​During its most recent session, the State Legislature passed six bills designed to revive aspects of redevelopment or in some way stimulate local economic development.  Governor Brown vetoed all six.  Does the Governor just have it out for redevelopment?  Maybe not.  In his vetoes of the bills Governor Brown wrote that he could not support the bills until the dissolution of redevelopment agencies was finally complete, but that he was supportive of the redevelopment intentions of the bills.  In other words, although it is now certain that redevelopment as we know it is going away, some new iteration of redevelopment may be on the horizon.  The question is, what might that new redevelopment look like? Infrastructure Financing Districts      Until Governor Brown first proposed to abolish redevelopment agencies two years ago, Infrastructure Financing Districts (IFD) were scarcely known.  IFD’s are a creature of state law designed, as the name suggests, to help cities and counties finance public infrastructure.  During the era of redevelopment, IFD’s were largely superfluous because they were not much different than redevelopment.  They use tax increment financing to pay back bonds that fund infrastructure.  IFD’s are different than redevelopment in that no finding of blight is needed to create an IFD, but they are difficult because their creation (and the subsequent issuance of the bonds) requires a 2/3 vote of the property owners in the proposed district.  Also, every public agency that would contribute tax increment revenues to the IFD must approve the formation.  The boundaries of an IFD cannot overlap with a redevelopment project area. Without redevelopment, however, IFD’s begin to look like a reasonable Plan B.  With the demise of redevelopment looming, redevelopment proponents seized on IFD’s and pushed three bills through the Legislature this year: * SB 214 by Lois Wolk (D-Davis), the most significant of the three bills, would have eliminated the voter approval requirement, allowed IFD’s to overlap with redevelopment project areas, and created greater oversight and accountability for IFD’s. * AB 2551 by Ben Hueso (D-Chula Vista), would have allowed a city or county to form an IFD, without any voter approval, in renewable energy zone areas to pay for renewable energy projects. * AB 2144 by John Perez (D-Los Angeles), would have reduced the voter approval requirement from 2/3 to 55 percent.  As stated, the Governor vetoed all three bills, expressing concern that the measures “would likely cause cities to focus their efforts on using the new tools provided by the measure instead of winding down redevelopment.” However, he left the door open for their return by stating suggestively that “[e]xpanding the scope of infrastructure financing districts is premature.”    Another IFD bill, AB 910 by Norma Torres (D-Pomona), would have allowed IFD’s to finance affordable housing and economic development projects.  But this bill never made it out of the Legislature.  The Governor did sign one IFD bill into law this Fall.  AB 664 by Tom Ammiano (D-San Francisco), allows San Francisco to create a special purpose IFD on the San Francisco waterfront to finance certain development work for the America’s Cup. SB 375 and Sustainable Communities Strategies In 2008, as a follow-up to AB 32, the 2006 greenhouse gas emissions reduction law, the Legislature passed into law SB 375.  SB 375 requires each of the state’s metropolitan areas to adopt a Sustainable Communities Strategy that uses integrated land use, housing and transportation planning to meet the area’s AB 32 greenhouse gas reduction targets.  Two of the pro-redevelopment bills from the last session sought to integrate redevelopment with the objectives of SB 375. SB 1156 by Darrell Steinberg (D-Sacramento) was the most ambitious of all six bills in that it authorized the creation of a new public agency, much like a redevelopment agency, empowered to collect property tax increment in a blighted project area.  Unlike redevelopment agencies, no tax increment could be diverted from school districts.   The link to SB 375 came in that the project areas had to be located in transit priority areas, and the project area “redevelopment” plan had to implement the goals of the local Sustainable Communities Strategy.  AB 345 by Norma Torres added to and was contingent upon the passage of SB 1156.   In vetoing both of these bills, the Governor was even more encouraging than with the IFD bills, stating that he “prefer[s] to take a constructive look at implementing this type of program once the winding down of redevelopment is complete … .  At that time, we will be in a much better position to consider new investment authority.” The last of the six bills, by the Committee on Budget and Fiscal Review, would have provided additional redevelopment dissolution funds to three counties that lost school funding due to an oversight in the redevelopment dissolution legislation. As the foregoing indicates, the elimination of redevelopment agencies is certain.  However, it seems likely that the neighborhood revitalization and economic development aspects of redevelopment will return, and the leading policy approaches to achieve that are IFD’s and coordination with Sustainable Communities Strategies.  We will continue to monitor and report on these legislative efforts. Good News for Mills Act Contracts A Mills Act Contract is an agreement between the City and County of San Francisco and the owner of a qualifying historic property.  The property owner receives property tax reductions in exchange for taking certain measures to preserve and restore the historic character of the property.  Among other qualifications, residential properties must have a pre-contract assessed value of $3,000,000 or less, and commercial properties must have a pre-contract assessed value of $5,000,000. Recently, the Mayor and Board of Supervisors approved changes to the City’s Mills Act Contract program to make it more appealing to landowners.  The two significant changes were: * Specific deadlines designed to expedite the processing of applications; and * A reduction in application fees from $9,159 to $2,500 for residential properties and from $18,310 to $5,000 for commercial properties. Reuben & Junius is experienced with the Mills Act Contract program. 

