The rents of restaurant and residential properties seem like orthogonal issues. I have never read that San Francisco has a shortage of retail or restaurant space.
In other cities where I've lived, when a restaurant loses a lease in this manner, it's because the landlord has lined up a different tenant which they consider much higher value.
Think about it this way: if more high-rise apartments were built, then some rowhouses (or other inefficient [in terms of people per square foot of land] housing) could be torn down. Restaurants could be built in their places.
Thus the supply of restaurant space would increase, and the average price would accordingly decrease.
Blah blah blah. This isn't Econ 101. We have zoning laws, so no, all space is not the same.
I haven't checked, but I'm fairly certain that the Grove's location isn't zoned for residential use. In any case, I can guarantee that isn't what the owners are planning to do with the space, given its prime location on a high-foot-traffic, retail strip.
The zoning restricts the market somewhat, but it like anything else can be changed. Didn't mean to come across as patronizing above — sorry if I did.
One more thing... you may have misinterpreted my comment. The situation I'm imagining is not the case where The Grove is turned into a residential development. It's the opposite — some residential areas are razed and rezoned for business, driving down The Grove's rent.
At some point city planners should ask themselves how many billions of dollars of higher rents per year the benefits of a flat city skyline are worth to its residents (and how to fairly balance the interests of property owners and renters).
Gasp You mean you want a bunch of NIMBY idiots to quantify their issue? If they did that, there would be a big problem, because it would plainly illustrate how absurdly greedy they are being.
An other reason is that SF is on a Peninsula, so it can't really have a workable suburb.
If you go South you get all the expensive "traditional" Silicon Valley cities. If you go East or North you have to cross a bridge, and a guaranteed commute nightmare. If you go West, well... You get to Hawaii.
How about: San Francisco restaurant becomes casualty of America's obsession with private property rights.
The sane way to handle renters vs owners is to restrict the amount rent can increase per year. It might slow gentrification and decrease profit of landowners but it would solve this restaurant's problem.
I own property in The Netherlands and rent it out to tenants. There are increased risks for me because tenants have a lot more rights in The Netherlands than in the USA. But having been a tenant in the past I can appreciate the stability that comes with restricting rental increases.
Does it mean I probably make less money? Yes.
But I like being able to walk around my city and not see homeless people everywhere.
I don't see any evidence in that piece of how it "didn't go so well". What I see is sentence after sentence that indicates that there are too few apartments available at reasonable prices. That might be exacerbated by low rents and distorted incentives, but how would it help if more flats were built because prices were high enough to make it attractive?
It might be a demonstration that rent control without appropriate planning controls doesn't work so well. But that's a very different claim.
Not only is the opposite of what almost all economists think, but it's a moot point. San Francisco has among the strongest rent controls and tenants' rights in the USA, and remains bafflingly expensive. If you want to pick the perfect counterexample against old-style 'progressive' housing policy in the USA, you just did.
The rent controls are for residences not for businesses.
Businesses operate on leases, and usually long term leases, like 10 year leases for a restaurant. This will protect the business for the duration, then when it is up, its up.
Actually, the exact opposite of what you said is the solution. Allow stronger property rights. Allow developers to build up using simple real estate economics - for residential and commercial projects. Rent control is the quickest way to turn one of America's best cities into vast slum.
I'm a commercial real estate appraiser. Real estate already has very low margins (10% - 20% for strong operations) - how do you expect the property owner to maintain the property (expenses, taxes, mortgage) and make enough of a profit to consider holding onto said property? Let's turn that around - you presumably like your job. Now, take a 40% pay cut - can you still afford to keep your job?
> Rent control is the quickest way to turn one of America's best cities into vast slum.
NYC has rent control, and it's hardly a vast slum.
And as a counter-dynamic, overbuilding and its associated crime rate increase is another way to turn a city into a slum. Few things breed crime like abandoned housing.
In what world are 10-20% margins low? Perhaps the problem is with real estate operators having unrealistic expectations towards real estate appreciation rates and profitability.
Grocery stores average a 2.5-3% profit margin, and I'd consider them a pretty essential business (because, you know, you have to eat).
