SF Voters Pass Tax Waiver for Office-to-Home Conversions

It’s official. San Francisco voters have approved Measure C, meant to encourage developers to convert office buildings into homes.

Voters approved the measure backed by Mayor London Breed by 52.83 percent out of 213,135 ballots counted, according to the city and county Department of Elections.

The measure allows for a one-time transfer tax exemption for property owners who convert office buildings to housing, according to the San Francisco Standard. The exemption would apply to the first sale of a property after its conversion.

The transfer tax exemption applies to property owners who get approval to convert commercial property to housing before 2030. San Francisco properties valued at more than $10 million have a transfer tax rate of 5.5 percent to 6 percent, higher than large cities across the state.

Measure C also allows the city’s Board of Supervisors to amend, but not increase, the transfer tax without voter approval.

The measure aims to help boost housing and lower the city’s record office vacancy, now at 35.9 percent.

Measure proponents, including Breed, believe lowering the cost of office-to-housing conversions will encourage their development and help bring residents and foot traffic Downtown, where businesses now depend on visitors.

Only a few landlords in Downtown have filed plans for conversions, including a project to add 27 units to the Warfield Building at 988 Market Street, approved late last year. But this month, Group I, the developer behind the city’s first office-to-home conversion, defaulted on a $26 million loan tied to the historic building.

Developers have been loath to convert their office buildings into apartments because of the high costs of redevelopment and challenges in obtaining financing.

Measure C was supported by Breed and organizations affiliated with the pro-housing Yes in My Backyard, or YIMBY, movement, as well as the moderate advocacy group Grow SF.

Developers had mixed opinions. Some said the measure was a step in the right direction while others called it a “performative” measure that could do more harm than good.

Critics included the Council of Community Housing Organizations and the San Francisco Democratic Party.

Opponents of Measure C said it could allow politicians to hand out big tax breaks to corporate interests without public input, since the measure allows a majority of the Board of Supervisors to reduce or eliminate the city’s transfer tax without going back to voters.

The transfer tax, the city’s most volatile revenue source, brought in $186 million to city coffers last fiscal year, according to the City Controller’s Office.

The City Controller’s Office concluded the measure won’t likely save developers enough money to help them turn a profit, according to an economic impact report last month.

If market conditions shift, allowing more office conversions, it could result in less tax revenue because of fewer jobs, according to the report. It said conversion of offices to housing doesn’t appear to currently pencil out for developers, with the Measure C tax incentive not likely to bridge the gap.

The report said there could be more effective ways to encourage new housing development without using a tax break, such as “through zoning changes that could be economically and financially beneficial to the city.”

— Dana Bartholomew