What Drove Mid-Market's Office And Retail Boomlet?
What's driving the latest boom in the Mid-Market neighborhood was a key focus for developers and brokers who gathered to speak at Bisnow’s Future of Mid-Market event last week.
Panelists began by providing much-needed historical background and talked about how the coming of BART hollowed out Mid-Market. With the help of good planning and tax incentives, the neighborhood is on its way to becoming a 24/7 destination. Allen Matkins partner Lee Edlund, far left, moderated the panel.
Build principal Michael Yarne gave a quick Mid-Market history lesson. He connected the construction of BART to fundamentally altering the landscape of the city as it incentivized migration away from Mid-Market to other places in the city. The impact was particularly hard on residential, which never recovered. In the '80s, encouraged by zoning, Mid-Market then became something of a hub for back-office functions.
He said zoning missteps in effect “ghettoized the poor.” Michael quoted Tenderloin Housing Clinic executive director Randy Shaw, saying appropriate market-rate investment would have assisted many in the neighborhood. City incentive programs, such as tax breaks, have de-risked the transaction and allowed developers to start work in these blighted districts. “[The incentive programs] are a big net win for San Francisco,” he concluded.
Michael likes the challenge of working in Mid-Market, because working with neighborhoods to transform the city is a core value of his company. “It’s in our DNA,” he said, referring to Build's community-focused mission. He pointed to the creation of an artist-in-residence program to ensure the cultural vitality of the community isn’t being trampled on by new developments.
Emerald Fund principal Marc Babsin (right, speaking to Gordon Sterling) began his comments by describing a vision for San Francisco by famed architect and designer Daniel Burnham in 1905. The city would have wide axial boulevards and be reminiscent of Washington or Paris.
Though it didn’t quite happen that way, there's a move towards such a vision today led by neighborhoods such as Mid-Market, he said. Marc described several draws to the district, including 35 transit routes connecting Mid-Market to the greater Bay Area and a vacancy of nearly 30% in Van Ness in the past. Despite these attractive qualities, the 24/7 neighborhood never really took hold.
The key to it was the deal city supervisor Jane Kim negotiated with Twitter to exempt payroll taxes for six years if any company grew in Mid-Market. This was, according to Marc, “the perfect storm” in driving the current boom in the district. Along with the development of dense mixed-use residential and grocery stores, Mid-Market was on its way to becoming a 24/7 neighborhood.
Group i director of acquisitions Leigh Chang (left, with Bruce McCourtney) said revitalizing Mid-Market depended upon long-term relationships with tenants and community groups.
Leigh said while building in Mid-Market could be challenging, Group i was actively engaging and contributing the community. Among these initiatives is the donation of 2k SF in retail space to community service projects, such as a kitchen incubator that will teach many first-time entrepreneurs how to make a success of their restaurant. Furthermore, the the hotel project they are constructing will be unionized.
Colliers International SVP John Jensen (left, with Akash Sharma) sketched out the story of Mid-Market with the price history of 995 Market, now home of WeWork. In 1997, the building sold for $3M. Now it is valued at $60M.
John remains optimistic about the state of the market, citing projects like the recently renovated Hibernia Bank as projects that excite him.
Tidewater Capital managing principal Craig Young (right, with Ben Au) talked about the retail aspects of developing Mid-Market. The offices have established an anchor and now it is the turn of shops and retailers to create a vibrant 24/7 district, he said.
A key element of this phase is interaction with the community. He said it’s good to get input from the residents and “it would be a disservice not to solicit honest feedback.” The trick, according to Craig, is to know not all suggestions are meaningful to the successful completion of a project.