​This past year was a much better year for real estate (at least in San Francisco) than we have seen in a long time.  Office rental rates are up, construction cranes are everywhere, and properties are trading.  As we turn the calendar for another busy real estate year, let’s take a look at some of the new laws that will impact real estate in 2013. Gross Receipts Tax (San Francisco Measure E) San Francisco voters approved the measure that eliminates the existing payroll tax and replaces it with a tax on gross receipts.  The new tax will be phased in over five years, starting in tax year 2014.  The change will directly impact the real estate community, since most property owners have few employees.  The tax rate for real estate ranges from 0.285% to 0.3%.  Business registration fees will increase significantly beginning July 1, 2014. Anti-Deficiency Protection (SB 1069) Homeowners that refinance their homes will be subject to protection from deficiency judgments (balance of loan remaining after foreclosure sale) for loans entered into after January 1, 2013.  Previously, if an owner refinanced, they would lose this protection.  If an owner “cashes out” and takes cash out of the equity, then this protection will not apply. “Obamacare” Tax on Real Estate Deals While not a direct tax on real estate transactions, the sale of property will trigger a 3.8% tax on the gain for certain sales.  The tax will apply only to those earners that haven an adjusted gross income over $200,000 for individuals, and $250,000 for couples.  The 3.8% is calculated on the lesser of (i) the investment income received, or (ii) the excess of adjusted gross income over the threshold described above.  Investment income includes capital gains in real estate.  This is a complicated income tax issue, so you should consult with your tax advisor about the impact of this tax.  The National Association of Realtors has put out a helpful pamphlet summarizing the tax.  (www.realtor.org) Residential Mortgage Renegotiation (AB 278) As part of the Legislature’s efforts to protect homeowners from foreclosure, AB 278 imposes a number of protections for borrower’s that are working to prevent a foreclosure, including (i) mandating a single point of contact required for certain mortgage servicers, (ii) precludes recordation of a notice of default when foreclosure prevention measures have been approved, (iii) requires mortgage servicers (not just the lender) to contact borrower’s to explore foreclosure options, and (iv) allows borrowers to seek injunctions and damages for certain violations.   Eviction after Foreclosure (AB 2610) For residential properties that are foreclosed upon, tenants will be entitled to 90 days notice of termination , rather than 60 days.  Also, fixed term leases are recognized even if the loan was recorded first, with some exceptions.  The foreclosing owner must notify the tenant that the lease must be honored unless he/she intends to occupy the premises as a primary residence.   Disclosure of Hazardous Materials (AB 1511) Just in case you thought you could avoid disclosing the existence of gas and hazardous materials pipelines when selling residential property, the law now makes this a specific requirement. Easements (AB 1927) Allows parties to an easement to pursue a claim against joint easement holders for proportionate allocation of maintenance costs, in the absence of a written agreement.   Notaries (AB 2326) Those annoying finger prints are now required for the recordation of any document that affects real property – so just about every document that is notarized.  (Previously just applied to deeds and deeds of trust). New LLC Law (SB 323) Effective January 1, 2014, the California LLC law will be revised based on the national Uniform LLC Act.  Look for future updates on this topic in 2014.  This will affect many real estate owners since LLCs are often used as the entity to hold real estate.   Landlord/Tenant – Animals (SB 1229) For you pet lovers out there – Landlords that accept pets cannot require tenants to declaw or devocalize their animal as a condition to rental. The above is just a brief overview, if you have questions about the details, please give Kevin Rose a call. West SOMA Update – Historic Controls Expanded After a week of efforts by local stakeholders, the Planning Commission agreed to expand the universe of historic buildings eligible for relaxed use controls.  The Planning Commission voted to permit all uses, regardless of the underlying zoning, in the following types of historic buildings: 1. Article 10 individual landmarks 2. Article 11 buildings with a rating of I, II, III, or IV 3. Buildings individually eligible for the California or National Registers The Commission refused to expand the controls to buildings that are eligible for the California or National Registers as contributors to eligible historic districts.  While this excludes a significant number of buildings in West SoMa that have been identified as historic resources by the Planning Department, it represents a major expansion of eligibility for the controls than what the Department was originally proposing. The full West SoMa plan was approved last night 7-0 at the Planning Commission.  It now heads to the Board of Supervisors where additional changes are likely to be made before final passage.  We will continue to keep you posted on its progress. 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. Copyright 2012 Reuben & Junius, LLP. All rights reserved.

