It May Take A Recession To Solve San Francisco's Permitting Backlog

High demand from significant tech job growth in San Francisco has the city's planning department approving thousands of housing units each year. From 2010 to 2015, San Francisco permitted 3,117 housing units each year, more than any other Bay Area city. About 6M SF of office was under construction at the start of 2018, according to Avison Young. Even with this level of development, many more projects could have been built, but either were stalled or costs were too high for them to pencil.

Many developers and real estate experts cite the long development process in San Francisco as one reason why some projects are not penciling. With the planning staff very busy, they also don’t have the time to fix the backlog or many of the issues developers face.

“I don’t look for a recession, but a good recession will calm things,” Signature Development Vice President of Forward Planning Patrick Van Ness said during Bisnow’s San Francisco Real Estate Business & Politics event Wednesday at the Omni Hotel. “While in the weeds, we can’t address big-picture issues. A light recession will give us a chance to pause and reset.”

San Francisco’s planning department is understaffed and is functioning with the same number of people it had in 2008, Panoramic Interests Director of Development Zac Shore said. At the same time the permitting process is unnecessarily complicated.

Fewer permits are being filed in San Francisco and many developers are turning to building housing in Oakland instead, he said. 

During the event, developers, engineers, architects and commercial real estate experts discussed why San Francisco’s permitting process is problematic, how the long development process is just adding to cost and time to develop, what could be done to solve San Francisco’s permitting backlog and how developers and builders can better communicate with the community and city to gain supporters who can help push a project forward.

It's Like Going To The DMV

Truebeck Construction Project Executive Travis Schultz said the entire process is inefficient. His team does mostly interior construction, which also requires a lot of permitting. Visitors to the planning department have to take a number and sit in the office and then are shuffled from counter to counter.

“I liken it to going to the DMV,” Schultz said. “It is really crappy. You just don’t want to be there.”

The process is so complicated, companies need to hire a permit expediter to guide projects through the process, Shore said. Panoramic Interests has a whole department to navigate through the permitting and development process, he said.

In addition, the number of forms and permits needed for one project make the process even more complicated. For one project, Panoramic Interests pulled over 70 permits on top of what Pankow Builders pulled on behalf of the project, Shore said.

The city could benefit from third-party review or considering other methods used by nearby cities, Shore said. In Oakland, projects are assigned to one person who will respond to inquiries and phone calls. In San Francisco, each project can have around six people reviewing the project and there is never any consistency with staff, he said.

The John Buck Co. Senior Vice President Evan Schwimmer said a lot of the time projects start with only 10% of the permits acquired, and contractors don’t know the direction the remaining 90% of the permits will take, which only increases uncertainty.

Even simple projects, like fixing a door, could take weeks or months, Schultz said. He said one project his company worked on was a particular nightmare.

A building that was built in 2008 had to undergo a special review process because it was within a historic district, Schultz said. The owner wanted to renovate an 800 SF wall, but the project, which should have taken a few weeks to permit, ended up taking months to get permitted. He said developers need to be well aware of where these historic districts are to avoid this problem.

Issues with permitting are clear to developers with projects outside of San Francisco. Schwimmer said he has had many conversations with The John Buck Co.’s office in Chicago about why it takes so long to get projects built in San Francisco compared to Chicago, where the process is faster and more streamlined.

The company started a project in Chicago at the same time as the Park Tower near the Transbay Terminal, but the Chicago project was built and is fully leased already. Park Tower is expected to be completed this year, he said. It took 1.5 years to get the company’s latest project, 75 Howard, to initial site work stages.

Creating Workarounds

To prevent potentially costly fixes in San Francisco, teams should be very careful of plans and double-check things to make sure there is nothing that would haunt the project later, DCI Engineers principal Jeff Brink said.

Teams are afraid of having to make any design fixes to the exterior because that would send a project back to review, Brink said. Companies instead are forced to pay exorbitant amounts of money to create workarounds that don't affect the exterior design, he said.

One strategy Truebeck Construction has used to make the process faster for interior construction is to permit one floor at a time, Schultz said. Asking for permits of two or more floors goes through a full review process instead of the shorter over-the-counter process, he said.

Panoramic Interests uses the state density bonus to expedite projects, Shore said. At 333 12th St., the developer ended up getting 200 apartments using the bonus.

The law enables developers to build up to 35% more housing during a crisis if affordable housing is included on-site, he said. Developers don’t use this bonus because if the project doesn’t go well, it can end up in litigation against the city, he said. Developers prefer not to go up against cities in court because they still have to work with cities to get future developments approved, he said.

Panoramic Interests has been using more modular construction to decrease costs and developed its own branded modular unit called CitySpaces, Shore said. The company is planning to launch a sister company that will sell modular units to other developers.

Shore said the company pitched the micro-units to the city as a way to set up supportive housing for the homeless, but it was shot down because the units are built outside of the Bay Area.

Modular units have been particularly politicized in San Francisco because of demands from labor unions to build a local factory with local labor, but the costs of doing that would make modular units no longer affordable, he said. Modular construction is more affordable with factories in Reno and Sacramento where land costs are cheaper, he said.

While San Francisco has rejected large-scale modular projects, Oakland has not and the developer is working on a modular project with over 1,032 units in West Oakland.

The John Buck Co.'s Schwimmer said San Francisco's system was not created to frustrate developers. It is a product of a progressive city within a progressive region within a liberal state, he said. The city tries to listen to its constituents and respond to requests. 

He said it is important for developers to find general contractors who know how to navigate and understand this process.

Even with all these barriers, developments tend to do well in San Francisco.

“It’s tough to get in, tough to get things done, but once you do, there is great stuff to work with,” Schwimmer said.

CORRECTION, APRIL 26, 4:15 P.M. PT: A previous version of this story was unclear that while a team at Truebeck Construction handles mostly interior construction, the company does a wider range of work. The article has been updated.