming on the heels of the 8 Washington vote in November of 2013 and the Prop. B vote in June, some of these initiatives would continue to stifle responsible growth, while others are designed to push back against these recent development-unfriendly measures. A summary of these initiatives: Competing Housing Metering Ordinances.  Two competing initiatives will affect the production of new housing in the City.  An initiative proposed by Supervisors Avalos, Campos, Kim, Mar and Yee would impose additional conditional use criteria on housing projects if the City’s ratio of affordable to market-rate housing falls below 30%.  Mayor Lee introduced his own counter-initiative that would prohibit additional red tape designed to prohibit, condition, or otherwise restrict new housing based on an affordability ratio.  Mayor Lee’s ordinance would apply to projects in area or redevelopment plans, such as the Transit Center District or in the Eastern Neighborhoods. Importantly, projects that submit environmental applications before January 1, 2015 will not be subject to the Supervisors’ initiative.  For most projects, a prerequisite to filing an environmental evaluation application is receiving a Preliminary Project Assessment (“PPA”) letter from the Planning Department, which takes 60 days from submittal of a PPA application.  We recommend project sponsors submit PPA applications no later than the start of October in order to ensure they can receive a PPA letter and can submit an adequate environmental application prior to January 1, 2015. There is still a possibility that the Mayor’s Office and the Supervisors will reach a compromise and pull the dueling initiatives from the ballot, but the time to reach a solution is fast approaching:  if at least two of the Supervisors sponsoring the initiative withdraw their support by Tuesday, July 29, the housing metering initiative will not appear on the ballot.  If all five Supervisors withdraw support, or if the Mayor wishes to remove his initiative, August 1 is the deadline. “Surtax” on Sale of Residential Property within Five Years of Purchase.  Sponsored by Supervisors Avalos, Campos, Kim, and Mar—four of the five sponsors of the housing metering initiative—the so-called “anti-speculation” initiative would add a surtax to the sale of most residential buildings between 2 and 29 units in size, if the building owner buys and sells the building within a five-year period.  The surtax could be as high as 24% of the sale price if sold within one year of purchase, and declines to 14% if sold within five years.  After five years, there is no surtax.  A number of sales are exempt from the surtax, including owner-occupied housing, buildings sold at a loss, buildings sold as a result of the owner’s death, and new housing.   Starting January 1, 2015, the surtax would apply to all sales made within five years of purchase, even those buildings first bought prior to January 1, 2015.  The City Attorney’s office has confirmed that there would be no “grandfathering” for properties purchased before January 1, 2015.  That means, for example, a family that put its life savings into a three-unit building in 2011 will be subject to the surtax. Another obviously troubling issue is the staggeringly high amount of the surtax, which applies to the sale price itself, not just the difference between the purchase and sale prices.  If our family referenced above purchased the building for $2 million in 2011 and sells it for $2.5 million in four years, it will pay a surtax of $350,000.  If our family purchased the $2 million building in 2014 and sells it for $2.5 million within one year, it will pay a surtax of $600,000, meaning the family will actually lose money on the sale. Speaking at a recent public hearing, Supervisor David Campos acknowledged that if the initiative passes, the City expects it to be challenged in court.  The sponsors have until July 29th, or August 1st in the case of unanimous agreement, to withdraw the initiative. Pier 70 Re-Zoning.  One of the projects hit hardest by June’s Prop. B requiring voter approval to increase height limits along the City’s waterfront was Forest City’s Project at Pier 70.  Its 28-acre mixed-use development—which will create nine acres of waterfront parks and add between 300 to 600 new affordable and middle-class homes on a dilapidated pier—is dependent on a site-specific height limit re-zoning from 40 feet to 90 feet.   With Prop. B currently the law of the land in San Francisco, Forest City has to submit its rezoning request to the San Francisco voters, essentially creating a referendum on the project similar to 8 Washington.  Committed to working under Prop. B, Forest City gathered enough signatures to qualify an initiative onto the November ballot raising the height limit and paving the way for the project to move forward.  Supporters of increased low and middle-income housing and smart growth will be following this ballot measure closely. Another twist in the Pier 70 project came earlier this month when the State of California’s Lands Commission filed a lawsuit against San Francisco challenging the legality of Prop. B altogether, on the ground that the City’s obligation to manage Port property in public trust cannot be overridden by the local initiative process.  It did not go unnoticed among political insiders that former Mayor Gavin Newsom sits on the State Lands Commission.  The lawsuit’s effect on the Pier 70 re-zoning is uncertain at this point, but Forest City is moving forward with the ballot initiative. We will continue to monitor the progress of these initiatives. 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

