San Francisco November 2016

San Francisco
November 2016

Ballot analysis and recommendations

Overview chevron_right Prop O
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Prop O

Bayview Office Development

Office Development in Candlestick Point and Hunters Point

Exempts office development in Candlestick Point and Hunters Point from San Francisco’s annual cap on office space construction.

Vote YES

What the Measure Would Do

Proposition O would allow office development in Candlestick Point and the Hunters Point Naval Shipyard to go forward without being counted toward the citywide annual cap on allowable office development in San Francisco. The measure would specifically change the city’s zoning code to remove Candlestick Point and the Hunters Point Naval Shipyard from the provisions of a measure adopted by voters in 1986 that limits the approval of new office development to 950,000 square feet per year. That limit would still apply to other areas of the city. This measure would not make changes to the approval process for any other type of development (like residential or retail) in Candlestick Point, Hunters Point or elsewhere in the city.

The Backstory

San Francisco currently limits the total amount of new office construction that can be approved each year to 950,000 square feet.1 Of this, 75,000 square feet is reserved for projects between 25,000 and 50,000 square feet (the “small cap”), while 875,000 square feet is reserved for office buildings greater than 50,000 square feet (the “large cap”). Any office development below 25,000 square feet is exempt from the cap.2 If the cap is not fully allocated by the Planning Commission in one year, the remaining portions accrue to future years.

Areas Prop. O Exempts From Citywide Office Cap

Prop. O would exempt the areas in orange, Candlestick Point and Hunter’s Point, from San Francisco’s annual cap on office space construction across the city. Source: SPUR map, data from Hunters Point Shipyard/Candlestick Point Jobs Stimulus Proposition legal text, Exhibit C (p. 14)

This office cap was first included within the 1985 Downtown Plan and then adopted by voters as Prop. M in 1986.3 It was the first annual limit on office development in the United States. The legislation is officially called the Office Development Annual Limit Program, though it’s often referred to simply as Prop. M. Amendments to Prop. M can only be approved by the voters.

During the real estate crash of the late 1980s and the recession of the early 1990s, few office developments went forward, and the amount of allowable office space accrued to more than several million square feet. In fact, the office cap was not likely a major limiting factor to new office development until the dot-com boom of the late 1990s. In the recent economic boom, the office cap has again constrained new office projects, as the building permit pipeline exceeds the total allowable office square footage. As of July 2016, there were 1.16 million square feet of pending large office projects that had applied for less than 450,000 square feet of allowable office space within the cap.5 An additional 6.9 million square feet of proposed office projects are now going through the pre-application permitting process.

In 2008, the voters adopted Prop. G, the Bayview Jobs, Parks and Housing Initiative.6 This measure allowed for about 2.15 million square feet of office space, between 8,500 and 10,000 housing units, 885,000 square feet of retail and entertainment uses and 330 acres of parks and open space in the former Hunters Point Shipyard and adjacent Candlestick Point area. Despite voter approval, any office development in this area has still been subject to the limits of the city’s annual Prop. M office allocation process. Also in 2008, the development agreement between the city and the developer of Candlestick Point and the Hunters Point Shipyard added a provision that gives the first 800,000 square feet of office development at this site priority in the Prop. M allocation process over all other areas of the city (except Mission Bay South and the Transbay Tower). This was an attempt to save some space for office development in the shipyard, given the looming concern that demand would far exceed the annual supply of office space allocation under the cap.

In 2010, the city amended the Bayview Hunters Point Redevelopment Plan to accompany projects approved under Prop. G. The plan increased the amount of allowable office space in the area — permitting 5.15 million square feet7 — in order to provide an alternative use in the event that the proposed football stadium was not built at the shipyard.

The Bayview/Hunters Point area has struggled economically for decades and has not had a large employment center since the closing of the shipyard in 1974.8 The plan adopted by the voters in 2008 promised significant employment opportunities, which have not yet materialized. None of the approved office space is under construction (although some of the residential development in the plan is underway). Regional transit connections remain a concern because much of the shipyard is located more than 3 miles from the nearest BART or Caltrain station. And while there are plans for enhanced bus service, many of the commuters working at the shipyard will likely arrive by car.

This measure was placed on the ballot by voter signatures. It requires a simple majority (50 percent plus one vote) to pass

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Pros

• Prop. O would remove the Prop. M office allocation process as a potential barrier to office development at Hunters Point Shipyard. It would allow the already approved office portion of the redevelopment project to go forward when there is sufficient demand for the space, regardless of whether there is availability within the office cap.

• To the extent that this measure would help facilitate additional job growth, it could bring employment opportunities to an area of the city that is sorely lacking them. It could also help fulfill the city’s promise to bring jobs, retail and the envisioned mixed-use environment to the Hunters Point Shipyard and Candlestick Point, a plan that voters have endorsed previously.

