A former office building at 150 Hayes St. could soon be converted into housing. After years of the city pushing for office conversions, San Francisco suddenly has multiple targets.
Manuel Orbegozo/For the S.F. Chronicle
It took two mayors, multiple white papers, and five years of hard-fought efforts by developers, lawmakers and city planners, but office to residential conversions are finally starting to ripple across San Francisco.
While a far cry from New York’s 16,000 pipeline units or Washington, D.C.’s 8,500 pending conversions, by the end of the month San Francisco is expecting to receive applications for three projects, totaling more than 300 units.
Last week, real estate firm Hudson Pacific Properties submitted plans for a 136-unit conversion at 901 Market, a six-story neoclassical building across from the Powell Street cable car turntable that originally housed the Hale Brothers department store.
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Meanwhile, the Ocean Avenue Real Estate Fund is proposing 70 units at 2300 Stockton St., a utilitarian three-story, 63,000-square-foot office building near Pier 39, a project that would include the addition of two floors made possible by the “Family Zoning” Plan the city adopted earlier this year.
A former office building at 150 Hayes St. could soon be converted into a residential space in San Francisco, partially because of financial incentive programs created by the city.
Manuel Orbegozo/For the S.F. Chronicle
The most noteworthy new proposal, expected to be submitted this month, comes from veteran developers Marc Babsin of Emerald Fund and Jack Sylvan of SDG, a pair that has been working with the city for years to come up with a list of policy changes that would make conversions more feasible.
The builders are proposing to reimagine 150 Hayes St., a six-story midcentury structure near Civic Center, as a 105-unit apartment complex.
Babsin called the building “a bit of a toad,” which allowed it to be acquired for about $225 a square foot, a steep discount from the $350 or $400 per square foot many Class B building owners are seeking these days in the Financial District.
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“It’s a mid-block building that needs some love in a neighborhood where office vacancy is about 50%,” Babsin said.
Developer Marc Babsin of Emerald Fund, right, and co-developer Jack Sylvan said it finally makes sense financially to convert some empty office buildings in San Francisco into housing.
Manuel Orbegozo/For the S.F. Chronicle
Sylvan and Babsin spent more than three years vetting about 25 possible conversion candidates before landing on 150 Hayes, which had the bones and location that worked and, most importantly, was available at an affordable price that made conversion pencil out.
The Hayes Street building is extremely familiar to Emerald Fund, which has been among the city’s most consistent developers over the past 35 years. That’s because it was part of the California State Automobile Association campus at Van Ness and Hayes, a cluster of properties where Emerald Fund built a thousand units between 2012 and 2018 — including the 162-unit Civic at 101 Polk, 420 units at 150 Van Ness and 418 units at 100 Van Ness, an office-to-residential conversion that is the biggest in San Francisco history.
The intersection of Van Ness Avenue and Hayes Street, seen from a former office building at 150 Hayes St.
Manuel Orbegozo/For the S.F. Chronicle
The only California State Automobile Association building that Emerald Fund did not acquire and redevelop was 150 Hayes St., which was sold to the Academy of Art University for use as administrative offices. Now they are building housing on that one as well.
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“It comes full circle 14 years later,” Babsin said.
The 150 Hayes St. building is directly to the west of 101 Polk, which will allow the properties to be operated together with one leasing and engineering team. There will be a coworking space at 150 Hayes that residents from 101 Polk will have access to, while 150 Hayes tenants will be able to use the gym at 101 Polk. The plan is to re-skin the 1968 structure with a glass curtain wall and add a seventh floor.
With San Francisco facing a historic 30% office vacancy and downtown retail businesses shuttered, city officials have been desperate to find a formula that would allow the city’s handsome historic office buildings to find new life. But the combination of high construction costs and San Francisco’s notoriously convoluted zoning and approval process made conversions next to impossible, something the city has been scrambling to change.
All three proposed conversions are expected to take advantage of streamlining and financial incentive programs the city has adopted in the last few years, including the waiver of transfer taxes and inclusionary housing and impact fees. The Market Street and Hayes Street projects will qualify for Mayor Daniel Lurie’s recently adopted Downtown Revitalization Financing District, which refunds a portion of new property taxes to developers over a 30-year period to help pay for construction costs.
Developer Marc Babsin of Emerald Fund, left, and co-developer Jack Sylvan tour a former office space at 150 Hayes St.
Manuel Orbegozo/For the S.F. Chronicle
Working with staff from urban think tank SPUR, Babsin and Sylvan helped come up with the policy changes and incentives needed to make conversions feasible, including the elimination or modification of zoning requirements that don’t make sense for conversions, such as open space or bike parking requirements. Legislation was passed to give conversion over-the-counter approvals.
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Until the policies were all in place, potential equity investors were reluctant to invest in San Francisco conversions, he said.
“All the policy incentives were not in place until March of this year, which is why we are now seeing a couple of conversions starting to take shape,” he said.
But during the three years it took to make the changes — they required a ballot measure and both state and local legislation — the influx of AI jobs increased what some building owners are willing to sell for, making it harder to find affordable conversion candidates.
Still, with 30 million square feet of San Francisco office space still empty, Sylvan thinks that there are plenty of buildings that will remain unattractive to the new wave of tech companies that would be suitable for housing.
Developer Marc Babsin of Emerald Fund, left, and co-developer Jack Sylvan, seen on the roof of a former office building at 150 Hayes St., believe more developers could look for office buildings to convert to housing.
Manuel Orbegozo/For the S.F. Chronicle
“The price of buildings that really have a future as office buildings has gone up significantly in the past 12 months, but I still believe there are millions of square feet of Class B and C buildings like 150 Hayes that are not going to be viable office buildings anytime in the near future,” he said.
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If the property can be bought for the right price, Sylvan said buildings like 150 Hayes have the potential to be converted for $500,000 or $600,000 per unit, a solid discount from the $1 million per unit new development costs.
“Money wants to be in San Francisco again right now,” he said. “The conversion of the right building at the right price, you can deliver units for half to two-thirds what it costs to build from the ground up.”
Jacob Bintliff, who heads up the office-to-residential conversion program for the San Francisco Office of Economic and Workforce Development, said he expects more projects now that the several veteran developers have found a formula to make it work.
“(Developers) have said all along they were waiting for the full package to be in place because they were going to need every single thing on the list to make projects pencil,” he said. “It is very gratifying we are now seeing the fruits of our labors.”
In a statement, Mayor Lurie said, “San Francisco’s families need homes to live in, and thanks to tools we’ve created, we’re turning empty offices into more of those homes.
While San Francisco’s Financial District is seeing more interest in its office space, there are many buildings that aren’t attractive to the latest wave of tenants. Those could be targeted for conversions.
Manuel Orbegozo/For the S.F. Chronicle
“As our city becomes increasingly expensive, we are being creative in finding ways to build housing, and we can bring people and energy back downtown at the same time,” he said.
Bintliff said developers and investors tend to have a “herd mentality.” If San Francisco conversions are demonstrated to be profitable, the floodgates could open.
“The fact is we have been doing this work for a couple of years, and now we have three projects coming in all at once,” he said. “I’m expecting to get a few more calls once word gets out.”