New bill aims to convert offices to housing. Here’s where that could happen in the Bay Area

As the Bay Area’s downtowns emptied of workers during the pandemic, leaders across the region posed the idea of turning empty office space into desperately needed housing.

Now, a state lawmaker in San Francisco is introducing a bill that would make it faster and easier to convert office buildings into new apartments and condos — and provide money to jumpstart the process in California’s slowly recovering urban cores.

“It makes no sense for people to be paying exorbitant amounts in rent and struggling to find adequate housing to live in when we have all of these buildings sitting empty,” said Democratic Assemblymember Matt Haney, until recently a San Francisco supervisor.

Developers are often reticent to pursue such projects in large part because of high costs and the bureaucratic process of seeking approvals to change a property’s use from commercial to residential.

Which parts of the Bay Area could see the most conversions?

Downtown San Jose, Oakland and San Francisco — job centers that have all seen surging office vacancy rates — are the most obvious examples.

Owners of the nine-story St. James Plaza office building at 152 North 3rd St. downtown are already considering redeveloping the property for housing, said Alex Stettinski, chief executive of the San Jose Downtown Association. San Jose State University, meanwhile, is eyeing the nearby Alfred E. Alquist State Office Building at 100 Paseo de San Antonio for up to 1,200 homes for faculty and staff.

Stettinski said more office-to-housing conversions could help San Jose — facing the new work-from-home reality like other Bay Area cities — revitalize its downtown from a 9-to-5 office hub into a more balanced mix of offices, housing, entertainment, retail and other amenities.

In San Francisco, a recent report by architecture and planning firm Gensler identified 12 mid- and high-rise office buildings in the Financial District that could be considered for conversion into about 2,700 housing units. The buildings include 575 Market St., a 40-floor former Chevron headquarters, and a 10-story building at 417 Montgomery St.

With the bill’s help, it’s not just downtowns that could see more office conversions. Property owners throughout the entire state would be able to take advantage of the proposed rules. That means even low-rise office buildings in suburban Los Gatos or Pleasanton — places that have long resisted building more homes — could be more quickly converted into new housing.

The legislation would also prevent local officials from blocking an office-to-housing project so long as 10% of the units are affordable and they doesn’t exceed basic height and density limits. Such projects would also be exempt from the state’s strict environment review process, officials said.

Michael Lane, a state policy director with SPUR, an urban planning group that has helped make recommendations for the bill, acknowledged that redeveloping an office building into housing is an expensive proposition. And it’s only getting costlier with rising building costs and interest rates for construction loans.

While office conversions are currently relatively uncommon, Lane said the design and structure of many older office properties resemble that of apartment buildings, making them prime candidates for housing. But only if the financials make sense.

He said the bill’s goal of speeding up the sometimes years-long local planning and permitting process could significantly cut down on costs and help “make projects pencil,” developer speak for turning enough of a profit to pursue.

Lane pointed to an office conversion program in the Canadian city of Calgary, Alberta, as a model for the legislation. That effort has led to the approval of five large projects, in part through financial incentives.

Haney’s bill — dubbed the “Office to Housing Conversion Act” — could make use of $400 million in grants Gov. Gavin Newsom has outlined in his recent budget proposal specifically for such projects. But questions remain about how many conversions that amount of money could actually help get off the ground.

In current form, the bill would:

• Prevent local governments from blocking or delaying office-to-housing projects through special permitting processes, design and planning reviews, or appeals.
• Require conversions be allowed in all areas regardless of local zoning laws.
• Require planning departments to respond to conversion applications within 90 days of submission.
• Limit development fees on conversion projects.
• Require that all conversion projects set aside dedicate 10% of housing units for low- or middle-income residents.

While state lawmakers have passed a slew of recent high-profile housing bills — including two last year focused on redeveloping strip malls — cities and counties may lobby Sacramento to push back on Haney’s proposal to strip nearly all local control over conversion projects.

Still, Haney is confident of the bill’s chances.

“My colleagues know there’s tremendous urgency to get this done and that we can’t wait for each individual locality to figure this out,” he said. “The state as a whole has a huge interest in getting housing built for our struggling downtowns.”

Asked if enough people actually want to live in downtowns anymore, Haney noted that major city centers in the Bay Area have seen apartment vacancy rates fall and rents increase since the depths of the pandemic. But rental prices in cities such as San Francisco and Oakland have yet to recover to pre-pandemic levels.

“Our downtowns still have a lot to offer,” he said. “We need to make sure they are safe, clean, vibrant places, and building more housing is a big part of that.”