​Land use practitioners in San Francisco need to be aware of significant new amendments to the City’s Lobbyist Ordinance that will take effect on July 26, 2014.  The Lobbyist Ordinance and its regulatory and public disclosure requirements concerning lobbying activities serve an important purpose.  These measures speak to the preservation of our democratic principles.  The new amendments, however, go too far.  They impose such drastic reporting and record-keeping requirements on the everyday business of typical land use practitioners that they likely will have a chilling effect on public participation in the political process.  These new measures will only further insulate our City government from the populace and its participation in the governing process.   Moreover, not surprising for San Francisco, the new amendments reflect blatant political favoritism.  Officers or employees of non-profits are excluded from the new requirements.  Apparently, the City’s interest in political reform extends to everyone except the non-profit community. One group particularly hard hit by the new amendments will be the City’s so-called “permit expediters.”  The new amendments impose significant burdens on anyone who provides assistance to others in obtaining permits, which will add to the cost of doing business, slow down the permitting process, and deliver another regulatory blow to the production of housing.  Just when the City is in the midst of a housing crisis. A summary of the new amendments is as follows. Lobbyist Qualification Threshold The new rules change the lobbyist qualification threshold, which is now based entirely on the number of compensated lobbying contacts an individual has with a City officer.  More specifically, an individual must register and report as a lobbyist if he or she makes: one or more compensated lobbying contacts in a calendar month with a City officer on behalf of a client, or five or more compensated lobbying contacts in a calendar month with City officers on behalf of the individual’s employer (unless the individual owns 20 percent or more of the employing entity). Exemptions from Lobbyist Registration An officer or employee of a 501(c)(3) non-profit nonprofit organization (or any organization it fiscally sponsors) is not subject to the lobbyist registration and reporting requirements when the officer or employee is communicating on behalf of that organization.  Also exempt are such communications by officers and employees of 501(c)(4) non-profit organizations that file either an IRS Form 990-N or an IRS Form 990-EZ. The new rules also narrow the current exemption for communications in connection with bidding on a City contract, negotiating the terms of a City Contract, or administering a City contract.  The exemption for communications by a “party or prospective party” to a contract no longer applies to a City contractor’s outside consultants or independent contractors. Permit Consultants (aka Permit Expediters) The new rules create registration and reporting requirements for “permit expediters.”  These new requirements are similar to, but not exactly the same as, those for lobbyists and will take effect on January 1, 2015. Developer Disclosures The new rules require developers of major City real estate projects to file reports with the Ethics Commission disclosing donations of $5,000 or more to nonprofit entities that have lobbied the City regarding the developers’ projects.  The filing requirement applies to real estate development projects costing over $1,000,000 and is triggered by the certification of an environmental impact report under the California Environmental Quality Act. Covered City Officials The new rules expand the list of those City officials with whom compensated lobbying contacts will trigger lobbyist registration and reporting.  Whereas previously the covered City officials were limited to the Board of Supervisors, Planning Commission, Building Inspection Commission, and the like, the new officials include members of the following boards and commissions: Successor Agency to the former Redevelopment Agency of the City and County of San Francisco Oversight Board of the Successor Agency Office of Community Investment and Infrastructure Commission First Five Commission Health Authority Board Housing Authority Commission Law Library Board of Trustees Local Agency Formation Commission Parking Authority Relocation Appeals Board Workforce Investment San Francisco Board     Also included is any person appointed as a department head by any City board or commission. 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.

