Tessa McLean, SFGATE
Even on a rainy San Francisco day, light floods the nearly floor-to-ceiling windows lining the walls of the Warfield Building. Exposed brick borders the windows, giving the office space a decidedly hip feel, one that echoes the urban loft vibe that was once so trendy in major cities. Market Street bustles below, but the street noise is minimal, and from the high floors, the views stretch out to Bernal Hill and beyond.
These office conference rooms could someday be someone’s bedroom, if local developer Group I can get past the city’s Byzantine permitting process and execute an incredibly rare office-to-residential conversion project, which many have billed as one of the only reasonable solutions to the city’s perpetual housing crisis. As downtown San Francisco continues to struggle to revitalize itself post-pandemic, transforming office buildings into housing has been talked about as something of a golden ticket. Not only would it help to make a dent in the city’s woefully inadequate housing supply, but it could also rejuvenate a district that desperately needs a boost, especially as more businesses continue to close.
Office conversion is notoriously difficult; most buildings lack the building depth necessary to create homes people would want to live in. Some downtown buildings have been identified as better candidates for conversions. The corner mid-rise at 988 Market St. is one such candidate, and its developer is pushing forward to make as many as 40 units of housing in the historic building.
Group I is still a ways away from making its project a reality, but the developer is nevertheless much further along than most others. It filed a preliminary application to convert five floors of offices in December 2022, and plans have since expanded beyond the initially proposed 34 apartment units. The apartments would be a mix of studios, one-bedrooms and two-bedrooms from the fifth to ninth floors. Nine of those units are slated for affordable housing. Construction would also add a basement bike room, transform some second-floor space into a gym, and give residents access to a communal roof deck.
Nothing about the exterior of the 1922 building would change, and 15,000 square feet of the building would remain office space. If the project stays within its current scope, it won’t need a full building retrofit, something that would have made the project financially unfeasible, Group I principal Mark Shkolnikov said. The project is estimated to cost $9 million, and barring any unexpected hurdles, would begin construction at the end of the year.
Since Group I began work at the historic building, several legislators have brought forward legislation that could encourage developers to do these types of conversions at downtown office buildings. Mayor London Breed and Board of Supervisors President Aaron Peskin introduced legislation in March that would exempt buildings in certain downtown zones from requirements such as rear yard space and a mix of unit types, while streamlining administrative approvals. Just last week, the legislation advanced, and is now set to go before the Board of Supervisors.
“The nature of office work is forever changed and this is a moment to reimagine downtown. But there is no silver bullet,” Peskin told SFGATE. “…[This legislation] signals that this is something that San Francisco wants, encourages and is going to facilitate.”
If approved, the legislation could speed up office-to-housing projects by 6 to 12 months, said Lily Langlois, principal planner in the SF Planning Department. It would likely remove the need for a public hearing, a notoriously difficult hurdle for San Francisco builders, and make the process more straightforward, Langlois said.
“It would also send a signal to our private landholders that the city is excited about these types of projects to activate downtown,” she said.
Separately, Peskin said he’s working on legislation that would give a “major haircut” to the number of affordable units required in new housing projects, a more controversial proposal that will likely see pushback from the left flank of the Board of Supervisors.
And District 6 Supervisor Matt Dorsey introduced a bill in early April that would exempt conversion projects from certain fees, shaving off less than 10% of the cost of converting the building. “This is a small step, but it’s part of an accumulation of small steps our city will be taking over the next few years,” Dorsey told the San Francisco Chronicle. “I am committed to removing constraints and barriers that make building housing more difficult.” (The Chronicle and SFGATE are both owned by Hearst but have separate newsrooms.)
While these conversions can be a tough sell, San Francisco’s building stock is better poised than most to handle the transformations. In a recent report from public policy group SPUR, architecture firm Gensler found that 40% of the downtown buildings that were analyzed would be good candidates for conversion, as opposed to 20% nationally. The study took into account factors such as location, building size and layout.
The report posits San Francisco could get as many as 11,200 housing units from these conversions, though with the enormous caveat that each unit carries an estimated cost of $472,000 to $633,000 — and that’s without seismic upgrades, according to the SPUR study.
An additional complication is that there aren’t many examples of office-to-residential conversions in San Francisco that could be used as a model. 100 Van Ness is the most cited example, as the former AAA California headquarters morphed from offices into 400 housing units in 2014. It’s the largest conversion ever completed in the city, and it’s not cheap: Studios start renting at $3,141, and tenants get access to amenities like a roof deck and wine storage.
The company responsible for that project, Emerald Fund, hopes to do another office-to-housing conversion in the future. President Marc Babsin said they’ve looked at three “distressed office buildings” recently, bringing in contractors and architects to “see if they can make the numbers work.”
Construction costs coupled with declining rent make most of these projects impossible, Babsin said, but with new legislation at the city level, projects could get done in the future. He said the currently proposed legislation is a step forward, but there’s even more the city could do. He referenced something like a New York City project that created about 5,000 housing units in the 1990s and 2000s, when the city allowed for exempted property taxes for up to 12 years on conversions in lower Manhattan office buildings, as one possible option.
“The city can’t do anything about construction costs or rental prices, but it does control fees and taxes,” he said. “That’s where it needs to push these levers.”
(Lance Yamamoto/SFGATE)
Group I, meanwhile, has applied for the Mills Act, a San Francisco program that reduces property taxes in exchange for the building owner’s commitment to upkeep a historic building, as one way to help make this project financially feasible.
As of now, there’s one other San Francisco property reportedly exploring conversion plans, though they’ve yet to submit anything to SF Planning, sources told SFGATE. As Group I trudges along, Shkolnikov said they’ve been encouraged by the amount of interest people have shown in their conversion plans.
Staring out from the potential bedrooms of the Warfield Building, things don’t always look promising. The building directly across the street used to be a WeWork, and it now sits mostly empty. Down the block, large retailers like Nordstrom and Saks Off 5th are slated to close in a matter of months. But Shkolnikov is still confident.
“We’re really committed to Mid-Market and see this as one part of a larger project to revitalize Mid-Market,” he said. “We remain optimistic. We have to.”
Written By Tessa McLean
Tessa is a Local Editor for SFGATE. Before joining the team in 2019, she specialized in food, drink and lifestyle content for numerous publications including Liquor.com, The Bold Italic, 7×7 and more. Contact her at tessa.mclean@sfgate.com.
