Can you convert from commercial use to residential in SF?

Question

I am looking at a 4 unit small MFH in San Francisco, it is relatively speaking "priced well"... The prob with the property is that the ground floor is a commercial space that is currently vacant and I can see why it is based on location... It is a pretty residential street, with this one odd commercial space....

Can I convert that space into residential with the city of SF? Does anyone know?

Sean Walton · Answer

Diane G. I might reach out to some commercial brokers there may be more demand than you think for the commercial space. Architects and design professionals may want the space near a busy street but not necessarily needing foot traffic since most business is through referrals. Maybe a co-working space? However the city is desperate for more housing so I would talk to the planning department as others suggested. Just don't expect it to happen quickly. Try and buy for the price of 3 and the 4th is icing on the cake

Chris Mason · Answer

I have done residential mortgages (refinances) for folks that purchased commercial, industrial, mixed use, etc, using commercial financing, that then went through all the red tape etc to get it pure residential, yes. Best case: plan to be in the commercial financing for years, not months, until you've overcome all the red tape. And plan for the refinance to drag out a bit as the conversion must be thoroughly documented twenty ways from Sunday.Worst case: is this going to bankrupt you if after jumping through all the hoops and red tape, the answer is "no"?

Antoine Martel · Answer

You need to check the zimas. You can just look this up online to check the zoning for the property. This will show you if residential buildings are allowed there and if you can convert. Then if it is allowed you can reach out to the city and ask them personally about your property. You can either walk to their office or give them a call.

Diane G. · Answer

@ sean walton - good point.. I was thinking of offering for the value of 3, and that is not accepted, fine...I think we are definitely at a time where there will be a lot more better opportunities to buy.... Lol ..but thanks...

Diane G. · Answer

Thank you all, guys.... I will pass on this one based on what I found out this morning ... You are going to laugh too... So it turned out the 2 occupied units (2nd floor and 3rd floor) are owner's son and ex daughter in law, at way below market rent of $2500 and $1000.... and they are not even paying rent now... everything on "back rent" which the owner wil release upon COE.... So translation- you will subsidize my son and his wife, they will live in one unit and rent out the other unit and collect money, for life...you will then get the ground floor commercial space... all for $1.5m.... Lol....

Manolo D. · Answer

Diane G. It's all about your neighbors, if they are all residential units, then you will have no problem converting it to such, i won't call it red tape, but green tape, you still have to undergo the process but the approval will be favorable. Talk to the city with likelihood, every city has their own zoning code, NC1 is non-existent code in some of the cities here. Most likely you'll be talking to the planners and then city council. Doable and possible, just a question of time and money. Your best bet is the phone call, not really a forum advice on the specifics.

Diane G. · Answer

@ Robert c - yes I know... anything involving city hall is exceedingly hard... The softening is not just SF... I look at loopnet daily, and listed cap in LA, SF, and Phoenix are 1-2 points better than 6 months ago... so I think this is the start

Robert C. · Answer

@Diane G., I have a friend who tried what you're asking. They thought they got a great deal on a building in Noe Valley and could convert the commercial space into residential. 2+ years later, they gave up and sold at a small loss. Not every property will be the same, but just a word of caution. Also, I think the softening in small multifamily is at least partially due to the softening in condos. More supply of condos means less interest in TIC and thus less investors/buyers in that arena. What are your thoughts?

Diane G. · Answer

And, by the way, a lot of these small MFH have price reductions, which is another sign to me the downturn has started.... funny when price starts to drop, the more it drops, the more you want to wait... Lol

Diane G. · Answer

@ chris mason - so the 2 of the 3 units are rented at $2500 and $1000 respectively, when the market is likely $3000 each.... So San Francisco thing... Fine.... The 3rd residential, smallest of the 3, is vacant... can probably get $1200 if rented....The commercial unit is tricky... the property is right off a busy commercial strreet on a quiet block... I dont see why anyone would want to rent this place to open a business when all the foot traffic is just around the corner....it can probably rent $3000 just that I am not confident you can find a commercial tenant....Building as is asking $1.5m .... In essence, you pay $1.5M for a 3 unit getting $4700 TODAY....