Empty San Jose offices could convert to housing

As major cities like San Jose and San Francisco struggle with emptied out downtowns after the pandemic pushed huge swaths of people to remote work, discussion of converting empty offices to housing is gaining traction.

The Office to Housing Conversion Act, or AB 1532, would allow certain office buildings to be converted to housing across the state. Authored by Assemblyman Matt Haney of San Francisco, the bill aims to make those potential conversions—which can be expensive and tricky—cheaper and easier for developers, with the aim of bringing more life back to city centers. AB 1532 also aims to subsidize projects with up to $400 million in state funding outlined for such conversions by Gov. Gavin Newsom in his budget proposal, though how that would be spent is still in the works.

If lawmakers approve the bill, a conversion project would only need a simple approval review by local planners. Planning commissions and city councils would not be allowed to shoot them down.

Nate Allbee, a legislative aide for Haney, said the idea won’t work on every building, but the bill is aimed at removing obstacles for developers in an attempt to head off a permanent exodus from downtowns built for decades around 9-to-5 workers with little to no housing.

At the end of the third quarter of 2022, roughly 17.7% of commercial space in Silicon Valley was vacant, and about 24% in San Francisco. A report from the University of Toronto shows San Jose’s downtown has seen only about a 50% recovery of pre-pandemic activity when comparing Spring 2019 to Spring 2022, while San Francisco’s downtown has only seen about a third of its activity return.

“We have to fix that mistake that we made (with downtowns),” Allbee told San José Spotlight, acknowledging it’s not easy converting office buildings to homes. “If you talk to developers, this is not something they are clamoring to do. Because it’s actually much cheaper to build a building from the ground up.”

But some experts aren’t convinced the bill will have a significant enough impact to rescue downtowns or make a dent in the housing crisis.

“If it were to be adopted and put into place, I think it would have negligible effect,” Kelly Snider, director of the real estate development program at San Jose State University, told San José Spotlight.

Snider said even if the bill successfully smooths out and expedites the front end of such a project, allowing developers to get quick and easy entitlements to work on a conversion, the costs will simply be too high.

“Anything that’s 10 years old, definitely anything that’s 20, 30 or 50 years old, the retrofit is going to hit a million barriers,” Snider said, noting only building owners with older properties making little to no money would likely consider such a project.

While Allbee said the big pot of state money would be critical to helping bridge financial gaps for developers considering a conversion, especially for historic buildings that cities don’t want to tear down, Snider thinks that money could be better spent elsewhere.

“Why subsidize or enrich private owners with public money to convert old buildings? Why not just use that money to build new residential buildings?” Snider said.

Conversions could have big impact

Josh Burroughs, a co-founder of major San Jose developer Urban Catalyst, agreed that not many buildings in downtown San Jose would likely be candidates for a conversion, but noted it might not take a wave of conversions to make a big difference.

“One vacant building on one block (that gets converted) could actually have a profound impact for additional investment on that block,” Burroughs told San José Spotlight.

AB 1532 is still in a preliminary stage and the devil could be in the details, such as how much money each project could receive from the state, some observers said.

“The bill could be anywhere from utterly useless to highly effective, depending on how it is broken down,” Alex Stettinski, CEO of the San Jose Downtown Association, told San José Spotlight. “I don’t think this is the end solution for everything, but I think it’s a good start, I think we’re headed in the right direction.”

Elizabeth Chien-Hale, a board member of the San Jose Downtown Residents Association, said she’s in favor of anything to help address the housing shortage. But she’s concerned the high cost of conversions means the housing might be out of reach for many.

“What is going to be the pricing of these units? Is that really going to help the segments of the population that need help anyway?” Chien-Hale said.

Allbee said even if few buildings fit the bill for conversion in the short run, he thinks AB 1532 will offer important flexibility to owners and builders in the coming years as the picture of the remote work economy becomes clearer.

“We want them to immediately have the option to not only do this as quickly as possible, but also a fund that will help get past that economic hump,” Allbee said.

Contact Joseph Geha at [email protected] or @josephgeha16 on Twitter.