​While the West SoMa Community Plan has been in the works for over ten years, Planning Commission review and approval looks likely to wrap up after just a month of public hearings next Thursday.  Surprisingly, there has been little public comment over the course of several hearings on the plan in November.  Why surprising?  Because many of the new zoning districts will severely limit the uses that can be conducted in existing buildings.  And very little discussion of this has been conducted to date. Yesterday, the Planning Commission discussed this issue at an informational hearing on the plan.  In the proposed Regional Commercial District, which will apply to much of 9th and 10th Streets in the plan area, only five non-residential uses will be permitted on the third floor of buildings and above.  On the second floor, not much is permitted beyond retail and industrial use.  Office is permitted on only the first or second floor, not both.  The use controls for the proposed Folsom Street Neighborhood Commercial Transit District are similar. What the Planning Commission is now considering is allowing for relaxed use controls (i.e. permitted office) for certain types of historic buildings.  The Planning Department has conducted a historic survey for the area, and a large number of buildings in the area have been recognized as having some level of historic character – so these historic use controls could mean the difference between a vacant building and an occupied building for many owners. While the Planning Commission has expressed some interest in applying these historic use controls in West SoMa, they won’t feel much urgency to do so, or the need to apply them broadly, if existing owners don’t make their voices heard.  This is a key moment in the West SoMa rezoning process, and owners could seriously improve their zoning situation with some effort over the next week.  The new zoning will likely be in place for decades. Those who are interested can write a letter to Planning Commissioners expressing their desire to see the historic use controls apply broadly.  Even more importantly, owners can attend next week’s hearing, which will take place at 12 p.m. on Thursday, December 6, in Room 400 of City Hall to express their interest.   Reuben & Junius is following the development of the West SoMa plan closely, and can provide further guidance to those interested parties who would like to see the zoning controls for historic buildings in West SoMa to be relaxed.  You can contact John Kevlin at (415) 567-9000 or jkevlin@reubenlaw.com.  We will continue to report on the West SoMa plan as it nears adoption. 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. Copyright 2012 Reuben & Junius, LLP. All rights reserved.

As many of our readers have likely heard, Supervisor Wiener has proposed an amendment to the Building Code that would reduce the minimum size of efficiency apartments by 70 square feet.  These “micro-units” or “efficiency dwelling units” would have to be at least 220 square feet in area with a primary living space of at least 150 square feet.  The California Building Code allows cities and counties to make this change and several jurisdictions in California and elsewhere have done so in an effort to bring down housing costs.  After being unanimously recommended for approval by the Building Inspection Commission and Land Use Committee, the full Board of Supervisors continued the micro-unit legislation so that the concerns of so-called housing advocates could be addressed.  As is often the case with land use policy in San Francisco, facts and real-world data can take a back seat to amorphous fears and worst-case conjecture.  The debate over micro-units is no exception, with opponents of the legislation alleging that they would drive up land prices, create a shortage of affordable housing sites, and result in units that are occupied almost exclusively by reverse-commuting tech workers or that will be illegally converted to hotels.   In fact, most small units in San Francisco have been built for special needs populations, particularly youth transitioning out of foster care and the formerly homeless.  In Seattle, where 11 micro-unit projects have been built, vacancies are at about one percent and rents are about one-third the price of an average apartment.  In spite of the evidence that micro-units provide a low-cost housing alternative, opponents insisted on a cap on the total number of market-rate micro-units that can be built under the new ordinance. On October 9, 2012, Supervisor Wiener introduced an ordinance to do just that.   The ordinance as drafted would create a pilot program whereby the number of market-rate efficiency dwelling units with reduced square footage that may be approved by the Planning Department would be limited to 375 units total.  Affordable units or units used for student housing would be exempt from the limit.  At the time when 325 efficiency units of reduced size have been approved by Planning, the Planning Department must submit a report to the Board of Supervisors that would evaluate the new program, including an analysis of whether additional reduced square footage efficiency dwelling units should be allowed.  Also included in the ordinance is a requirement that, whenever possible, efficiency dwelling units with reduced square footage provide 10 square feet of usable common open space per unit, such as a reading room, media room, game room, or fitness facility.  The ordinance would apply only to new construction.  Owners of existing structures may not subdivide dwelling units to take advantage of the reduced square footage. Yesterday, the Planning Commission expressed doubts about the need for a cap and whether it could be effectively administered.  Nonetheless, it recognized the cap as a necessary political compromise brokered by Supervisor Wiener and endorsed the concept of a cap to allow future study.   The Board of Supervisors is scheduled to consider both the Building Code and Planning Code amendments next week.    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. Copyright 2012 Reuben & Junius, LLP. All rights reserved.

