Transfer tax on the sale of most commercial property in San Francisco will increase if voters approve Proposition W.

If approved, Prop W will increase the transfer tax rate by 0.25% for sales valued above $5 million (increase from $10/$500 in purchase price to $11.25/$500) and above $10 million (increase from $12.50/$500 in purchase price to $13.75/$500).

The proposition would also create a new transfer tax threshold for sales valued at or above $25 million ($15/$500), for a transfer tax rate of 3%.  There would be no change in the calculation of transfer taxes for properties sold in San Francisco for less than $5 million.  The Controller estimates that such increase in transfer tax could generate average annual revenues of $45 million, but reminds voters that revenue from transfer tax “is the City’s most volatile revenue source, and estimates based on prior years’ activity may not be predictive of future revenues.”^[1]

Prop W provides no effective date, but the State Elections Code provides that “if a majority of the votes on a proposed ordinance are in its favor, the ordinance shall be considered as adopted on the date the vote is declared by the board of supervisors, and shall go into effect 10 days after that date.”^[2] Further, the election results must be declared by Resolution of the Board of Supervisors no later than the fourth Friday following Election Day, which would be December 2, 2016.^[3]

In all, if Proposition W is passed, it is likely to go into effect on or prior to December 12, 2016.

No one likes to see a closing date slip, an unexpected delay this year could be costly in San Francisco, particularly for sellers who by custom generally pay transfer tax in San Francisco County.

The City’s Department of Elections website lists Supervisor Kim as the proponent argument author for Prop W, and the San Francisco Apartment Association as the opponent argument author.

[1] City and County of San Francisco Voter Information Pamphlet & Sample Ballot, page 227

[2] Cal. Elections Code Section 9122; San Francisco Elections Code Section 380.

[3] Cal. Election Code Section 10263.

In a city hungry for development along the eastern waterfront, one large hurdle looms – the cap on new office space development.  The cap, imposed by the voters as Proposition M in 1986, limits new office development by square footage.  While the cap increases each year by 950,000 square feet, the recent building boom will soon subsume the office space that is available for allocation.

Enter Proposition O on this November’s ballot. 

Proposition O would exempt new office construction at Candlestick Point and Hunters Point from the existing cap, allowing development of the projects to continue.  San Francisco voters have previously supported these projects through Proposition G in 2008, which encouraged development in the area and allowed the City to implement a redevelopment plan that could include over 2 million square feet of office space and up to 885,000 square feet of retail and entertainment uses, 10,500 housing units, and approximately 330 acres of public parks and open space.

Proponents argue that Proposition O will create essential jobs in the Candlestick Point and Hunters Point neighborhoods, both for construction jobs related to the development and a projected 17,000 permanent jobs once the projects are completed.  Supporters also point out that while the Proposition M office cap may make sense for downtown San Francisco, it is harder to justify limiting development in and around the old shipyard which is sparsely populated today.

Opponents of this proposition argue that Proposition M was enacted to limit office development for a reason, and the fact that the City is close to the Proposition M cap means that the cap is finally working, not that it needs to be raised.

Further, this ballot measure is a precursor to a broader discussion on whether the cap set by Proposition M should be raised for all development in the City, and under what conditions such an increase might occur.  ULI San Francisco has hosted several panels on the topic over the past few years, and the San Francisco Business Times has discussed the possibilities of such an increase here and elsewhere.

For now, San Francisco voters can register their views on new office development under Proposition O while the larger office cap issue remains for another election.

The City’s Department of Elections website lists Dr. Veronica Hunnicutt, Shamann Walton, Sophie Maxwell as the proponent argument authors for Prop O, and Calvin Welch as the opponent argument author.

Production, Distribution, and Repair (PDR) space is a hot commodity in San Francisco.  Over the past few years, numerous organizations, policymakers, and elected officials have been engaged in efforts to preserve existing and create new PDR, community, and arts spaces, particularly in SoMa.  Supervisor Kim, who previously sponsored the moratorium on conversion of PDR space in SoMa that expired in October, has sponsored Proposition X for the November ballot.  Prop X would impose a conditional use and on-site replacement requirement for many new projects or changes of use that displace PDR, Institutional Community, or Arts Activities uses.

