[Socialism imminent...] Converting S.F.'s empty offices to [slum...] housing could finally be starting

[Leroy N. Soetoro]

Taxpayers call it "bailout".

https://www.sfchronicle.com/sf/article/office-building-convert-housing-
18390404.php

The much-discussed push to revive downtown San Francisco by converting
empty office buildings to housing is starting to gather real-world
momentum, with property owners looking to take advantage of a political
climate in which the mayor and Board of Supervisors are desperate to
activate the city’s struggling central neighborhoods.

S.F. Bay Area property map: Here’s who owns every building in region
Eight office building owners have responded to the city’s “request for
information” intended to identify landlords interested in converting their
properties to apartments or condos, according to Anne Taupier, director of
development for the city’s Office of Economic and Workforce Development.

Five of the buildings are in the greater Mid-Market and Civic Center
neighborhoods, two are in the Financial District, and one is near Yerba
Buena. The buildings were constructed between 1900 and 1967.

If all eight properties were to be converted, it would create around 1,100
units. The biggest building on the list would accommodate 300 units, while
the smallest would yield 40. While converting eight commercial buildings
totaling less than 1 million square feet would not put much of a dent in
the historic 33.9% office vacancy — more than 30 million square feet of
space — the interest is indicative that an increasing number of landlords
are accepting the reality that the pandemic and remote work has rendered
some buildings obsolete.

“We were pleased with the responses — it was more than we had expected,
and there was a good variety of buildings,” Taupier said. “We think there
is a chance to see some game-changing activation.”

For more than two years city officials have grappled with the likelihood
that many of the city’s smaller office buildings would be difficult to
fill in a post-pandemic world of remote work. Yet, the high cost of
turning office buildings into housing, along with the city’s burdensome
approval process, has meant that most property owners have been reluctant
to spend money on plans to convert.

But that has started to change as the city has passed legislation relaxing
zoning, reducing red tape and cutting fees, and both state and local
elected officials have expressed a willingness to make additional changes
to spur conversions.

State Sen. Scott Wiener plans to introduce downtown revitalization
legislation in January that would include tax breaks for conversions.

“Revitalizing and reimagining downtown San Francisco is critical for our
city’s future. We’re exploring various policy ideas to help breathe new
life into downtown by making it less of an office monolith and more mixed
use, with office, housing, entertainment, nightlife and other diverse
activities,” Wiener said in a statement. “I’m optimistic about downtown’s
future, and we need to facilitate that shift with smart policy.”

Taupier said the solicitation was part of a “fact-finding mission” to
better understand what financial or bureaucratic obstacles exist that
currently make conversions infeasible.

“We are trying to get a sense of what are the common themes around
financial shortfalls and how those shortfalls could be made up … what we
can do legislatively and what would need to be accomplished at the ballot
box,” she said.

The city agreed to keep the addresses of the buildings that are being
considered confidential because the discussions are so preliminary and, in
some cases, there are existing tenants that could be impacted. City
planners and development officials from the mayor’s office are conducting
one-on-one interviews with property owners, Taupier said.

“Some are vacant, some are partially vacant, and some have tenants but
have leases expiring and there are questions about whether they will
renew,” she said.

Taupier said that all of the property owners said that recent legislation
streamlining and lowering affordable housing requirements would be key to
making conversions possible. Most of them would be candidates for Mills
Act tax credits, which allow cities to reduce taxes for 10 years or more
to owners of historic properties.

Supervisor Aaron Peskin, who worked with Mayor London Breed on legislation
to make it easier and cheaper to do conversions, said he thinks the
efforts around the issue would take time to bear fruit.

“I never held this out as something that, presto, would create 10,000
units instantaneously,” he said. “But I think it will yield results over
time.”

So far, the biggest conversion application is Group I’s proposal to put 27
units in the historic Warfield office building at 988 Market St.

Group I principal Mark Shkolnikov said the company has submitted
construction drawings and will start on interior demolition work as soon
as next month. He said construction would start in the first quarter of
next year and would take nine months. The company has applied for Mills
Act tax credits and would be going before the city’s Historic Preservation
Commission next week.

Group I completed several office-to-residential conversions in the past,
but the Warfield project has taken on a sense of urgency because of the
dire state of downtown. He said Group I would look for other conversion
opportunities.

“The support from the city has just been remarkable,” Shkolnikov said.
“They have been frequently checking in to see what they can do to help
move this along. It’s obviously a timely conversion — we’ve sort of become
this poster child.”

One developer that has been scouring the city for conversion opportunities
is Emerald Fund, which converted 100 Van Ness about a decade ago. On
Tuesday, Emerald Fund Chairman Oz Erickson was touring 201 Spear St., a
building that is facing foreclosure.

Erickson, who has looked at several conversions, said he thinks at least 7
million square feet of San Francisco office buildings would have to be
converted to reestablish the vitality and bustle that existed downtown
prior to the pandemic. San Francisco’s downtown has lost roughly 150,000
daily workers since the pandemic.

He said the city would have to get rid of all exactions and taxes to make
these projects attractive enough that the union pension funds, which
finance much of San Francisco new housing, will be willing to invest. If
that happens, conversions can be done for $700,000 a unit, more than 30%
less than new, ground-up construction.

“There is not a choice — we have 30 million square feet of vacant office
space,” Erickson said. “This has to happen. The politicians have to stop
thinking this is about giving away something for free — it’s about saving
downtown.”

Reach J.K. Dineen: jdi...@sfchronicle.com


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