There has been a flurry of recent legislation to encourage the repurposing of underutilized office buildings, both on the state and local level. New legislation recently proposed in San Francisco would facilitate the conversion of office buildings to residential and other newly permitted uses. Pending state legislation would also facilitate conversions by providing for “by right” (i.e., streamlined ministerial; no CEQA) approval of qualifying office to residential conversion projects and new funding sources for those projects.

PENDING SAN FRANCISCO LEGISLATION

New legislation introduced by San Francisco Mayor Breed and Supervisor Peskin, which was substituted on April 12, 2023, is aimed at revitalizing commercially-zoned properties in the greater downtown area, including the North Financial District, South Financial District, Mid-Market, Union Square, Jackson Square, Mission Bay/China Basin, North Waterfront, Showplace Square, South of Market, and the Van Ness Corridor (“Downtown”). The intent of the legislation is to “address twin problems of under-utilized office space and lack of affordable housing available in San Francisco.”

As summarized below, the legislation would, among other things, create a Commercial Residential Adaptive Reuse Program, create a new “Flexible Workspace” use category, expand permitted uses Downtown, and facilitate the adaptive reuse of existing buildings.

Commercial Residential Adaptive Reuse Program

The proposed Commercial Residential Adaptive Reuse program (“Program”) would apply to qualifying residential conversion projects proposed on or before December 31, 2028. To qualify, the project must:

• Include a change of use of existing gross floor area from a non-residential use to a residential use;
• Be located in a Commercial (“C”) zoning district east of (or fronting) Van Ness/South Van Ness Avenue and north of Townsend Street and outside of the Group Housing Special Use District;
• Limit any expansion of the existing building envelope to 20% of the existing gross floor area and one additional vertical story; and
• Not propose a density bonus under the State Density Bonus Law pursuant to Planning Code Sections 206.5 or 206.6. A density bonus could be proposed pursuant to the HOME-SF Program or 100 Percent Affordable Housing Program, subject to the limitations above.

The Program would exempt qualifying conversion projects from otherwise applicable Planning Code requirements related to:

• Residential lot coverage and rear yard requirements;
• Residential dwelling unit exposure requirements (modified requirements would apply);
• Residential usable open space requirements;
• Dwelling unit mix requirements;
• Streetscape and pedestrian improvement requirements;
• Bicycle parking requirements;
• Intermediate length occupancy and live-work controls; and
• Height measurement for rooftop appurtenances (e.g., mechanical equipment and elevator, stair and mechanical penthouses) in the C-3 zoning districts, as specified.

Without these exemptions, qualifying residential conversion projects would otherwise require either Planning Commission or Zoning Administrator approval of waivers of or modifications to these requirements after a noticed public hearing based on specified findings.

The San Francisco Building Official and Fire Code Official would also be directed to prepare an alternative buildings standards manual for qualifying residential conversion projects, which would include, among other things, alternative standards if technical infeasibility is present. This is also critical because there are well-documented design challenges associated with the conversion of existing commercial buildings to residential use due to required compliance with the strict provisions of the San Francisco Building Code.

Relaxed Planning Code Requirements in Commercial Zoning Districts

The proposed legislation includes numerous Planning Code amendments to “support existing and attract new businesses Downtown, and streamline approvals to draw consumers back Downtown.” These changes would include:

Modified Planning Commission Approval Requirements

• Planning Commission approval requirements under Planning Code Sections 309 and 309.1 would be modified to only apply if (i) the project would result in new construction or an addition over 120 feet in height (rather than 75 feet or 85 feet, respectively) or (ii) an exception to Planning Code development standards is requested (unless the project is a qualifying residential conversion project under the Program; see above). The net addition of more than 50,000 gross square feet would no longer trigger Planning Commission review.
• Conditional Use Authorization from the Planning Commission would no longer be required for single retail uses over 90,000 gross square feet in the C-3 zoning districts.
• Conditional Use Authorization from the Planning Commission would no longer be required for Formula Retail (i.e., “chain store”) uses on properties in the C-3-G zoning district with frontage on Market Street.
• An exception to commercial and residential ratio requirements (2:1) could be granted by the Planning Commission in the Transit Center C-3-O(SD) Commercial Special Use District if the “downtown commercial vacancy rate is persistently high” and the project would fulfill inclusionary affordable housing requirements by providing the required units on-site or off-site within a C-3 zoning district.
• For buildings designated as historic under Article 11 of the Planning Code, a “Qualifying Scope of Work” (to be delegated by the San Francisco Historic Preservation Commission to the Planning Department) could be approved administratively in the C-3 zoning districts.