​Meet the New Planning Commissioner Whether we like it or not, time marches on…and with it, Planning Commissioner Gwyneth Borden has completed her second term on the Commission, and has been appointed by the Mayor to the Municipal Transportation Agency Board of Directors.  Commissioner Borden was known for providing a practical and personal perspective at the Commission, something that added greatly its debates over the years.  We wish her well in her new role. In her place, the Mayor has appointed, and the Board of Supervisors has confirmed, Christine Johnson to the Commission.  Commissioner Johnson comes from a strong professional background that straddles the private, non-profit and public sectors.  On the private side, she has worked as a financial analyst, specializing in public finance, consulting Bay Area cities and transportation authorities as well as providing economic analysis for major arena projects in Washington, D.C. and Phoenix.  On the non-profit side, she has served in various positions at local community development corporations and other community organizations.  And on the public side, she has been the chair of the Commission overseeing the former Redevelopment Agency since 2012.  You can find her hefty resume at:  http://mytinyurl.com/kcfr3f4wcm.  Commissioner Johnson comes to the Planning Commission with significant experience in the financial side of economic development, which should give her a good perspective on the difficulty of doing development in San Francisco. Planning Commissioner Rodney Fong was also confirmed by the Board of Supervisors for a second term on Tuesday.  We will keep you posted on developments with Kathrin Moore and Bill Sugaya, whose current terms also expire this summer. 2 Henry Adams Goes Down… The proposed office conversion of the 250,000-square-foot building at 2 Henry Adams Street came to an abrupt halt this week, when the BOS Land Use Committee tabled indefinitely the necessary landmarking legislation.  The building is located in a PDR district, which generally prohibits office use, but allows it without restriction in buildings that are designated City landmarks.  The policy behind the exception is based in historic preservation – in order to provide cash flow to a historic building, use exceptions are provided to allow for higher-rent tenants.  These relaxed historic controls apply to varying degrees in many zoning districts, but no zoning district has a higher threshold than the PDR district – City landmarks are the most important historic resources in the City and require Board of Supervisors approval. Since 2 Henry Adams is not currently landmarked, it needed to go through that process – the first project in recent years to seek a landmark designation for the express purpose of converting the building to office.  The project seemed to have some momentum with the Historic Preservation Commission recommending the designation, and the subsequent lease of the entire building by tech-giant Pinterest.  But in the end, the surreal proposal came to an abrupt defeat.  Citing concerns with the displacement of 127(!) design/showroom tenants, the Land Use Committee tabled the landmarking legislation indefinitely. In fact, the 2 Henry Adams project was sailing against some powerful political winds.  The PDR zoning was put into place for the express purpose of protecting space for design/showroom and other industrial tenants from encroaching residential and office development.  In recent weeks, the Planning Commission has expressed concern about exactly these type of industrial building conversions – and in significantly more modest cases.  Keep in mind 2 Henry Adams would have had to get a large office allocation from the Planning Commission even if the landmarking had gone through.  And the icing on top was probably the visual of Pinterest leasing the entire building – and the image of tech displacing tenants, in all contexts, represents potentially the biggest policy concern these days for those on the progressive side of the aisle in the City. Moving forward, it will likely be very difficult to get an office conversion approved in “PDR-protection” zoning districts such as SLI, SALI, and PDR.  The Planning Commission has even asked the Planning Department to study some tools to prevent PDR-use loss in the Central SoMa plan.  Oh yeah, and the Land Use Committee did pass one related measure:  a conditional use requirement for office conversions in the PDR district that require an economic impact analysis be prepared prior to approval:  Message Received! Berkeley Joins San Francisco in Ballot Initiative Mayhem The combination of the 8 Washington vote in November, the Warriors move to Mission Bay, the Prop B vote in June, and the handful of development-unfriendly measures headed to the ballot this November has certainly gotten San Francisco economic-growth proponents in a funk.  But doesn’t it always feel better when you’re not feeling like that alone?  Well, in fact, we’re not alone!  An initiative in Berkeley that just qualified for the ballot would – among other things – reduce height limits in the downtown area.  This isn’t just a downzoning though, it’s essentially a rollback of the Berkeley Downtown Plan that took 6 years to develop between 2005 and 2011, was rescinded once by the City Council after a 9,000-signature petition opposing the plan was drafted, was approved a second time and then ratified by 64% of voters in an advisory ballot initiative.  Add to that the fact that if the current measure passes in November, the only way to change it is with another ballot initiative.   They say Bay Area land use is a blood sport, and, no doubt, there is a battle raging. 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.

