Newsom Vetoes Fast-Track of Office-to-Resi Conversions

Gov. Gavin Newsom has vetoed a bill that would have fast-tracked the conversion of empty office buildings to residential or mixed-use in city centers.

The bill, known as AB 3068, would have mandated by-right approval for adaptive reuse projects that dedicated at least half of the square footage of the projects to residential uses, creating a streamlined ministerial review process that bypassed environmental reviews and approvals of zoning changes by city officials.

“While I strongly support efforts to address California’s housing crisis by promoting adaptive reuse projects, this bill raises several concerns,” Newsom wrote in his veto message.

“The proposed compliance and enforcement mechanisms for labor standards, including the issuance of stop-work orders for any violations, represent a significant expansion beyond existing law, which limits this remedy to a narrow subset of violations, such as those posing immediate threats to health and safety,” Newsom said.

The governor also said the bill lacked “clear procedures for contesting violations or addressing noncompliance” that could “lead to delays, and increased costs, potentially making projects financially unviable—ultimately undermining the bill’s goal of increasing housing production,” the San Francisco Chronicle reported.

AB 3068, which was approved by the state Senate last month in a 27-11 vote, featured a labor agreement endorsed by building trades unions that would have established standards for safe working conditions and set construction wage levels for adaptive reuse projects.

Matt Haney, assembly member representing San Francisco, who authored the bill and chairs the lower body’s Select Committee on Downtown Recovery, issued a statement vowing to “keep fighting to cut the ridiculous amount of bureaucratic hurdles and red tape that makes office to housing conversions too expensive and too lengthy.”

“Most major cities across America have bounced back from COVID but California’s downtowns are still suffering,” Haney said. “It’s very concerning that with the governor’s veto, California will continue for another year to do nothing—office buildings will sit empty, making our downtowns crime-ridden ghost towns.”

Despite a concerted effort by city officials in San Francisco to encourage conversion projects for empty downtown office buildings, only two office-to-resi projects encompassing a total of 165 units currently are in the pipeline.

An adaptive reuse project at the Humboldt Bank building at 785 Market Street aims to yield 120 housing units; a project at the Warfield Building at 988 Market Street will create 45 units.

Mayor London Breed and Supervisor Matt Dorsey last month proposed to eliminate all impact fees and affordable housing requirements for downtown conversions. The waiver would apply to central Downtown, including the Market Street corridor, Union Square and the Financial District.

According to Breed, the proposed legislation would save developers between $70,000 and $90,000 per unit. The goal of the proposed ordinance is to draw 30,000 new residents to downtown San Francisco within six years, the Chronicle reported.

In March, city voters approved Proposition C, a ballot measure to eliminate transfer taxes on conversion projects.