Additional Permitted Uses

• Temporary “pop-up” uses, including but not limited to pop-up Retail, Entertainment and Arts Activities uses, would be permitted for up to one year within vacant commercial spaces in specified locations within C zoning districts.
• Accessory storage in C zoning districts would be permitted on the second floor and above without any square footage limitation if the storage would support retail uses with street level storefronts in the same building.
• Life Science and Laboratory uses would be newly permitted in the C-2 zoning district (historically, Life Science uses have generally been limited to special use districts and the Mission Bay area). Agricultural and Beverage Processing and Light Manufacturing uses would also be permitted in the C-2 zoning district.
• The following uses would be principally permitted in all C-3 zoning districts: Outdoor Entertainment, Open Recreation Areas, Residential Care Facilities, Senior Housing, Animal Hospitals and Trade Schools.
• Single retail uses over 120,000 gross square feet (including grocery store uses) would no longer be prohibited in any C-3 zoning district.
• Rooftop restaurants and bars above the existing height limit would be newly permitted on existing buildings in the C-3 zoning districts, as specified.
• General Office uses (including but not limited to offices for Design Professionals) in the C-3-R zoning district would be permitted on all levels of the building, but Conditional Use Authorization from the Planning Commission would be required for such uses located at or below the ground floor (currently prohibited).
• A new “Flexible Workspace” use category would be created, which the authors of the legislation apparently intend to allow for new entertainment business and co-working cafes in the Union Square area. This new use category would include any combination of Retail Sales and Service and General Entertainment uses that (i) operate in conjunction with a principally or conditionally permitted Non-Retail Sales and Service use (other than a Commercial Storage, Wholesale Sales, or Wholesale Storage use); (ii) occupy at least one-third of the total gross floor area of the building; and (iii) occupy space within the first 25 feet of the storefront.

Relaxed Ground Floor Active and Commercial Use Requirements

• Transparency requirements for required active ground floor uses under Planning Code Section 145.1 would be relaxed in the C-3 zoning districts, as specified.
• Active ground floor commercial uses requirements for the street frontages listed under Planning Code Section 145.4 would be modified to allow for ground floor “Flexible Workspace” uses and to eliminate the separate individual storefront requirement in C zoning districts.

Other Modifications

• Privately-Owned Public Open Space (POPOS) requirements could be satisfied by payment of an in-lieu fee in all C-3 zoning districts.
• Dwelling unit density limits, including for Senior Housing and Group Housing, would be eliminated in specified locations within the C-2 zoning district.
• Flexibility would be provided regarding tenant signage in the C-3 zoning districts, as specified.

Development Impact Fee Waivers

New legislation recently introduced by Supervisors Dorsey and Safai, which was substituted on April 18, 2023, would waive development impact fees for qualifying residential conversion projects, with the exception of any in-lieu fees proposed to satisfy inclusionary affordable housing requirements. Development impact fees associated with any non-residential uses proposed as part of the project would not be waived.

PENDING STATE LEGISLATION

Pending state legislation would also facilitate the conversion of existing underutilized office buildings to residential use.

Office to Housing Conversion Act

AB 1532 (Haney) would provide for “by right” (i.e., streamlined ministerial; no CEQA) approval of qualifying office to residential conversion projects. To qualify, the project must: (i) proposed the conversion of a building used for office purposes or a vacant office building into residential dwelling units; (ii) designate at least 10% of the on-site residential units as affordable to low or moderate income residents, as defined; and (iii) utilize a skilled and trained workforce, as specified.

New state funding would be available for qualifying office to residential conversion projects. AB 1532 would create the Office to Housing Conversion Fund in the State Treasury and upon appropriation, would require the California Department of Housing and Community Development (HCD) to establish a grant program that would award funding to qualifying projects based on the project square footage.

As applicable to San Francisco conversion projects, AB 1532 would:

• Provide that qualifying projects shall be a use by right in all zoning districts, regardless of the zoning of the site.
• Require the San Francisco Planning Department to approve qualifying projects ministerially.
• Exempt qualifying projects from impact fees that are not directly related to the office-to-residential conversion, and allow applicants to pay any applicable impact fees over a 10-year period, with the first payment due upon the earlier of the date of final inspection or the date of issuance of the certificate of occupancy.
• Prohibit the imposition of any open space requirements that were not imposed on the original office use (e.g., residential usable open space requirements).
• Prohibit the imposition of increased inclusionary affordable housing requirements that would apply specifically because the project is approved under AB 1532.

Revision of State Adaptive Reuse Codes

AB 529 (Gabriel and Haney) would require the California Building Standards Commission to work with HCD to revise existing state adaptive reuse codes to better facilitate office to residential conversion projects. AB 529 would also allow HCD to award points to “pro-housing” jurisdictions during its housing element review process for policies that facilitate office to residential conversion projects.

NEW STATE LEGISLATION

Assembly Bill 2011

As summarized in our prior legal alert, AB 2011 (effective July 1, 2023) also provides for the “by right” approval for the conversion of qualifying commercial properties to residential use. However, AB 1532 (summarized above) would be specific to office to residential conversions and would impose less rigorous project and labor requirements, as compared to AB 2011.