In the ever-changing landscape of San Francisco real estate development, where demand for office space continues to gain momentum, conversion of property in PDR zoning districts to office space has received recent attention. Currently, the Planning Code permits the conversion of designated landmark buildings in PDR districts to office use.  This exception to the general prohibition of office use recognizes the need to ensure the economic viability of historically significant buildings. In June, Pinterest reportedly signed a lease for the building at 2 Henry Adams Street, which houses the San Francisco Design Center in Showplace Square, with plans to convert a large portion of the building to office use. Pinterest’s offices are currently housed at 808 Brannan Street, having been in the vanguard of technology firms moving from Silicon Valley to San Francisco.  Once here, these firms face difficulty growing their operations in a city where large office spaces are scarce and much space under construction is already pre-leased to technology firms such as Trulia, Salesforce, LinkedIn and Dropbox. Showplace Square, which straddles Potrero Hill and SoMa, has a concentration of warehouses, showrooms, and related PDR uses, such as the design showrooms at 2 Henry Adams.  The landlord of the four-story, 329,000 square-foot warehouse building is currently seeking historic landmark designation for the building, which would clear the way for the office conversion.  This was already seen as a challenge, as the Planning Commission would have to grant an office allocation to the building, something it has recently expressed reluctance towards for buildings in industrial districts. In some ways, Pinterest is a logical fit for the space, as many of the showroom businesses at the Design Center already showcase products on the website.  Not surprisingly, however, the Pinterest deal has faced pushback from some of the businesses, many of which would be required to move, with some relocation assistance promised by the landlord.  In the meantime, the Historic Preservation Commission has recommended historic landmark designation of the building to the Board of Supervisors, and the issue is set to be heard by the Land Use and Economic Development Committee of the Board of Supervisors this Monday, July 7. Last week, Supervisor Malia Cohen proposed legislation that would impose interim controls to limit the conversion of buildings to office space in PDR districts.  The legislation would subject such conversions to the conditional use process.  The process would require applicants to present the economic and fiscal impact of the conversion, with a complete economic impact analysis prepared by a licensed professional.  It would further require applicants to present information regarding the availability of space for PDR uses, compatibility of office at the location, and the effects of displacement of existing tenants, including providing to the City a proposed tenant relocation plan.  The matter is set to be heard Monday along with the landmark designation of the 2 Henry Adams building.  The controls are currently proposed to be in effect for 18 months. The issue of conversion of PDR uses to office space has quickly become a hot button issue in the world of San Francisco land use, as the City seeks to preserve existing industrial spaces from the increasing demand for new office space.  The case of 2 Henry Adams Street presents a particularly challenging case, where the company that provides the technology through which many customers of PDR businesses browse and shop is encroaching on the space where those PDR businesses operate.  One thing is becoming increasingly clear:  the conversion of industrial buildings to office use, commonly approved in recent years, is no longer a sure thing. 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. ​

​City Continues to Get Creative to Encourage More Housing Production The San Francisco Planning Code has become an immensely complex collection of growth controls, design mandates and development fees.  Virtually every aspect of a proposed project size and use is regulated by the Planning Code. That of course includes the floor area of the building as well as, for residential projects, the number of dwelling units permitted.  In addition to height limits and floor area limitations that put a literal ceiling on how large a building can be, the Planning Code has, for a long time, regulated residential density based on lot size.  In other words, it directly linked the number of residential dwelling units allowed on a site to the size of the site.  This makes some fundamental sense, but when combined with many other rules in the Planning Code, it ends up being one of a number of rules trying to regulate the same thing.  Height limits, and a variety of rear yard and other setback requirements, effectively limit the size of the building.  It has always seemed like overkill to further regulate the number of drilling units that can fit within any given building otherwise permitted by the Planning Code.  And the Planning Department has recognized this, and is moving toward more “form based” zoning (i.e., the envelope of the building is regulated, not the number of units or floor area within it…). In an effort to support more density on our remaining in-fill sites and to incentivize the production of more affordable housing, Supervisor Wiener has proposed a completely sensible Planning Code amendment that would exempt affordable housing units from being counted under these lot density provisions.  This means that the density will be calculated based on the number of market rate units provided on the site, and then the affordable on-site units will be added in without penalizing the project in terms of density. The proposed rule links up nicely with the Mayor’s push for accelerated construction of housing units, as well as the Planning Department’s apparent willingness to “prioritize” projects with at least 20% on-site affordable.  The Scott Wiener Rule would only apply to projects with 20% on-site affordable housing.  The Planning Commission will be hearing this matter this week on June 12.  We will continue to track this legislation. PDR Back At The Commission Also at the Planning Commission this week is an informational presentation on the status of production, distribution and repair (“PDR”) in San Francisco.  While no formal action will be taken, it will be interesting to listen to comments from both commissioners and members of the public as to whether this type of zoning is actually working. PDR uses – generally considered light industrial and manufacturing uses – have quietly been making a comeback in San Francisco in recent years.  The City’s manufacturing sector grew in 2012 for the first time since 1989.  Manufacturing jobs have grown from 2,500 in 2011 to 4,000 today.  The high-profile departure of chocolatier TCHO for Berkeley has raised concerns about whether current City policy is adequately protecting and providing space for home-grown small manufacturers. On the other hand, there do appear to be a number of buildings in PDR-zoned districts that are not quite living up to their potential – and there are of course companies lining up to extract the highest and best use from these buildings.   In the end, it is always important to remember how lucky we are in this fine City to be dealing with the problems we have.  The unemployment rate currently stands at 4.4% – the third lowest of all California counties.  Kudos to Ed Lee as well – the unemployment rate has been cut in half from when he came to office – at the time the rate was 9.4%.  This economic rise really has lifted all boats – the Chronicle reported last week that restaurants are having trouble filling jobs in their kitchens. A nuanced conversation about PDR is certainly due – we hope Thursday’s hearing does not devolve into a zero-sum conversation. And Finally…Formula Retail Stores Sales Are UP And while the City continues to struggle with its formula retail controls, as the economy picks up speed both regionally and nationally, formula retailers’ sales across the country are up significantly. ICSC reports that US formula retailers posted a mice 4.8% year over year gain for May according to their index.  This uptick in retail sales is a full 1% higher than a year ago on May 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.

