Did You Know? San Francisco's Proposition C and the Upcoming 2024 Primary Elections

San Francisco 2024 March 5th Elections – A Summary of Proposition C

Commercial real estate developers in San Francisco should follow the outcome of Proposition C, a local ballot measure that could change how real estate transfer taxes are levied and alter how Prop. M office allocations are calculated.

 

As the March 5th primary election approaches, commercial real estate developers in San Francisco should follow the outcome of Proposition C, a local ballot measure that could change how real estate transfer taxes are levied and alter how Prop. M office allocations are calculated.

In this blog post, we delve into the intricacies of Proposition C, providing a comprehensive summary of its implications for commercial real estate stakeholders.

(The Way It Is Now) How are transfer taxes levied now? How are office space development limits currently managed?

Transfer taxes are currently levied on most property sales and some leases in San Francisco. The tax rate depends on the total sale or lease price and ranges from 0.5% to 6%. The revenue collected from this tax goes into the City's General Fund and can be used for any purpose.

Proposition M, which was passed in 1986, restricts the annual approval of new office developments by the Board of Supervisors to a maximum of 950,000 square feet per year. This limit remains unchanged even if existing office spaces are converted to different uses or demolished.

 

Conversion from office to residential requires significant expense. Proposition C would incentivize developers to take on these projects.

 

What does Proposition C change?

Proposition C proposes several changes:

  • It introduces an exemption from the real property transfer tax for the first transfer of property converted from nonresidential to residential use.

  • It grants authority to the Board of Supervisors to amend or repeal aspects of the real property transfer tax without voter approval, within constitutional limits.  However, any increase in this tax must be approved by voters.

  • It allows the square footage of office space that is converted to non-office use or demolished to be available for allocation to new office developments of at least 50,000 square feet in gross floor area.

  • It permits demolished office space to be deducted from the required allocation for new office developments on the same site.

What prompted the proposal of this ballot measure?

Mayor London Breed proposed Proposition C in response to the COVID-19-induced rise in remote work, leading many businesses to leave Downtown San Francisco. Proposition C seeks to revitalize the Downtown core by encouraging developers to repurpose the abundant vacant office space. Additionally, San Francisco's properties valued at over $10 million currently incur a transfer tax rate ranging from 5.5% to 6%, which is higher than in other major California cities.

What else should we know about the proposition?

  • Proposition C aims to incentivize the conversion of nonresidential properties to residential use by providing a tax exemption for the first transfer of such properties.

  • It gives flexibility to the Board of Supervisors to adjust the real property transfer tax and allocate office space for new developments, potentially influencing the city's real estate landscape and affordable housing initiatives.

  • The proposition sets a sunset date for the changes, expiring at the end of December 31, 2054.

  • The measure includes administrative procedures for implementing the changes outlined in the proposition, including tracking converted square footage and deductions for demolished office space.

 

Sources:

  • https://www.sfpublicpress.org/proposition-c-real-estate-transfer-tax-exemption-and-office-space-allocation/

  • https://www.sfpublicpress.org/march-2024-sf-election-guide/

  • https://ballotpedia.org/San_Francisco,_California,_Proposition_C,_Real_Estate_Transfer_Tax_Exemption_for_Properties_Converted_from_Commercial_to_Residential_Use_Initiative_(March_2024)

  • https://www.sf.gov/information/proposition-c-real-estate-transfer-tax-exemption-and-office-space-allocation

 

Follow LL CRE on LinkedIn to Receive the News, Listings, and Guides on Commercial Real Estate

LL CRE provides commercial real estate investment services for the San Francisco Bay Area.  Are you looking to sell your property?  Want to know the value of your assets in today’s market? 

Take advantage of our 60+ years of market knowledge and obtain a free broker opinion of value from us.

LL CRELL CRE Group