​As we reported in our August 17, 2012 Update, the California Supreme Court upheld the enforceability of provisions in condominium project CC&Rs requiring binding arbitration of construction defect claims against the project developer.  The Court’s opinion in Pinnacle Museum Tower Association v. Pinnacle Market Development (US), LLC, S186149, is an important decision for condominium developers, who should benefit from the typically more streamlined and cost-effective process of arbitration, rather jury trial. Pinnacle was not the only case pending before the Supreme Court on the issue of enforceability of binding arbitration for construction defect claims in condominium CC&Rs.  The Court also accepted for review four other California Court of Appeal cases involving the enforceability of such arbitration clauses:  Villa Vicenza Homeowners v. Nobel Court Development, LLC, S190805; Diaz v. Buckey, S194150; Promenade at Playa Vista Homeowners Association v. Western Pacific Housing, Inc., S198722; Verano Condominium Homeowners Association v. La Cima Development, LLC, S202596. On October 10, 2012, the Supreme Court transferred back to the California Courts of Appeal the Villa Vicenza, Diaz, Promenade and Verano cases for vacation of the Court of Appeals’ previous decisions and reconsideration of the cases in light of the Pinnacle decision.  We expect the Courts of Appeal to follow suit and uphold the arbitration provisions at issue in the respective cases.  However, due to the different facts of each case, the decisions in the Court of Appeal cases may turn on different issues and result in different outcomes.   We will continue to monitor these cases as they progress through the courts and provide future updates on their outcomes. 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. Copyright 2012 Reuben & Junius, LLP. All rights reserved.

​Those readers with a particular interest in CEQA may remember our previous updates on the inefficient CEQA appeal process currently in place in San Francisco.  CEQA – the state law mandating environmental review of projects requiring discretionary approval – requires that all environmental determinations (exemptions, negative declarations, EIRs) must be appealable to the Board of Supervisors.  Currently, city code is written so that there are no time limits for appeals of exemption determinations or negative declarations.  This has led some project opponents’ to abuse of this loophole, whereby they use a CEQA appeal simply as a way to continue to oppose a project (even if there are no valid issues with the environmental determination).   The worst example of this abuse is when a categorically exempt project which requires no Planning Commission approval is taken to the Planning Commission on Discretionary Review.  After being approved by the Planning Commission, the project sponsor can spend months preparing detailed architectural and building plans.  Once the permit is issued, an appeal can be filed at the Board of Appeals.  Even if the Board upholds the permit, the project can still have its exemption determination appealed to the Board of Supervisors and overturned – potentially over a year after obtaining Planning Commission approval. Legislation introduced last week by Supervisor Scott Wiener would fix the current situation, by simply enacting appeal periods for negative declarations and exemption determinations.  To appeal a negative declaration to the Board of Supervisors, the document must have already been appealed to the Planning Commission, and the Board appeal must be filed within 20 days after adoption by the Planning Commission.  To appeal an exemption determination, the appeal must be filed within 20 days of the granting of the first entitlement (such as a conditional use).  This appeal period would be shortened if the appeal period for the underlying entitlement is shorter than 20 days (such as approval of a permit that does not require Planning Commission approval, which is 15 days).  Importantly, the appeal period begins after the first entitlement – if a complex project requires more than one entitlement, the appeal period begins once the first entitlement is granted.  We do believe that the term “entitlement” should be more clearly defined to include any Planning Commission action, including a hearing before the Commission on Discretionary Review. CEQA is intended to provide decision-makers with information regarding environmental effects caused by a project up front – so that they can make an informed decision weighing the benefits of the project versus any potential impacts it would cause.  As currently implemented in San Francisco, a CEQA exemption determination or negative declaration could be called into question at the very last moment of project approval – after months or years of approval and appeals hearings on the merits of a project.  By simply applying appeal periods to all CEQA documents, Supervisor Wiener’s legislation would make the process fairer, since project sponsors wouldn’t be at risk of getting a CEQA determination appealed and overturned months or years after it has first been relied upon.  It also better fulfills the intent of CEQA, which is to provide decision-makers with accurate environmental information up front.  It is wasted time and energy to continue through the many steps of the entitlement process if the initial environmental review is inadequate. We commend Supervisor Wiener for taking on this common-sense reform of an important issue.  This is not the first attempt at this simple reform – an earlier effort by former Supervisor Alioto-Pier died at the end of the last Board of Supervisor’s session in 2011.  With the current pragmatic, get-things-done Board, this legislation should be a no-brainer. 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. Copyright 2012 Reuben & Junius, LLP. All rights reserved.

