San Francisco Officially Passes its Long Awaited Central SOMA Plan

San Francisco, Hanson Bridgett, SOMA, Transferable Development Rights, Caltrain, Rincon Hill, San Francisco Board of Supervisors
Image used with explicit permission from JLL

By M. Brett Gladstone, Esq., Partner, Hanson Bridgett LLP, San Francisco .

On December 4, 2018, the San Francisco Board of Supervisors (on its second and final reading) approved the “Central SOMA Plan,” resulting in the largest rezoning of the commercial heart of San Francisco since the City’s renowned Downtown Plan was adopted in the 1980’s. Mayor London Breed has indicated that she will sign the rezoning into law by the end of this year. The rezoning was initiated because the City feared that its high-tech boom is creating an office space demand, which, if not addressed, could cause the loss of its financial and tech sector and thus doom the City’s extremely generous social services and the progressive values for which the City is famous.

The Plan covers about 230 acres and is intended to generate $500 million for local and regional transit improvements. The City has published a study stating that the plan will result in $2 billion in public benefits for the neighborhood while generating $1 billion in revenue for the City’s General Fund.

A rezoning process that lasts five or more years (as this one has) tends to span economic cycles during which a City’s needs can change. During the last two years of the City’s Central SOMA rezoning, the well-known housing supply crisis reached epidemic proportions. Indeed, during the last several months, the Plan changed to create more zones for housing and fewer for office, resulting in a change from a 6-1 ratio of jobs to housing to a less than 4-1 ratio. It is estimated that this will create an additional number of new dwelling units of at least 1,240 more than what was previously planned and a commensurate reduction of at least 4,750 new jobs.

Inspired by the landmark New York City 1920’s zoning rules that require the “sculpting” of the upper floors of towers to preserve light to the street, the Central SOMA Plan has two features to accomplish this: First, an “urban room” concept that limits the height of new buildings at the street property line to a height equivalent to the width of the street. Second, there is a “skyplane” concept that requires upper story setbacks above the base building and the sculpting of the upper building to push the building’s mass away from the street. Light to the street will also be enhanced by a requirement that towers over a certain height be separated by 115 feet, with several exceptions.

The Plan will allow the sale of Transferable Development Rights (TDR’s) to new buildings within the Plan area, for the first time. Transferable Development Rights are rights held by owners of historic buildings who can give up development rights on their lots (for example, the right to add a vertical addition) in exchange for selling such development rights to developers of new buildings whose lots do not allow as much development as needed to pencil out. The Plan requires that a nonresidential project receiving an increase in development capacity via the Plan must purchase TDR’s from historic buildings. This is a historic preservation tool, since owners selling these “air rights” over historic buildings must agree to no longer add square footage to their buildings, vertically or otherwise. For the most part, proceeds of sales of air rights must be used for future maintenance and repair of the historic building. The larger new office building developers will be required to purchase Transferable Development Rights from historic buildings, if the project is opting to utilize greater zoning allowance than allowed under preexisting zoning.

With only 49 square miles and a City where the overwhelming percentage of lots are zoned for 30 to 40 feet, one obvious solution to intensification of land use was to allow greater height in the Central SOMA district. Most of the current district is zoned for heights of 85 feet or less. The Plan creates certain areas (generally near the Caltrain Station, along 4th Street and adjacent to the Downtown Plan area and Rincon Hill) where height limits will be changed to 130-160 feet. A more limited number of lots nearby will allow towers 200-400 feet in height. .

The Plan also includes new development impact fees and taxes to fund proposed community benefits, including community facilities, transit, affordable housing and open space. These exactions would be imposed by tiers based on height increases given, since greater allowed height means developers will have more profits from which to pay such exactions. One exaction tier covers 15-45 feet additional height, another 50-85 feet in additional height, and another 90 feet or more of additional height.

The City has published a study stating that the Plan will result in nearly $2.2 billion in public benefits over a 24-year period. This is over 400 percent more than the $500 million in public benefits that would be expected to occur if the Plan were not adopted. Most of these public benefits would be provided by new development and be directed back to the district, while generating $1 billion in revenue for the City’s General Fund.

The $2.2 billion would be generated through a combination of three mechanisms: (1) specific development projects (e.g., assigning a value to on-site affordable housing units), (2) a one-time impact fee paid when a project is ready to start, such as a Jobs-Housing Linkage Fee and Plan Area fees (e.g. an Eastern Neighborhoods Infrastructure Impact Fee), and (3) ongoing taxation through a Mello Roos Community Facilities District. The new Central SOMA project fees also include the Central SOMA Community Services Facilities Fee and the Central SOMA Community Infrastructure Fee.

The City has recent passed California’s first “Housing Sustainability District.” The new “Central South of Market Housing Sustainability District” will allow residential projects that meet certain standards to take advantage of a 120-day streamlined review and approval process (assuming no appeals).

The intent is to allow sponsors of residential projects to receive faster approvals in return for including at least 10 percent of dwelling units on-site as affordable to very low or low-income families households and in return for paying “prevailing wages” (or using “skilled labor” for the construction of the project). In most cases that means union jobs. In return for creating HSDs, the City is entitled to receive a ‘zoning incentive payment’ from the State.

To be qualified, individual projects must meet all of the following eligibility criteria:

  1. Propose a height of 160 feet or less (although 100 percent affordable projects qualify regardless of height);
  2. Be located in a zoning district that does not propose less than 50 units/acre or more than 750 units/acre;
  3. Have a majority of its gross square footage proposed for residential use.
  4. All nonresidential uses must be allowed by the zoning “as of right,” meaning the use is not one that triggers a Planning Commission approval.

Many of the Central SOMA lots rezoned to allow residential or office have existing zoning limited to industrial uses known as Production Distribution and Repair (PDR). To insure the preservation of PDR space and the creation of new PDR space, the City will allocate $180,000,000 in revenues over 25 years to the creation or preservation of PDR space, it being the goal that there will be no new net loss of PDR due to the Plan.

Projects proposing at least 50,000 square feet of new office use will be required to include PDR in the project. The on-site amount required will be either 40 percent of the total lot area of the project or replacement space required under a pre-existing PDR replacement law known as “Prop. X,” whichever is greater. Alternatively, developers can provide the required onsite amount at an offsite location at 1.5 times the amount that would be required if built on-site.

West Coast Commercial Real Estate News