In a further effort to revitalize and reimagine its downtown core, San Francisco’s Board of Supervisors has passed and the Mayor has signed legislation exempting certain residential conversion projects from development impact fees, including the City’s substantial inclusionary housing fee. The legislation exempts projects that replace non-residential uses with residential uses from development impact fees and affordable housing requirements and removes the deadline to apply to the City’s Commercial to Residential Adaptive Reuse Program.

Background

Policymakers at City Hall have steadily ramped up incentives to convert underutilized commercial space to housing. In July 2023, the City adopted the Residential Adaptive Reuse Program (“Program”), which is designed to facilitate new residential projects in the downtown core by exempting certain projects from a range of Planning Code standards and requirements, including rear yard, open space, streetscape improvements, dwelling unit exposure, bike parking, transportation demand management, and dwelling unit mix requirements. As originally adopted, the Program required that conversion projects submit applications by December 31, 2028.

In March 2024, San Francisco voters approved Proposition C, which waived the City’s real estate transfer tax for first-time transfers on non-residential properties converted to residential use, so long as the property owner receives approvals to convert the property before January 1, 2030. Despite these incentives, residential conversion projects have remained relatively rare.

The Waiver

The new legislation is the City’s latest attempt to chip away at a major challenge for conversion projects in the bay area: high costs. The legislation takes aim at this challenge by waiving development fees and development impact requirements imposed by Chapter 4 of the City’s Planning Code on any net new gross floor area of non-residential use that is converted to residential use, in an amount up to 110% of the gross floor area of the converted uses. Development fees and programs eligible for this waiver include the Transit Impact Development Fee and the Inclusionary Housing Fee.

Eligibility

To be eligible for the waiver, projects must be located in a C-3 zoning district, or a C-2 zoning district east of or fronting Franklin Street/13th Street and north of Townsend Street.

Additionally, projects must replace gross floor area of an existing non-residential use (other than a hotel) with gross floor area of a residential use. This can occur by a change of existing gross floor area or demolition of existing gross floor area and construction of new residential gross floor area. Mixed-use structures are also eligible for the waiver.

The waiver only applies to the first 7,000,000 square feet of gross floor area that replaces non-residential uses, and eligible projects must receive a building or site permit within five years of final entitlement approvals.

The new legislation will be effective on April 6.