While everyone talks about San Francisco’s Mid-Market as a host to Twitter and tech, a new industry will soon dominate the area: tourist hotels. Although Market Street between 6th and 8th Streets has never had a top-line hotel, five new or upgraded hotels are planned for this area. The frenzy to expand tourist hotels in Mid-Market reflects the city’s rising hotel occupancy, but these projects contribute less to the area, and are a far riskier investment, than housing.

The December purchase of the 74-year old Kaplan’s army-navy store at 1055 Market by hotel developer G and M Management (which is now building a 174-room Hampton Inn at nearby 942 Mission Street and also seeks to build a hotel at 250 Fourth Street) means yet another tourist site in the core of Mid-Market. Last September, the developers of a massive project at 950 Market (between 5th and 6th streets) announced plans to include 250 tourist units in the project (which will also have 316 housing units).

These two new projects are in addition to the planned $40 million conversion of the Renoir Hotel at 7th and Market into a ritzy boutique property, and the $15 million transformation of the historic Grant Building across the street from the Renoir to an upscale youth hostel. Add the historic Whitcomb Hotel at 8th and Market and the Aida Hotel adjacent to the Grant Building and Mid-Market will soon become the most intensive tourist hotel district outside Union Square.

Tourism’s Downside

If G and M management had built a tourist hotel at 1055 Market five years ago, it would have been a badly needed injection of money into an area long starved for investment. But given the area’s revival, Mid-Market does not need another tourist hotel.

Housing at 1055 Market between 6th and 7th Streets would have been a far better use. Due to its location, such housing would have served the “middle-class” residents that the city is trying to keep in San Francisco. Its 12% on-site inclusionary units would also have added permanent affordable housing for low-income residents to the area.

Housing at 1055 Market, as well as a 100% housing use at 950 Market, would also have helped efforts to get a supermarket at Eddy and Taylor Streets. TNDC has valiantly sought to fund both housing and a supermarket on the site. The biggest obstacle is that lenders do not believe area residents have sufficient purchasing power to support a full service market.

Tourists do not sustain supermarkets. Residents do. And while new housing on the Hotel Metropolis parking lot (Turk and Mason), the 315 housing units at 950 Market, and the proposed 301 unit Shorenstein project at Golden Gate and Jones (with narrow frontage at 1061 Market) will bring residents to shop at the supermarket and other neighborhood serving businesses, tourists staying between 5th and 8th Streets on Market will have a far less positive economic impact.

And despite the planned new housing, if lenders see the area near the supermarket as primarily catering to tourists, this perception, even though inaccurate, could deter supermarket financing.

Need for Affordable Housing

While Mid-Market has never had much housing, the threatened evictions at 1049 Market and the sky-high rents at the new NEMA project at 10th and Market have generated discussion of expanding affordable housing in the area. Acquiring sites for tourist hotels, as occurred at Kaplan’s, provides little money for advancing this goal.

Together, all of the non-housing development project citywide generated just $7.3 million for affordable housing in the most recent year. The city’s jobs/housing linkage fee provides nowhere near as much affordable housing as the city’s inclusionary law.

There are two other future housing sites on Mid-Market, one at the former Hollywood Billiards and the other adjacent to ACT’s Strand Theater project. But neither will move forward anytime soon.

One idea to add low-cost units to Mid-Market is to give developers a height bonus along Market Street if they increase their affordable housing contribution. Such funds could either provide more onsite affordable housing in Mid-Market, or be directed toward TNDC’s housing/supermarket project at Eddy and Taylor. Either option may be worth a few extra floors along Market Street.

It was not long ago that San Francisco’s tourist industry was experiencing record low occupancy rates. While the industry is now on a roll, housing in Mid-Market remains a much better bet.

Randy Shaw is Editor of Beyond Chron. Join him when he discusses his new book on activism, The Activist’s Handbook, Second Edition, at Books, Inc. at Opera Plaza in San Francisco on January 14, at 7:00 pm.