• By taking the Hunters Point Shipyard and Candlestick Point office projects out of competition with other office proposals citywide (primarily those in central SoMa and downtown), this measure could enable more of the current backlog in office development to go forward. Allowing more office space to be added to San Francisco’s tight real estate market could help moderate the price of office rents and keep organizations from leaving the city.

Cons

• Exempting specific areas of the city from the provisions of Prop. M might encourage more neighborhoods and developers to pursue such a strategy instead of pushing for a wholesale reform of Prop. M. It would be better for the city to approach planning policy comprehensively rather than piecemeal at the ballot box.

• This measure would not actually limit the exemption from the Prop. M office cap to only 5 million square feet of office space. A future modification to the Redevelopment Plan and associated environmental documents could permit additional office development that would also then be exempt from the limitations of the Prop. M cap.

SPUR’S Recommendation

The Prop. M office cap limits the ability to add to the supply of office space during economic booms, resulting in rapidly rising rents that squeeze nonprofit groups, small businesses and any other low-margin office tenant. SPUR has long been concerned about the negative effects of the current citywide office cap and remains unequivocally in favor of modifying it,9 including this measure’s proposed exemption for Hunters Point Shipyard and Candlestick Point.

While SPUR is generally opposed to making changes to the Planning Code at the ballot, in this case they’re necessary. Because Prop. M was passed at the ballot box, any changes must also come back to the voters.

Prop. O builds on the voters’ support of the 2008 Bayview Jobs, Parks and Housing Initiative by allowing those plans to go forward without the constraints of Prop. M. The downtown office cap was intended to control and meter the growth of high-rise office construction in downtown San Francisco, not to slow or limit job growth in other parts of the city. Removing Hunters Point and Candlestick Point from the count toward the total office space allotment will hopefully make it easier to bring jobs to an area of the city that has not had a major employment center in decades.

Some may argue that the measure goes too far by providing a blanket exemption to Prop. M in perpetuity and that future growth could bring more than 5 million square feet of office space to an area that is not well served by transit. While concerns about the quality and availability of transit are valid, this measure is about whether to remove the limitations of Prop. M from Hunters Point Shipyard and Candlestick Point, not how much office space is appropriate there. Any increase to total office space — and the corresponding need for transit enhancements — would still have to be considered and discussed in a future planning process.

On balance, we think that this proposed exemption to Prop. M is appropriate and could be a helpful incentive to enabling job and office growth in Hunters Point Shipyard and Candlestick Point. It would also help avoid additional delays in office development and preventable rent escalation in other key areas of the city.

1 City and County of San Francisco, Planning Department, “Office Development Annual Limitation Program”

2 Office development by the state or federal government is also exempt from the cap. However, the square footage of a federal or state office project does count toward the annual limit and could impact other office developments that are also seeking approval.

3 In 1985, in an effort to get the Downtown Plan approved by the Board of Supervisors, Mayor Dianne Feinstein’s administration proposed an annual limit of office growth for three years based on an economist’s projection of demand for 950,000 square feet of space per year.4 Feinstein’s proposal would have expired in 1988 and could have been modified by the Board of Supervisors. However, in November 1986, voters approved Prop. M at the ballot, making the annual cap permanent and requiring voter approval for future modifications.

4 Egon Terplan. The Future of Downtown San Francisco. The Urbanist. March 2009.

5 See: http://zasfplan.sfplanning.org/ANLM/Office_Allocation_Stats.pdf. Note that on October 17, an additional 950,000 square feet will be added to the cap.

6 SPUR, “Proposition G – Bayview Hunters Point Redevelopment Plan,” June 1, 2008

7 This number comes from the August 2010 amendment to the Hunters Point Shipyard Redevelopment Plan, which states that 2.5 million of research and development and office space is allowed, plus an additional 2.5 million square feet if the football stadium is not built. (It was not. The stadium ended up in Santa Clara.)

8 Hunters Point Shipyard: A Community History, February 1996

9 SPUR has long held that the main beneficiaries of the Prop. M cap are incumbent property owners who benefit from the limit on new competition. Prop. M is a de facto job cap in San Francisco and a contributing factor to the shift of jobs to more suburban, auto-dependent locations in the Bay Area. Some argue that the Prop. M cap could be a tool to support the growth of smaller and more struggling office markets in the region, particularly downtown Oakland. The argument is that when supply restrictions cause San Francisco office rents to increase during a boom, tenants consider moving to other markets. While there is evidence that a number of tenants have located in downtown Oakland in recent years due in part to lack of affordable space in San Francisco, the office market fundamentals in downtown Oakland (based primarily on land and construction costs, rent and available financing) make new office construction there very difficult. Prop. M has therefore not helped Oakland grow; it has only contributed to increasing the cost of existing office space.

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