Net Worth: Pandemic takes toll on S.F. tax revenue
The number of highvalue real estate transactions in San Francisco has dropped sharply since the coronavirus cast a pall over the economy and the future of office work, according to new data released Monday by Carmen Chu, the city’s assessorrecorder.
Some large property holders may have postponed sales pending the outcome of Proposition I, a measure on the November ballot that doubled transfer taxes on transactions in San Francisco valued at $ 10 million and up, Chu said. The passage of Prop. I could spur some large property owners to sell before it takes effect Jan. 1, she added.
Transfer taxes are a onetime tax levied when properties change hands. Although residential ( including multifamily) properties accounted for about 81% of transactions in fiscal 201920, commercial property transactions accounted for 55% of transfer tax revenues.
Before the pandemic, from July 2019 through March 2020, residential and commercial real estate transactions were averaging 682 per month and generating $ 33 million per month in transfer taxes, Chu reported.
Between April and June, transactions dropped to 435 per month and generated only $ 12 million a month on average in tax revenue.
Between July and October, the number of transactions returned to prepandemic levels — averaging 694 per month — but monthly revenues recovered to only $ 22 million.
For all of fiscal 201920, which ended June 30, the total number of transfers in the city fell to 7,447, down 14.3% from 8,696 the previous year. Those transfers produced $ 335 million in tax revenue, down 9% from $ 368 million in fiscal 201819.
Chu noted that in the current fiscal year, from July through October, just 25 transactions valued at $ 10 million or more accounted for 53% of transfer tax revenues. Just one of those, the sale of the Transamerica Pyramid, hauled in $ 14.3 million, or 16% of the total $ 88 million in transfer taxes.
Proposition I will increase the transfer tax rate from 2.75% to 5.5% on transactions valued at more than $ 10 million to $ 25 million and from 3% to 6% on those selling for more than $ 25 million. The rate on sales below $ 10 million ranges from 0.5% to 2.25% depending on price and will not change.
Most highvalue transfers are office buildings, hotels and apartment buildings, which have all been hit by the pandemic.
It will be interesting to see if transactions suddenly happen at the end of the year to avoid the increase, Chu said. Typically,
there is a “flurry of activity” before a tax increase takes effect, but it’s unclear whether that will happen this year, given uncertainty over the longterm impact of the coronavirus on the demand for office space.
She added that some large property owners also may have postponed sales pending the outcome of Proposition 15, a statewide ballot measure that would have reassessed commercial and industrial property at least every three years. That proposition narrowly failed.
Before the latest numbers came out, the San Francisco controller’s office estimated that Prop. I would generate an additional $ 14.4 million in tax revenues during the second half of fiscal 202021.