​New Reporting Requirements for Developers, Lobbyists and Permit Expediters Last month, Supervisor Chiu reintroduced legislation that would dramatically expand reporting mandates for lobbyists, permit expediters, and developers to report contacts with City officials and, in some cases, their donations to charitable organizations.  The legislation will be considered at the Board of Supervisors Audit & Oversight Committee on June 10. Developer Disclosures The most far-reaching and novel aspect of the legislation would require developers to disclose certain contributions to nonprofit organizations.  According to the ordinance, these new rules are necessary to “protect public confidence in the fairness and impartiality of…land use decisions.” The requirements would apply to developers of “major projects,” i.e., any project with a construction cost over $1 million that needs a project specific EIR, or which relies on a previously certified EIR.  This latter category includes projects in Redevelopment areas, along with projects that receive a community plan exemption. This means the lion’s share of developers with projects in the Eastern Neighborhoods, Market-Octavia, West SoMa, Central SoMa, and Transit Center will be required to report certain charitable contributions.  The term “developer” is broadly defined to include “all constituent individuals or entities that have decision-making authority” over a project. The reporting requirements would apply to cumulative donations of $5,000 or more to a nonprofit organization that has lobbied the City, i.e., “attempted to influence” any “legislative or administrative action.”  Donations are reportable for a period beginning one year before an environmental application is filed up to one year after a project is approved. There are a number of problems with the legislation as written. First, it is overbroad. Donations to any nonprofit that attempted to influence any City legislative or administrative action – even actions wholly unrelated to a developer’s project – must be reported. Second, there is a mismatch between developer’s obligations and those of nonprofits, which enjoy a broad exemption from requirements to report lobbying activities. Lastly, the ordinance may in fact dissuade developers from proactively building legitimate relationships with nonprofits while failing to shine a light on problematic ones.  This is because a reportable donation only includes a “gift of money, property, goods or services.”  It does not, however, include settlement agreements, where a nonprofit does not receive a “gift” but instead receives funds as compensation in exchange for giving up its rights to oppose or appeal a project.   Perhaps the best way to illustrate is by example.  Developer A makes a $5,000 contribution to the San Francisco AIDS Foundation six months before filing an environmental application for a project.  Three years later, Developer A receives Planning Commission approval for the project, triggering the reporting requirement.  Developer A is not aware that the AIDS Foundation has contracts with the City and lobbies the City on public health matters and budgets.  Developer A has violated the ordinance and could be liable for a $5,000 fine. Developer B has a project at the Planning Commission and has received word that a politically connected nonprofit will turn out in force to oppose it.  Developer B is informed that the nonprofit will sign a settlement and support the project in exchange for a $1 per year lease on office space in the building for a ten-year term.  Developer B and the nonprofit sign the agreement, worth $350,000 for the nonprofit over the life of the lease.  Neither the developer nor the nonprofit is required to report anything to the City. Permit Expediters and Lobbyists Lobbyists have been required to report contacts with City officials for some time. Supervisor Chiu’s ordinance would expand the universe of lobbyists dramatically.  At present, a lobbyist is someone who is promised or receives more than $3,000 in a calendar month for lobbying.  Lobbyists must register with the Ethics Commission and report contacts with public officials each month. Under the proposed definition, the definition of a lobbyist would be expanded to include any person: Who has more than five contacts with supervisors, commissioners, department heads and other specified public officials  (“public official”) during a calendar month; or Who makes one or more contacts in a calendar month with a public official on behalf of any person who pays the individual or individual’s employer. A person lobbying on behalf of a business in which he owns a 20 percent share is not a lobbyist.  The practical effect of these changes is to require many business people who have limited contact with City officials to register and report their contacts to the Ethics Commission each month.  Failure to report lobbying activities could result in fines up to $5,000 per violation.  Clients and employers of lobbyists could be held jointly and severally liable for violations. Though the ordinance would apply broadly to private sector employees, it will maintain broad exemptions for many groups that play an outsized role in shaping policy and budgets in City Hall.  