​Please join Mayor Ed Lee, Reuben & Junius, Bob Nibbi and Nibbi Brothers for an evening reception and fundraiser in support of Proposition C, the Housing Trust Fund Initiative, on October 10, 2012, from 5:30-7 p.m. at Reuben & Junius’ office, One Bush Street, 6th Floor.  To RSVP, please contact Connie Addington at caddington@reubenlaw.com or (415) 567-9000.  What is Proposition C? Prop. C will roll back inclusionary requirements by 20 percent and create a more predictable environment for housing investment by restricting future increases in affordable housing exactions. Mayor Lee was instrumental in bringing together both market-rate and affordable housing developers to craft Prop. C, the affordable “Housing Trust Fund Initiative” on this November’s ballot.  Prop. C will provide a stable source of funding to replace the loss of Redevelopment Agency financing.   The trust created by Prop. C will eventually result in a dedicated funding stream of $50.8 million per year for affordable housing.  How will Proposition C reduce inclusionary requirements? Prop. C requires the City to reduce by 20 percent the on-site inclusionary requirements, as they existed on July 1, 2012.  The reduced requirement will take effect on January 1, 2013.   For example, a project that now has an on-site requirement of 15 percent will only be required to make 12 percent of its units affordable.  Thus, a 100-unit project will only have to provide 12 on-site units rather than 15.   Assuming two-bedroom units, here’s how the finances might break down—conservatively—in a neighborhood like Hayes Valley.  If the units were to be “for sale” BMR units, the City mandated sales price would be about $295,000, the actual market price for that unit could be $780,000, resulting in a $485,000 difference between market rate and below market rate prices.  For a 100 unit project that will only have to provide 12 on-site units rather than 15, the savings in this hypothetical would be almost $1.5 million dollars.  There would also be savings under the rental BMR program.  A typical BMR rental price is $1,275 a month compared to $3,700 a month for a market rate rental.  This is a difference of $2,095 a month and on the same hypothetical 100 unit project would result in a monthly savings of $6,285. Approved projects will qualify for the reduced inclusionary requirement, so long as they have not received their “first construction document” as of January 1, 2013.  First construction document means the first building permit issued for a development project or, in the case of a site permit, the first building permit addendum issued or other document that authorizes construction of the development project.  An addendum for demolition, grading, shoring, pile driving, or site preparation work is not considered a “first construction document.”  In order to receive the reduced inclusionary requirement, approved projects must: 1) Make a one-time application to the Planning Commission for a modification of conditions of approval to reduce the inclusionary requirement by 20 percent or change their election to provide on-site units; and 2) Demonstrate to the Commission that the reduction will enable the project to obtain financing and commence construction within one year. If the previously approved project does not receive its first construction document within a year of the Planning Commission action, the reduced inclusionary requirement is rescinded, unless the Zoning Administrator determines at a public hearing that the sponsor made good-faith efforts but was unable to obtain the first construction document for reasons beyond its control.  What projects are ineligible for a reduced inclusionary requirement under Prop C.? Prop. C establishes a “basic on-site inclusionary requirement” of 12 percent.  No project can go below this basic level.  Right now, projects 120+ feet in height are subject to a general citywide requirement of 12  percent, so they aren’t eligible for a reduction under Prop. C. Projects with a development agreement or subject to redevelopment requirements  are also ineligible for the reduction in inclusionary requirements, as are projects in which the City has a proprietary interest. How does Prop. C restrict future increases in affordable housing exactions? The cost burden of complying with the City’s inclusionary requirements has increased dramatically.  Fifteen years ago, there was no uniform affordable housing requirement.  Today, the average two-bedroom unit in a market-rate development is subject to a $67,000 fee to subsidize affordable housing.  Prop. C will cap future cost escalation by barring the City from adopting any land use legislation, administrative regulation, or imposing new conditions of approval on a permit that would increase a project sponsor’s cost of complying with the inclusionary requirement beyond levels existing on January 1, 2013.  This will lock in the reduced inclusionary obligations for the next 30 years, unless altered by the voters.  Prop. C will also prevent the City from adopting any new other affordable housing fees.  There are some exceptions, however.  Inclusionary requirements can be increased when large areas or individual projects are rezoned or otherwise receive bonuses that significantly increase residential development potential.  As well, the restriction would not apply in redevelopment areas, infrastructure finance districts, or areas where tax increment can be used to fund affordable housing.   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. Copyright 2012 Reuben & Junius, LLP. All rights reserved.