Lots of SF residents and business got squeezed during the mid-2000s real estate boom too, however there seemed to be far fewer of these sorts hand-wringing articles back then. There is something about tech in particular that triggers a lot more consternation than other types of booms.
I think there's a not-so-subtle distain for "outsiders" moving to these areas and out-pricing locals. It also often happens in gentrifying areas of lower socioeconomic level, but those stories don't make it to the NYT...
I bet there's a nearly identical story from the gold rush era.
You cannot even begin to understand the degree of disdain these folks have for techies without reading Rebecca Solnit's diatribe on Silicon Valley's employee shuttles ruining the city.
I actually had a friend (not in tech) send this to me a few weeks ago. Here was my reply...
I don't really agree with a lot of this. It seems written by someone who is frustrated that they're not part of the "tech boom" and is angsty about gentrification of the city. There's not much actual critical commentary here; just a lot of complaining that people with lower-paying jobs are being out-marketed by those paid well at tech companies, specifically focusing on their age or that they look like students.
The reality is that owning property is not a right, and market forces can push you one way or the other. Just like New York and Brooklyn, or London and Camden/Islington, those people who can't afford "crazy" rents will move elsewhere (likely Oakland). There's no trickery or deception of these "young people" making six-figure salaries instead of driving cabs or making lattes. They simply chose to learn a skill in high demand. Just because they're "uncool, a little out of place" or "Asian male nerds in their twenties" doesn't mean they can't move to the neighborhood. And their salary is a direct reflection of the value they are adding at these tech companies (or often less, actually). It's certainly not charity.
There's a feeling of jealousy and borderline bohemian supremacy in the author's tone that doesn't sit well with me. Sure, the Google and Apple busses are nice. Both of those companies pay literally billions of dollars in taxes every year. Perhaps that money could be spent creating a better public transit system. Any New Yorker or European will tell you that the BART is laughably inadequate for the Bay Area. Imagine if traveling from Williamsburg to Manhattan took over 45 minutes.
Before Steve Jobs passed away, he presented plans for their new campus to the Cupertino city council. Part of the city's feedback was to ask for free WiFi. Jobs said that he always thought the role of companies was to pay taxes, and the city to take care of public needs. I feel the same way.
She writes, "[The Google Bus] means that the minions of the non-petroleum company most bent on world domination can live in San Francisco but work in Silicon Valley without going through a hair-raising commute by car." A sentence dripping in hyperbole. Those busses keep thousands of additional cars off the highways, and helps San Francisco avoid being a giant parking lot. They save hours of otherwise wasted time by some of the brightest minds in the world. How can you argue against carpooling?
More than anything, it's actually the city of SF that's limiting growth. It takes over 3 years to get permits to demolish and build new structures in older areas of the city. A huge wave of new permits went though recently, and I know of at least 4 new buildings on Market Street, and 7 or 8 apartment buildings in the Mission. But it's still not enough. To match demand, the Dogpatch should really be filled with high-rise apartment buildings. Or at least fix the Bart and build in Oakland (lots of folks are moving there anyway).
This stance highlighting market inequality doesn't propose a solution, and therefore just seems narcissistic banter to me. Maybe this is just my capitalistic tendencies, but I bet the author wrote that post on a Macbook, did her research with Google, and shared it with her readers via Facebook and Twitter. And most people reading it will be doing it on an iPhone or Android.
I dunno... how many techies are there in the Marina? I thought the techies dominated SOMA and chunks of the Mission. Marina feels like the playground of the trustafarians, not nerdy techies.
Commercial real estate often operates with longterm leases and sometimes pre-defined renewal options. It is quite possible this restaurant signed a ten year lease in the shambles of the last tech bubble and now needs to renew the lease.
Totally. Obviously, San Francisco can't just become one huge apple store, but the fact remains that some high-end retail can do much better with real estate so that a high SQM price doesn't really affect them. The only question is: how much high-end retail does the market really need? And people have to eat also.
