San Francisco Could Create Office Conversion Tax District

San Francisco officials are on the verge of creating some attractive tax incentives to convert offices into housing downtown.

Local politicians are close to advancing a new initiative that would use increased tax revenue from office properties converted to residences to offset development costs for 30 years, the San Francisco Examiner reported.

On June 3, the San Francisco Board of Supervisors gave initial approval to legislation that would create a Downtown Revitalization and Economic Recovery Financing District, which would cover downtown office and commercial areas including the Market Street corridor from the waterfront to Civic Center; the Financial District; Union Square; East Cut; Rincon; and Yerba Buena.

Once the legislation, made possible by last year’s California Assembly Bill 2488, receives final approval, the city must still adopt a detailed financing plan and regulations. Developers taking on conversion projects downtown would have until 2032 to enroll.

Mayor Daniel Lurie is a sponsor of the legislation, telling the Examiner he envisions the plan as a way of creating “a vibrant, 24/7 downtown” and “reviv[ing] our downtown economy and creat[ing] housing to ensure the next generation of San Franciscans can afford to raise their kids here.”

An analysis by the city found 50 properties that could make for good conversions, providing 4,400 new units of housing, Lurie’s office said. The initiative mirrors a similar tax incentive in New York City that led to the conversion of Lower Manhattan offices into more than 12,000 units from the late 1990s to early 2000s.

Conversion projects in San Francisco have largely stalled in the wake of the pandemic, according to the Examiner.

But a conversion of the Humboldt Bank building at 785 Market Street that would create 124 apartments could be close to moving forward, according to Richard Hannum, founding partner at Forge Development Partners, which is handling the development.

The latest move by the Board of Supervisors is an encouraging sign for projects like these.

“It’s a great step,” Hannum told the Examiner. “It’s on the path to getting us where we all need to go.”

In addition to housing conversions, Lurie is hoping to revitalize downtown office buildings with a new proposal that would allow mixed-use building owners to convert their vacant retail-zoned spaces into amenities for office tenants.

San Francisco’s office vacancy rate remains around 36 percent, according to CBRE.

— Chris Malone Méndez