For example, communications on behalf of a labor union representing City employees regarding collective bargaining agreements are exempt, as are communications by representatives of nonprofit organizations on behalf of their organization.   Permit Consultants Under the proposed legislation, permit consultants would also be required to register with the Ethics Commission and report their permit consulting services each month.  A permit consultant would include anyone who receives or is promised compensation to provide permit consulting services, excepting only contractors, architects or engineers of record for a project.  Permit consulting services include “any contact with the Department of Building Inspection, the Entertainment Commission, the Planning Department or the Department of Public Works to help a permit applicant obtain a permit.”   The upshot is that any employee of a development firm that sends one email to a DBI plan-checker would be required to pay a registration fee and report contact to the Ethics Commission.  Attorneys, historic preservation consultants, and other professionals working to secure permits for a project would also qualify as permit consultants and be subject to stringent reporting requirements. However, professionals engaged by opponents to object to permits would not be

​What are a salesperson’s duties in a real property transaction when its employing broker represents both the buyer and seller through separate salespersons in the company?  A recent case entitled Horiike v. Coldwell Banker Residential Brokerage Company et. al. specifically addressed that question (225 Cal.App.4th 427).  In Horiike, Coldwell Banker, as the broker, represented both the buyer and seller in a residential sale through two different salespersons at the company.  The buyer ultimately sued Coldwell Banker and both salespersons for several causes of action, including breach of fiduciary duty.  The trial court granted a nonsuit on the claim for breach of fiduciary duty against the seller’s salesperson on the ground that such salesperson did not have a fiduciary duty to the buyer.  The buyer contended that seller’s salesperson had the same fiduciary duty to buyer as that of the broker.  The Court of Appeal agreed and held that when a broker is the dual agent of both the buyer and the seller in a real property transaction, the salespersons acting under the broker have the same fiduciary duty to the buyer and seller as does the broker, even though they are only representing one side of the transaction. In Horiike, an agent at Coldwell Banker listed an owner’s home for sale with approximately 15,000 square feet of living space based on measurements from an architect, although public record listed the home at closer to 9,000 square feet.  Another agent at Coldwell Banker brought a potential buyer, Mr. Horiike, who went into contract on the property.   The buyer and seller signed the proper documentation alerting them to the dual agency by Coldwell Banker and the buyer eventually closed on the purchase.  Afterwards Mr. Horiike pulled building permits to begin renovations on the home which showed the square footage was materially less than 15,000 square feet. He thereafter brought the action contemplated in this case. Horiike contended that seller’s agent, as an associate agent of Coldwell Banker, owed a fiduciary duty to him equivalent to the fiduciary duty owed to him by Coldwell Banker. The court agreed relying on statutory law which says that “when an associate licensee owes a duty to any principal in a real property transaction, that duty is equivalent to the duty owed to that party by the broker for whom the associate licensee functions”.  Since seller’s agent was an associate of the broker who was on both sides of this transaction, he owed a fiduciary duty to the buyer, in addition to his fiduciary duty to the seller.   A broker’s fiduciary duty to its client requires the highest good faith and undivided service and loyalty.  The broker as a fiduciary has a duty to learn the material facts that may affect the principal’s decision.  The agent’s duty to disclose material information to the principal includes the duty to disclose reasonably obtainable material information.  A fiduciary’s failure to tell the principal material information is considered constructive fraud, which is a unique type of fraud applicable only to a fiduciary relationship.  In this case, seller’s salesperson was aware of potentially different values of square footage which could be material to the buyer.  Arguably, he should have investigated further and provided his findings to Mr. Horiike. This case is an important reminder that even if informed waivers are signed by all parties, salespersons at a brokerage firm representing both sides of a transaction should tread carefully and be aware of their respective duties to both buyer and seller.  Even though seller’s agent represented the seller and not the buyer in this transaction, due to the fact that the broker represented both principals through its respective salespersons, seller’s agent owed a fiduciary duty to both parties.  Seller’s salesperson could be held liable for constructive fraud to the buyer for failing to adequately investigate the amount of square footage at the property and provide the relevant information to Mr. Horiike. 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.