​The Board of Supervisors this week approved the first reading of legislation that will go a long way toward defining how the former San Francisco Redevelopment Agency (“SFRA”) will transition to, ultimately, its complete dissolution.  The legislation was introduced by Mayor Lee and sponsored by Supervisors Kim, Cohen and Olague.  The Board approved the legislation by a 10 to 1 vote, with Supervisor Campos opposing. Under Assembly Bill 26 (“AB 26”) and the California Supreme Court’s decision upholding AB 26, all redevelopment agencies in the state, including the SFRA, were dissolved by operation of law as of February 1, 2012. Although the fact of dissolution was clear at that time, the nuts and bolts of how that dissolution would occur needed significant clarification.  Unanswered questions included:  whether redevelopment plans would still control development in existing project areas; who would approve new and ongoing projects in project areas; and whether the Planning Department would take over the functions of the SFRA staff.  The legislation approved by the Board of Supervisors this week answers many of these questions.  The short answer is that a new, independent City agency, formally known as the Successor Agency to the Redevelopment Agency of the City and County of San Francisco (“Successor Agency”), will essentially step into the shoes of the former SFRA as to the management of “non-affordable” housing assets and obligations.  Just like the former SFRA, this new Successor Agency will have an Executive Director and will be staffed by former SFRA staffers, and will be governed by a five-member commission appointed by the Mayor (subject to confirmation by the Board of Supervisors) to serve four-year terms.  The Successor Agency’s Executive Director could be quite powerful as the Successor Agency Commission is authorized to delegate to the Executive Director any of its duties it deems appropriate.  The Successor Agency will not have the power to collect tax increment financing or to create new redevelopment project areas, as its reason for existence is to wind down the affairs of the SFRA.  The Mayor’s Office of Housing (“MOH”) has been and will continue to manage the SFRA’s affordable housing assets and functions. When redevelopment agencies were dissolved on February 1, AB 26 designated the City as the original successor agency as to non-affordable housing assets and obligations.  As required by AB 26, the City established a seven-member oversight board of the successor agency (“Oversight Board”). The Mayor appointed, and the Board of Supervisors confirmed, four members to the Oversight Board. The Bay Area Rapid Transit District, the Chancellor of the California Community Colleges, and the County Superintendent of Education each appointed one of the remaining three members of the Oversight Board.  Much of what the Successor Agency and Successor Agency Commission are now tasked with under the new legislation was previously within the jurisdiction of the Oversight Board.  The Oversight Board will continue to be responsible for the City’s semi-annual financial disclosures to the state Department of Finance.  These are referred to as Recognized Obligation Payment Schedules, or “ROPS.” Pursuant to AB 1484, legislation adopted by the state Legislature in June 2012, the Board of Supervisors’ legislation will terminate the City’s responsibility as successor agency and now provides as follows:  (1) the new Successor Agency is a separate public entity from the public agency that provides for its governance (the City) and the two entities shall not merge; (2) the Successor Agency has its own name and the capacity to sue and be sued; (3) the Successor Agency shall be substituted for the SFRA in all litigation to which the SFRA is a party; (4) the Successor Agency succeeds to the organizational status of the SFRA but without any legal authority to participate in redevelopment activities except to complete the work related to an approved enforceable obligation;   (5) the Successor Agency is a local entity for purposes of the Brown Act;   (6) the Successor Agency is now distinct from the City but is still subject to the governance of the City acting through its legislative capacity; and (7) the Successor Agency may retain, as it deems appropriate, the City Attorney for legal advice and representation. Under the Board’s new legislation, the Successor Agency and the Successor Agency Commission will act in place of the SFRA to implement, modify, enforce and complete the surviving redevelopment projects.  These include, without limitation, the “Major Approved Development Projects” (Mission Bay, Hunter’s Point and the Transbay Transit Center), and all other enforceable obligations, except for those enforceable obligations for affordable housing that have been transferred to MOH. The Successor Agency and the Successor Agency Commission also will approve all contracts and actions related to the assets transferred to or retained by the Successor Agency, including, without limitation, the authority to exercise land use, development and design approval authority for the Major Approved Development Projects and other surviving redevelopment projects, and the approval of amendments to redevelopment plans as allowed under AB 26 and AB 1484, and subject to adoption of such plan amendments by the Board of Supervisors and any required approval by the Oversight Board. The Board of Supervisors is anticipated to approve the second reading of this legislation next week at its regular meeting (October 2), and then the Mayor will have 30 days to sign it into law.  