The Mayor’s proposal to waive San Francisco’s Transfer Tax for certain converted residential space (“Measure C”) was approved by voters on March 5, according to the City of San Francisco’s official preliminary election results. We previously provided an overview of this measure that is aimed at encouraging conversion of office to residential use in the City on October 25, 2023.
Generally, under the new law, up to the first 5,000,000 square feet of “Converted Residential Property” can be exempted from the City’s Transfer Tax. Conversions that involve demolition of nonresidential property to construct new residential property may also be considered Converted Residential Property subject to the tax exemption.
However, the measure caps the amount of new square footage that can be considered Converted Residential Property. For projects where a building is demolished to construct new residential property at the same site, the amount of Converted Residential Property only includes residential square feet in the new building that exceeds the square feet of any residential space in the demolished building, up to a maximum of the total gross floor area of the non-residential space in the demolished building, plus 10%.
According to SPUR, the approval of Measure C comes with the following benefits:
- Acceleration of office to residential conversion projects can speed downtown recovery through reducing the cost of development;
- Activating obsolete office buildings with housing can increase foot traffic and economic activity;
- The Board of Supervisors can make future changes to the transfer tax as needed legislatively, allowing flexibility for the City to make adjustments based on economic conditions
The tax exemption under Measure C applies to the First Transfer of Converted Residential Property—meaning the first transfer after a certificate of final completion and occupancy or temporary certificate of occupancy is issued for the property, whichever is earlier. So, projects will generally see the benefits of Measure C once construction is complete.
The passage of Measure C alone is not expected to close the feasibility gap for most office to residential conversion projects, and additional incentives will be needed to make such projects financially viable.
Authored by Reuben, Junius & Rose, LLP Attorney Kaitlin Sheber.
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.
