Misguided Effort Ignores Strength of Tenderloin Brand
The global real estate strategy firm JLL is promoting the eastern half of San Francisco’s Tenderloin as part of a new “Union Square West.” The city’s premiere shopping district is allegedly “expanding beyond the traditional boundaries” to a new 16-block area bound by Market, Sutter, Jones and Market. JLL sees this area as “ripe with opportunity for both landlords and tenants,” as it attracts “a consumer that loves art, design, craft cocktails and beer, live entertainment, and is eager and willing to pay premium prices for these things.”
How could a company that prides itself on its “retail intelligence” offer such a misguided analysis? Why would they think that the Tenderloin needed to be a subset of Union Square when people are already flocking to the area between Jones and Mason Street to eat, drink and be entertained?
Consider the success of Bourbon & Branch, Farmer Brown’s, Bar Mikkeller, PianoFight, the Exit Theater, Tradition, Shalimar, and Chutney just to name a few businesses operating in that area. All these establishments are doing quite well as being identified with the Tenderloin.
The Tenderloin does not need to become an extension of Union Square to attract businesses. Nor has the Tenderloin been helped when connected to Union Square.
As I describe in my book, The Tenderloin: Sex, Crime and Resistance in the Heart of San Francisco, in the 1950’s downtown business interests sacrificed the Tenderloin to benefit Union Square. The Tenderloin’s cable cars were removed because they “interfered” with traffic heading to Union Square; an historic underground gay bar and residential building at Taylor and O’Farrell was demolished and replaced by a bus facility to get Union Square tourists to and from the airport; and the Tenderloin’s historic two-way streets became one way to expedite cars going to Union Square, a transit decision that has jeopardized pedestrian safety ever since.
The prospect of the Tenderloin becoming an extension of Union Square reemerged in the early 1980’s. Developers proposed a “Union Square West” highrise condo project at Eddy and Taylor. Residents rose up to defeat it, and the 1985 Tenderloin rezoning barred future highrise development.
The Tenderloin’s brand is different from Union Square’s, and it is stronger today than in the past fifty years. Those tired of chain stores and homogenous neighborhoods appreciate the grittiness, sense of history, and economic and ethnic diversity in the Tenderloin that is missing from too many now gentrified urban neighborhoods.
There is a right approach and a wrong approach for attracting quality Tenderloin businesses. JLL defines itself as “retail intelligence experts,” but is using the wrong approach.
Overhyping real estate is part of the game. But claiming, as JLL does, that this invented Union Square West area “has potential to be one of the hottest retail locations in San Francisco” could backfire and prevent quality businesses from opening in the Tenderloin.
That’s because such lofty projections cause some property owners to ask for unrealistic rents for their retail space. For example, I was recently involved in lease negotiations for a space on lower Turk Street. The owner believed the market rent was $4 a square foot. Where did he get this number That’s what Reddit recently paid for their new offices at 420 Mason.
420 Mason is part of this “hot” new retail area, but it’s outside the 31-block Uptown Tenderloin Historic District. It’s also the former headquarters of NBC news. 420 Mason is a different world from lower Turk Street, but owners seize on such rentals and reports like that put out by JLL to demand rents that no businesses will pay in the real Tenderloin.
This can keep storefronts vacant for years, hurting the Tenderloin. That’s why overinflating potential rents can backfire. It convinces owners to wait for a high rent-paying tenant that will likely never come.
The Right Strategy
The right strategy for the Tenderloin’s retail future is the approach backed by Mayor Lee, D6 Supervisor Jane Kim, and by thoughtful realtors like Santino DeRose, who has found homes for more successful retail tenants in the neighborhood than anyone. Many key Tenderloin property owners are following this right approach, which was recently highlighted in a story on how new businesses are improving the Tenderloin.
Lee and Kim jump-started the Tenderloin’s recent revival in 2011 by backing a targeted tax credit that the Tenderloin and Mid-Market desperately needed to attract retail tenants. Lee has since allocated staff and resources through the OEWD to attract new businesses to the Tenderloin and help them navigate San Francisco’s often byzantine code requirements (that’s why maintaining the Tenderloin’s progress requires voting No on Prop M, which brings a wrecking ball to small business assistance programs in the Tenderloin and citywide).
DeRose and his property owner clients understand that bringing quality retail tenants into the Tenderloin requires rents that are below more successful retail areas. Owners benefit in the short-run by getting income from a space that would otherwise be vacant. They benefit in the long run from increased property appreciation by their business contributing to the Tenderloin’s improvement.
Bringing in attractive tenants at a rent that enables success is the right strategy for the Tenderloin and for owners. This principle is behind virtually every successful new business that has opened in the Tenderloin in the past decade.
Union Square has a remarkable history of retail success. But if I were considering opening a new restaurant or bar, I’d choose the lower-cost Tenderloin over Union Square in a heartbeat.
Randy Shaw is Editor of Beyond Chron. Read about the Tenderloin’s past through today in his book, The Tenderloin: Sex, Crime and Resistance in the Heart of San Francisco,Filed under: Mid-Market / Tenderloin