The latest trend in San Francisco real estate industry is the conversion of Class B, mostly historic, office floors into residential units. Over three million square feet of office buildings have been converted to residential buildings in the past three years or are in that process. This is happening in small neighborhood commercial zones, along Market Street north of Van Ness, and all over downtown. Most of these office floors have been almost vacant since the end of the dot-com boom. Housing downtown, for example, can now draw $600 to $950 per square foot when sold as condominiums. Some of these new residential units are quite small and are called “market rate single room occupancy (SRO)”. These units can have a kitchen and bath, but they must be no more than 350 square feet. The advantage here is that by designating them as SRO’s, at least 50% more units may be allowed per building. However, most units are instead 800 to 1500 square foot one or two-bedroom apartments. (Rent control would not apply to these units, as they are being created after 1979.)
The Planning Department approval process is quite easy, as housing is an allowed use in most of these districts. At most, variances may be needed since downtown office buildings rarely provide the number of parking spaces required per unit, nor the amount of open space (decks, roofs or backyards) required for residential units, nor the properly dimensioned cube of open space required outside most windows. Nonetheless, the Planning Department is quite likely to issue the required variances, as the Department is trying to encourage the creation of a 24-hour downtown scene enlivened by new residential occupants.
On the other hand, compliance with Building and Housing Code requirements may be more challenging, as one must comply with the latest code requirements for apartment units, and as the City personnel who administer these Codes do not have as a goal the creation of new housing downtown. One way to reduce this expense is to request that the bureaucrats implement the State Historic Building Code, which allows one to use more historically sensitive (and often cheaper) solutions. Another way to deal with this, although seldom used, is to limit to one-quarter to one-third the amount of square footage in an office unit that is devoted to residential uses. This makes it possible to ask the Building Department to continue to treat the occupancy as a commercial one, and not a residential one (which triggers the Housing Code). This is possible when the building owner requires occupants to conduct a work activity in the space, and requires that sleeping areas be limited to a small portion of the space. (These are not live/work units, which are currently illegal in San Francisco). This has been successful mostly in the depressed, yet historic Mid-Market Street area, where many students and first time wage-earners wish to spend little on rent and can tolerate conditions that resemble dormitory style living. The costs of renovating office spaces into full luxury apartments may be $300 to $400 per square foot, but the costs of creating these “accessory housing” units in office space are a small fraction of these costs.
This trend resembles what has been happening in the Wall Street area of Manhattan for the last 10 years. Unlike Manhattan, which is not suffering the loss of major corporations in these Wall Street buildings, the appearance of the same in San Francisco portends the corporate exodus to the suburbs.
M. Brett Gladstone