The replacement requirements vary by zoning district, and would only apply within SoMa and the Mission as follows:

• 100% replacement in the SALI district
• 75% replacement in the UMU, MUO, and SLI districts
• 50% replacement in the MUG and MUR districts

For projects with Environmental Evaluation applications filed by June 14, 2016, the ballot measure contains partial grandfathering for 15,000 square foot-plus projects, and full grandfathering for smaller projects.  Full grandfathering is also provided for all projects approved by that date.  There are a number of other exceptions included in the ballot measure for Port, Recreation and Park Commission, and other properties and specific project types.

The replacement requirements in Prop X are broader than those in the recently released Central SoMa Plan, which proposes 100% PDR replacement on parcels being rezoned from SALI to MUO or WSMUO, and 50% PDR replacement on parcels being rezoned from SLI to MUO.

The Controller’s analysis projects a loss of revenue between $2.1 and $4.3 million annually, based on the lower assessed values of new property for PDR, Institutional Community, and Arts Activities uses.  Supervisor Kim is listed as the proponent argument author on the City’s Department of Elections website, and SPUR is listed as the opponent argument author.

Admittedly the issues may appear benign compared to the Presidential race and the drugs, sex and other provocative topics on the state ballot.  But San Francisco voters again face a long list of significant local propositions on November 8th, and among them are a number of measures impacting real estate taxes, land use and governance.

Unfamiliar Terrain summarizes the key measures impacting our industry:

• Propositions L and M: Shifting authority from the Mayor to the Board with respect to San Francisco Municipal Transportation Authority and the Office of Economic and Workforce Development/Mayor’s Office of Housing and Community Development
• Proposition O: Exempting office space in Hunter’s Point/Candlestick Point from the Proposition M office cap
• Proposition U: Making affordable units available to low and moderate income households
• Proposition W: Increase in transfer tax
• Proposition X: Production, Distribution and Repair space replacement

We hope that our summaries will help you navigate the issues.  And if all else fails, take a break and check out our “What We’re Reading” post.

Prop U dovetails with the City’s new increases in required affordable housing percentages by expanding the range of household income levels that would be eligible to rent an affordable housing unit. According to the Controller, this would increase rental revenue for property owners and tax revenue for the City.  The measure is part of an ongoing debate about the appropriate income range for defining eligibility for affordable units, and reflects a desire to expand the range to include more low/low moderate income families (as opposed to very low income).

Prop U proposes to increase the qualifying household income cap from 55 to 110 percent of area median income. But it would retain the maximum allowable rent at 30 percent of a household’s annual income.

Under the current 55 percent cap, a household living in an on-site affordable unit may pay up to $1,121 a month for a one-bedroom unit and $1,261 for a two-bedroom unit. Under Prop U, a qualifying household could pay up to $2,241 for a one-bedroom unit or $2,521 for a two-bedroom unit, but could also pay less, depending on income.

The City’s Department of Elections website lists Thomas A. Hsieh as Prop U’s proponent, Supervisor Farrell as the proponent argument author, and the San Francisco Council of Community Housing Organizations as the opponent argument author.

After several weeks of delays, on September 13 the City Controller released a study assessing the impacts of Prop C’s increases in the affordable housing percentage requirements for market rate developments.

Whereas Prop C increased the required set-aside rate from 12 to 25 percent, the study recommends setting an initial on-site requirement of 14 to 18 percent for rental projects and 17 to 20 percent for ownership projects. The study, authorized by the Board of Supervisors in trailing legislation contingent on voters’ approval of Prop C in June, directed the Controller to assess the economic feasibility of current and increased inclusionary housing requirements under Prop C, and make recommendations in an advisory report. The Board of Supervisors will now consider the recommendations in setting the City’s inclusionary housing requirements.

The study also recommends setting a schedule for incrementally increasing the inclusionary housing rate by .5% annually and phasing in the requirements over a 15 year period, with a study every 5 years. The City Controller and the Technical Advisory Committee—a group of affordable housing developers, advocates, community representatives, lenders, and real estate developers appointed by the Mayor and Board of Supervisors—unanimously endorsed these recommendations.