SF Mayor Wants to Cut Tax for Office-to-Home conversions

To pare down San Francisco’s soaring office vacancies and encourage new homes, Mayor London Breed wants to cancel the city’s transfer tax for office-to-home conversions.

The mayor will put a measure to voters on the March 2024 ballot that would waive the city’s transfer tax for office buildings that have been converted into homes, the San Francisco Standard reported.

A simple majority of voters would approve the measure.

Property owners pay the transfer tax when a building is sold. The tax rate for properties more than $10 million is 5.5 percent to 6 percent, the highest rate for any big city in the state.

Developers say the tax burden makes it hard to get financing from investors because of the potential hit to returns when the building is sold.

Breed’s ballot measure would limit the tax waiver to 5 million square feet of converted office space, or 5.7 percent of the city’s offices. The city’s office vacancy rate is 33.9 percent.

To get the tax waiver, the conversion would have to be approved by the Planning Department by the end of 2029.

Projects would also need to receive construction approval within three years of their entitlement, according to the Standard. If only part of the building is turned into homes, the transfer tax would be based on what’s converted into apartments or condominiums.

Breed and Board President Aaron Peskin launched legislation that passed last spring to ease building requirements for office-to-home conversions.

Four out of 10 buildings in the city’s Downtown are candidates for such conversions because of their size, layout and proximity to transit, and could be turned into 14,000 homes, according to a report from the San Francisco Bay Area Planning and Urban Research Association.

At the same time, rising construction costs, high fees and taxes, and falling apartment rents have made such conversions hard to pencil for property owners and developers, according to the report. It recommended San Francisco reduce its transfer tax, offer property tax incentives and create tax increment financing districts to help turn obsolete offices into homes.

— Dana Bartholomew