I think Durga's comment on the NYT site puts it best:
While the above story describes a real problem in SF, it
ignores two much more significant contributors to the
issue that interlock with the effects of tech money.
First, SF residents are extremely anti-development and
NIMBYism runs rampant. It is ridiculously costly, time
consuming, and difficult to renovate or build anything in
SF. Add in a corrupt city planning process that was
deliberately designed to allow just one person to hold up
any project, large or small, and the result is a extremely
restricted supply of both residential and commercial real
estate.
Second, the most influential opinion-leaders and elected
officials are virulently anti-business. This has led to an
oppressive level of mandates, fees, permits, taxes,
licenses, and neighborhood activist oversight to be
imposed on all businesses, from the local mom-and-pop dry
cleaner to the few remaining large companies based in SF.
So, the combination of the influx of highly paid (or
already affluent) residents, an essentially fixed and
unchanging real estate stock, and a deeply ingrained
hatred of private economic activity by both politicians
and active voters result in places like the Grove being
penalized for their success. The problem cannot be reduced
to a simplistic case of rich tech workers throwing down on
starving artists.
Yea well, those silly stupid San Franciscans with their disregard for market forces and the natural unstoppable march of property rights will soon be pushed out of their city and the culture they created will be gone and the capitalist homogenization of another city will be complete. Just like god intended.
What "culture" would that be? A 10-year-old restaurant in the Marina? I lived in SF in 1999 and never heard "The Grove" called "San Francisco's living room".
This is one person's property rights versus another's, not property rights versus something else.
This story isn't about The Grove, it is about the tragedy of gentrification.
Your statement, 'what culture?', taken out of context, describes the situation perfectly.
Why are these newcomers with their hefty salaries moving to the Mission, instead of some suburb closer to their work? Because of the culture. The music, the art, the creative forces that make San Francisco the appealing place that it is. Guess who isn't making enough to afford even $1500/month rent? That same artist who made this neighborhood the place you want to be in.
I am heavily involved with the art and music community in San Francisco and I don't see ANY large influx of young tech workers getting involved with or even supporting local artists. Sure, if some touring indie rock band plays The Fillmore it is filled with Facebook employees, but that's not the sort of grass root support that feeds a living artistic community.
Your job making web sites and iOS apps does not make you an artist or even a remotely credible creative individual, no matter how much smoke your fellow tech friends are blowing up your ass.
This is a story about a restaurant that opened in 1999 in the Marina, isn't it? How much do you want to tell me about gentrification in the Marina in 1999?
Thank you for setting me straight about my job making web pages and iOS applications.
>but that's not the sort of grass root support that feeds a living artistic community.
When you get some artists worthy of grassroots support, trust me, it'll come. Believe it or not, I came to SF 6 years ago to become a writer. It took me less than a year to realize that most of the writers in SF live in denial and are delusional. They believe the writing community here is as great as LA and NY and the only reason they can't get published is because of the evil, corporate publishing companies. This type of attitude is typical for all walks of life in SF, too, which is one of the reasons it will never regain the artistic prominence it had in the 60's. SF has yet to move past its counter-culture roots, despite the fact the rest of the country already has. That makes everything holding on to the old message feel dated and stale. Dated and stale do not make for good art.
>This story isn't about The Grove, it is about the tragedy of gentrification.
Gentrification isn't the real tragedy, here. It's complacency. Manhattan remains THE center of art and culture in America, despite several decades of heavy gentrification and a staggeringly high cost of living that SF has only recently been able to match. What's your excuse, again? They're closing your favorite late night hangout? Find another.
I lived in the Deep South of the U.S. for some time, and witnessed first hand the horror that is a local government run by radicals (in this case, right wing religious nuts).
I'm not an idiot. I recognize Ayn Rand's novel Atlast Shrugged for what it is: fantasian philosophy. However, I read it to understand people influenced by it. One tiny part of then novel kind of explains radicals to me.
Mystics of Spirit: Right Wing Religious nuts who want to force you to suspend reason to placate their moral world-view by modeling all your actions according to their deity, evene if these actions are, in your mind, considered wrong/evil/etc.
