Mid-Market:  More Than Just The Twitter Tax

The Central Market neighborhood of San Francisco, roughly defined as the stretch of MarketStreet between 5th Street and Van Ness Avenue, is considered a vital segment ofthe urban core of the San Francisco Bay Area. Central Market is unique because it is centrally located in the City,has long served as a regional center for arts, entertainment, and retail, andis directly adjacent to the Civic Center. 

But Central Market also has long suffered from high poverty and crime

rates, high vacancies, physical blight, lack of private investment, and other

social problems.

Eighteen months

ago, making the recovery of Central Market one of the central policy priorities

of his administration, Mayor Lee launched the Central Market Partnership.  Many were dubious.  It seemed yet another ambitious and

well-intentioned attempt to create change where change had stubbornly and

persistently refused to take hold over the years.  Yet at a recent “lunchtime forum” on rental

housing hosted by San Francisco Planning and Urban Research, Meg Spriggs of

Avalon Bay called Mayor’s Lee’s efforts to revitalize San Francisco’s  Central Market area the “role model for

neighborhood revitalization.”  That’s high

praise from one of the earliest believers in the potential of Central Market,

and raises the question, is Central Market becoming a reality?

The Central

Market Partnership is a public/private initiative to renew and coordinate

efforts to revitalize the Central Market neighborhood.

The City’s goal is to

restore Central Market as San Francisco’s downtown arts district while

incentivizing new residential development, retail, restaurants, services and

employers to take advantage of the transit and downtown location, and serve the

adjacent Tenderloin and SOMA neighborhoods.  The Mayor’s Office of Economic and Workforce Development

is leading this multi-agency effort.

One of the

central components of the Central Market strategy has been the Central

Market/Tenderloin Payroll Tax Exclusion. 

Dubbed the “Twitter Tax” by skeptics, the Tax Exclusion originally was

perceived as a financial giveaway to keep Twitter in San Francisco.  Yet, over a year after Twitter made its

decision to move to the Furniture Mart building at Market and Tenth Streets,

numerous other milestones in Central Market suggest that revitalization efforts

may be taking hold:

·       Two weeks ago,

Dolby Laboratories, which has been headquartered in San Francisco since the

1970s, announced its purchase of 1275 Market St. for $109.8 million and plans

to renovate and occupy the entire 385,000 square foot building;

 ·       The Kor Group,

which purchased the Renoir Hotel earlier this year, recently opened “A

Temporary Offering” on the ground floor of the hotel, a collection of pop-up

concepts that occupies virtually the entire block (tenants include FoodLab, the

Rio Grande bar, and Trailhead, which is itself a retail collaboration);

 ·       Trinity has

begun construction of the second residential tower in its Trinity Plaza

project, which will add over 400 dwelling units at Mission and Eighth

Streets.  The entire Trinity Plaza

project will occupy the blocks bounded by Market, Mission, and Eighth Streets,

and the Stevenson Street terminus. Trinity Plaza includes 60,000 square feet of

ground-floor retail space, with renovated street frontages along Market,

Mission, and portions of Eighth Street;

 ·       CityPlace, a

stalled retail project on Market between Fifth and Sixth Streets, was recently

purchased by Cypress Equities, a Dallas-based firm that plans to move forward

with a sleek, glass-fronted, five-story mall; and

 ·       Other technology

companies following Twitter to Central Market include Yammer, One King’s Lane,

ZenDesk, Zoosk, and CallSocket.

 Not only is

technology coming to Central Market, but their financiers are coming as

well.  Sand Hill Road venture capital

firm Benchmark Capital recently signed a lease to take two floors at 998

Market, the famously crime-ridden corner of Sixth and Market.  And venture capital firms have shown interest

in the 70,000 square-foot building at 1161 Mission Street.  Michael McCarthy, who leases the building for

the owner of 1161 Mission, recently told the Business Times, “If I had told you

six months ago that the 1100 block of Mission Street would be seeing love from

VCs, you would have had me committed.  I

thought it would take Twitter moving in and more gentrification of the

neighborhood before people would start to follow.  I missed it by about six months.  All of a sudden, it’s real.”

Another issue is

that Central Market needs residential development to complement its growing

commercial segment.  But, as expressed at

the SPUR lunchtime forum on rental housing, the traditional roadblocks to

residential development in San Francisco are ever-present in Central

Market.  Eric Tau of AGI Capital pointed

out that in Oakland, a 200-unit apartment project generally would qualify for

the in-fill exemption under CEQA, but that would never happen in San Francisco

because of the threat of lawsuits.  This

means that the more protracted environmental review of an EIR or a Mitigated

Negative Declaration is required.  The

additional time and costs that accompany such review makes apartments more

expensive and more difficult to build.

And Mr. Tau, Ms.

Spriggs, and the third panelist, Amir Massih of Archstone Trust, all agreed

that City policies requiring the development of larger apartments in order to

keep families from leaving the City do not achieve their intended goals and hinder

development because the larger units do not get rented. 


these challenges, the potential for a revitalized and thriving Central Market

seems more and more likely, and is an intriguing opportunity for the

development community.  We will continue

to monitor the progress of Central Market and report with updates. 

The issues discussed in this update are not intended to be legal

advice and no attorney-client relationship is established with the

recipient.  Readers should consult with legal counsel before relying on

any of the information contained herein.  Reuben & Junius, LLP is a

full service real estate law firm.  We specialize in land use, development

and entitlement law.  We also provide a wide range of transactional

services, including leasing, acquisitions and sales, formation of limited

liability companies and other entities, lending/workout assistance, subdivision

and condominium work.

Copyright 2012 Reuben & Junius, LLP. All

rights reserved.