Corporate owners and large lenders claimed hundreds of millions in tax breaks on nine-figure San Francisco buildings in the last three years. Proposition J would end that.
Mayor Daniel Lurie and other supporters call the measure a necessary fairness fix, while critics warn it could slow downtown’s economic recovery.
Proposition J would end a 42-year-old transfer-tax exemption for foreclosure sales of large commercial and multiunit residential properties valued over $10 million, while preserving the exemption for single-family homes, condos and residential buildings with fewer than five units.
San Francisco levies a transfer tax on sellers when properties change hands. Since 1984, foreclosed properties have been exempt — a policy originally designed to protect struggling homeowners from extra tax burdens during personal financial crises. However, the blanket exemption extends also to institutional and corporate foreclosures, including downtown office towers, massive apartment complexes and industrial sites.
Lurie and Supervisor Bilal Mahmood introduced Proposition J after Assessor-Recorder Joaquín Torres flagged a dramatic spike in foreclosure-related transfer-tax exemption claims on high-value commercial properties.
Sellers in San Francisco claimed more than $450 million in foreclosure-tax exemptions over the past three fiscal years, according to the San Francisco Examiner, compared to roughly $50 million over the previous 15 years combined.
Few transactions illustrate the issue better than one involving 350 California St. Once valued at roughly $300 million, the 22-story Financial District office tower sold in 2023 for $61 million — a plunge of nearly 80% from its pre-COVID pandemic value.
On a $61 million transfer, San Francisco’s top-tier 6% transfer tax rate would typically generate over $3.6 million for the city. Under the existing 1984 loophole, similar debt-driven foreclosures produce $0 in transfer tax.
“The emergency measure passed in 1984 simply couldn’t have accounted for today’s market conditions,” said Erika McLitus, a policy expert at SPUR, a San Francisco-based urban policy think tank. “I don’t think anyone anticipated that this could ultimately serve as a loophole.”
Proposition J is a general tax measure requiring a simple majority to pass. Supporters include seven members of the Board of Supervisors, state Sen. Scott Wiener, Assemblymembers Matt Haney and Catherine Stefani and the San Francisco Democratic Party.
What changes if it passes
If approved, foreclosure sales of commercial buildings and large multifamily complexes would be taxed at the same standard transfer-tax rates applied to ordinary market sales:
- 5.5% on properties sold for $10 million to less than $25 million
- 6% on properties sold for $25 million or more
When high-value properties hit financial distress, big-pocketbook buyers frequently acquire their defaulted mortgages or debt from banks rather than buying the real estate directly. Under current rules, a sale like this is exempt from the city’s transfer tax up to the unpaid loan balance.
If it passes, Proposition J will, starting next March 1, also cover deed-in-lieu foreclosures, for example, when a buyer purchases the debt on a building. By taxing transfers of the parent companies that own real estate — not just physical property deeds — Proposition J would close a common legal loophole used to avoid transfer taxes during corporate restructurings.
The ballot argument in favor of Proposition J says the measure will end the “unfair tax break for corporate lenders” who are “taking advantage” of an exemption “meant for struggling homeowners” and will keep the exemption for homeowners and small residential buildings.
The Controller’s Office estimates this would generate $100 million to $150 million annually for the first five years. However, this figure is highly dependent on a local economic downturn leading to an increase in foreclosures.
Controller data highlights this volatility: Proposition J would have generated just $3.2 million during the strong pre-pandemic market of fiscal year 2021-22, compared to $232.5 million during the commercial distress of fiscal year 2025-26 — a more than 70-fold shift.
The opposition — and whether it holds up
If Proposition J fails, all foreclosures — from single-family homes to high-rise towers — will remain exempt from transfer taxes, leaving the current market structure intact.
Opponents argue that eliminating the exemption could stifle downtown San Francisco’s recovery. One opponent, former Supervisor Quentin Kopp, contends the original exemption was designed to keep the real estate market liquid during economic downturns. He warns that taxing distress-related sales adds friction when properties are already failing financially.
In an earlier analysis of the mayor’s proposal, GrowSF, a pro-development political pressure group, warned the tax could push lenders toward “extend and pretend” on foreclosed buildings — waiting for better market conditions rather than reselling distressed properties.
SPUR’s McLitus pushed back on that framing, saying that in cities comparable to San Francisco, there wasn’t any evidence of lenders delaying foreclosures to avoid transfer taxes.
McLitus noted also that Proposition J shouldn’t be considered a reliable revenue source, since collections will “change a lot every year depending on the market.”
Unpredictable calculus
The ultimate destination of revenue from Proposition J, if voters pass it, could depend on another measure on the same ballot, Proposition I. If both measures pass, that could throw a wrench in Lurie’s plans.
As written, Proposition J funds flow directly into the city’s unrestricted General Fund. However, Proposition I — the Affordable Housing Guarantee Act — would redirect roughly half of any new transfer tax revenue to dedicated affordable housing funds. Mahmood amended Proposition J’s language to ensure the two measures would not legally invalidate each other if both passed.
The bigger interaction is procedural, not financial. Proposition I would strip the Board of Supervisors’ authority to lower transfer tax rates, intersecting with the mayor’s long-term tax strategy.
Lurie has described Proposition J as step one of a two-part plan to eventually cut transfer tax rates on properties over $10 million. Those rates, currently 5.5% to 6%, are among the highest in the country. Proposition I’s passage could make the mayor’s plan harder to execute and would likely require another public vote.