Nevertheless, Successor Agency staff already is effectively in place and operational as authorized by the new legislation.  Please contact the author if you have any questions or would like additional information on this topic. Clarification Regarding Gross Receipts Tax Proposal In our last update, we discussed the San Francisco gross receipts tax proposal that will be on the November.  Our summary of the tax rates did not include a final change that was made before the legislation was approved for the ballot.  The final version has the following rates, which are slightly lower than previously proposed:                Gross Receipts        Tax Rate                Under $5M                0.285%                Over $5M                  0.3% The issues discussed in this update

​In prior updates, we informed you about pending legislation and regulations that would impact the real estate industry.  A few of these laws and regulations are now being implemented or will be voted on in November. San Francisco Gross Receipts Tax The San Francisco Gross Receipts Tax will be on the November 2012 ballot.  If passed by San Francisco voters, the existing payroll tax will be phased out over the next 5 years and replaced with a progressive tax based on the annual gross income received by the taxpayer.  The tax rate is determined by the type of business generating income. The tax is intended to be revenue neutral, as a whole, but will have a disproportionate impact on the real estate industry.  The following is a summary of the tax rates for real estate leasing and related services. 0.3%      Gross Receipts between $0 and $1,000,000 0.325%  Gross Receipts between $1,000,001 and $25,000,000 0.4%      Gross Receipts over $25,000,000 And for other industries, the range of tax rates is: Retail:  0.075% to 0.175% Food and Manufacturing:  0.125% to 0.45% Hotels:  0.3% to 0.4% Construction:  0.3% to 0.45% Professional/Financial/Tech:  0.4% to 0.55% Private Education/Health:  0.525% to 0.65% In our previous update of July 12, 2012, we summarized the proposed tax in more detail, but a few clarifications to the legislation are important, including: Gross Receipts do not include distributions to “pass through” entities; Rental receipts are taxed only for San Francisco properties; and Special tax rate of 1.5% of total payroll is imposed in lieu of gross receipts tax for businesses that are primarily “administrative offices” (limited to companies with more than 1,000 employees and income over $1,000,000,000, so only large companies are benefitted by this exception.)                Commercial Energy Disclosures Beginning January 1, 2013, any property owner that sells,ground leases, or finances a commercial building over 50,000 square feet must disclose certain data regarding the building’s energy consumption.  This information can only be obtained by registering the building with the EPA’s Energy Start Portfolio Manager website and opening an account.  The disclosures will include a statement of the building’s energy performance, the property’s physical and operating characteristics, and a comparison of energy use to national averages.  As of July 1, 2013, the requirements will apply to buildings above 10,000 square feet.  All buildings with at least 5,000 square feet must comply as of January 1, 2014. It is interesting to consider that the owner’s only means of compliance with the regulations is to register the building with an agency of the Federal Government.  On the bright side, according to the State of California Energy Commission, the EPA’s Portfolio Manager system is free to use, and allows building managers to efficiently track energy consumption in a secure, online environment, which could help owners identify the inefficient use of energy resources.   Owners that plan to sell in the coming years should prepare to meet these disclosure obligations. Changes to Condo Laws Adopted We previously wrote about the proposed overhaul of California law regarding condominiums and other common interest developments.  This bill was passed on August 17, 2012 and takes effect on January 1, 2014, giving condominium projects and consultants over a year to digest the new rules.  Our update of February 24, 2012 (available on our website in the archived articles) summarizes the key changes.  Property managers, boards, and condominium developers should update their documents and procedures to account for these changes. Split Property Tax Roll The proposed initiative to amend Proposition 13 to create a split tax roll and reassess commercial properties every three years failed to qualify for the November 2012 ballot.  It appears that the sponsors did not actively pursue the necessary signatures.  Perhaps they felt that the initiative would have been too much to take on this year, given Governor Brown’s proposed initiative to increase the sales tax and personal income tax (Proposition 30).  Nonetheless, some commentators feel that it is only a matter of time before commercial property is reassessed more frequently to catch more tax dollars for governments that desperately need the money.   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. Copyright 2012 Reuben & Junius, LLP. All rights reserved.

