Dear San Francisco Board of Supervisors,



I urge you to support ordinance #180117 to increase the TSF by $5/sq.ft. for non-residential projects larger than 99,999 sq.ft.



Instead of exempting the Central SOMA Plan Area, you should increase this fee beyond the $5/sq.ft. for other areas, and you should create additional higher tiers for projects larger than 400,000 sq.ft. or 800,000 sq.ft, which are the subject of bidding wars by large tech firms. In addition, I urge you to evaluate increasing the Jobs-Housing Linkage Fee based on the current economic climate.



I greatly appreciate the Planning Department’s work analyzing the financial feasibility of the TSF. As a legislative aide to Supervisor Avalos, I saw first hand their skill and dedication. But recent press reports show that the assumptions their analysis is based on dramatically underestimate the profitability of new, large office buildings.



Facebook just signed a lease for all 750,000 square feet of Park Tower, and the Business Times reports the “asking rents in new buildings in San Francisco are upwards of $100 per square foot.” This is 35% higher than the $74/sq.ft. assumed in the fiscal feasibility analysis!



It also seems clear that the feasibility analysis overestimates the vacancy rate in office space in our current economic climate. Virtually every new office building is fully leased while still under construction.



CBRE’s recent report, “San Francisco Office Market View Q4 2017” states, “Looking ahead, overall market conditions will likely strengthen in favor of landlords based on elevated demand from large tech tenants. Limited relief is expected from 2018 construction deliveries that are 84% pre-leased. These conditions are likely to put upward pressure on asking rents.”



The 2015 Central SOMA Financial Analysis assumed a 10% vacancy rate in office space. However the Controller’s website shows the office vacancy rate at 8% as of Q4 2017. And the CBRE report shows the citywide vacancy rate at 5.8% for Q4 2017. For Class A office space, CBRE says the vacancy rate is 5.1% citywide and 3.0% South of Market.



Taken together, it seems clear that the high demand for large, Class A office buildings ensures that these projects will remain financially feasible even with significant increases in the TSF and other fees beyond what Supervisor Peskin has proposed.

Thank you for your consideration.

Sincerely,

Jeremy Pollock