​Revamp of Transit Impact Development Fee (TIDF) Proposed Significant changes to the Transit Impact Development Fee (“TIDF”) may be coming our way soon.  The TIDF is a per-square-foot impact fee that applies to non-residential developments proposing new construction and changes in use of existing buildings.  A broad coalition including Mayor Lee, Supervisor Wiener and Supervisor Olague have introduced the amendments, which gives the legislation good odds of passing at this point.  Note, however, that the previously-proposed expansion of the TIDF to apply to residential uses is not proposed as part of this legislation (nor is the broader Transportation Sustainability Fee (“TSF”), which we reported on back in May 2012 and would add the benefit of eliminating the need for CEQA transportation studies). Among the changes proposed, we see two as having the most impact on development in the city. First, the threshold for triggering the TIDF would be reduced from 3,000 square feet to 800 square feet.  It was not uncommon for projects to avoid the TIDF by limiting non-residential uses – say a ground floor retail space in a residential building – to below 3,000 square feet.  Now, with an 800 square foot trigger, most non-residential projects, or components of projects, will trigger the fee. The other major change is that the fee rates are being changed.  This is not unique in itself – the fee rates increase on an annual basis – but the legislation increases the disparity between the office fee rate and the industrial fee rate significantly.  The office fee rate will increase from $12.06 to $12.64 and the industrial fee rate will be reduced from $9.65 to $6.80.  The real impact of this will be felt in projects converting old industrial buildings into office.  Since the TIDF provides for a fee credit based on the fee rate of the current use and the fee rate of the proposed use, the credit for a change from industrial to office would decrease from roughly 80% to 54%.  Essentially, a reduction in the industrial fee rate helps few projects (as there are few industrial developments these days in the city) but will significantly decrease the credit available for an industrial to office conversion. There are some other goodies in the legislation, including additional fee credits for policy reasons, such as a reduction in the fee for businesses occupying a space of less than 5,000 square feet and for projects that do not maximize the amount of parking permitted.  However, in the end, the legislation ends up making the TIDF a larger exaction on projects – especially those office conversions that are so popular these days. Residential Parking Tax Reform Measure Proposed A new residential parking tax reform measure has also been introduced by Supervisor Wiener that could bring residential parking operators into the light – but there’s a catch! Currently, the same parking tax collection and registration rules apply to owners of major commercial parking garages downtown and to owners of parking spaces at a residential building being rented out to residents who do not live in the building.  These significant rules include obtaining an annual parking permit, making monthly tax prepayments, paying associated fees, and maintaining certain levels of insurance.  According to the city itself, these rules have led to likely thousands of owners of residential parking spaces who are not complying with the parking tax ordinance. Taxes due even on a single space can add up over time, and including penalties for failure to pay the tax on time, and can create a major cost that hang over many residential parking space owners’ heads.   Supervisor Wiener’s legislation would create a “carve out” for certain residential parking operations. For parking operations consisting of 5 or less spaces rented to non-residents may be eligible for a significantly streamlined parking tax.  The spaces must be rented on at least a monthly basis and the total gross receipts must not exceed $4,000 quarterly and $15,000 annually.  If eligible, a residential parking operation would be exempted from the commercial parking permit requirement, from the monthly prepayment requirement, and from the revenue control equipment fee.  The residential parking owner must still file quarterly parking tax returns.  While the first part of the legislation will be important for new owners of residential parking spaces, those who have owned residential parking spaces for many years without paying the parking tax face significant tax liability and penalties, and would have little incentive to come clean now.  For these owners, the legislation attempts to entice them into the new program by providing amnesty for taxes, fees, and penalties not paid up until April 1, 2011.  That may not be enough to bring existing residential parking owners into the open.  First, the amnesty does not provide protection for unpaid taxes between April 1, 2011 and today – which could be significant when penalties are added.  Also, as we have seen with the Planning Department’s legitimization program, the “amnesty” provision may not be as forgiving as it sounds, and residential parking owners could run the risk of exposing themselves to the city, and subsequently being denied eligibility for the amnesty program. Supervisor Wiener’s legislation is a common sense attempt to distinguish residential owners who rent a small amount of parking spaces from major downtown commercial parking garage owners.  While the “amnesty” provisions may not be enough to bring the thousands of existing residential parking owners into the light, it will certainly make the parking tax work better moving forward. 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. Copyright 2012