Mystics of Muscle: Lefty nuts who want to force you to suspend reason to placate their moral world-view by giving money to others who are quantified by the group as "needing" it the most. "Need" is never straightforward or clear. It is something that, like fashion, shifts over time and often is imagined.
In this case, the "need" is for San Francisco to never change, and for people in houses to never have tall buildings block their view, because........ well, they have no real reason that isn't in some way imposing their unquantifiable need above the very quantifiable problem of too much demand and too little supply.
I'm incapable of reading any reporting on "these damn young square techies snapping up all the desirable places in our hip urban areas" without hearing "... when those areas were clearly designed to be affordable for successful members of society, like brilliant young journalists at this publication."
Without agreeing that journalists are more credible than bloggers, I think the discursive intent of that correction seems to be jibing at her social status. That's adding insult to injury, if the injury is the real difference in purchasing power between young techies and young journalists. The jibe isn't even accurate, as she has articles in the print edition, as well.
I have no problem with her socioeconomic status. I think a lot of journalists are just very upset with the notion that other people can write equally well, and thus it is a communal act instead of a career option. I mean, I am sorry, but you know that she most likely wants the 'golden days' of newsprint back (whether or not she experienced it) simply because of the career stability. And she would probably be happy with the other regressions in society that would imply.
That's what happens with technological progress, it ebbs at lifestyles and sects before they are even acknowledged to exist.
I think it's interessting that there are all these articles about scrappy startups, passion projects and how programmers are artists, but at the end of the day if you're not making six figures people still look down on you.
Apparently you haven't been to many 50-year-old farm towns in the US lately. (All these businesses would be closed and a Wal Mart Supercenter would be off a highway somewhere close).
Anyone remember Ristorante Ecco in South Park? Its rent double around 2000.
The space was vacant for a long time, and I don't think the landlord ever got the new rent - something happened to the local economy around 2001, but I can't quiet remember what.
I lived in the Marina in 1999 and don't remember the Grove either. Spent many weekend mornings eating breakfast at other trendy cafes on Chestnut Street.
The article mentions an annual rent of $246k. Assuming the place is open 360 days per year and 10 hours per day, that amounts to $68 per hour. If there are 20 tables in the restaurant, the rental cost is around $3.40 per table-hour at full utilization. This seems achievable for a popular restaurant.
You're confusing income with profit. Restaurant utilization is also highly variable through the day, and cafes often have long loiter times on tables. Paying rent out of $3.40 left over after materials, labor, and other non-rent expenses, even on an upscale café's inflated prices, is fairly challenging.
65 comments
[ 3.2 ms ] story [ 111 ms ] threadWhen the supply (almost) stays the same and the demand increases, the equilibrium point for rents is bound to increase as well.
It's largely driven by the city's height limits-- there are only so many square feet of usable housing you can fit within a given volume of space.
In other cities where I've lived, when a restaurant loses a lease in this manner, it's because the landlord has lined up a different tenant which they consider much higher value.
Think about it this way: if more high-rise apartments were built, then some rowhouses (or other inefficient [in terms of people per square foot of land] housing) could be torn down. Restaurants could be built in their places.
Thus the supply of restaurant space would increase, and the average price would accordingly decrease.
Blah blah blah. This isn't Econ 101. We have zoning laws, so no, all space is not the same.
I haven't checked, but I'm fairly certain that the Grove's location isn't zoned for residential use. In any case, I can guarantee that isn't what the owners are planning to do with the space, given its prime location on a high-foot-traffic, retail strip.
One more thing... you may have misinterpreted my comment. The situation I'm imagining is not the case where The Grove is turned into a residential development. It's the opposite — some residential areas are razed and rezoned for business, driving down The Grove's rent.
If you go South you get all the expensive "traditional" Silicon Valley cities. If you go East or North you have to cross a bridge, and a guaranteed commute nightmare. If you go West, well... You get to Hawaii.
The sane way to handle renters vs owners is to restrict the amount rent can increase per year. It might slow gentrification and decrease profit of landowners but it would solve this restaurant's problem.
I own property in The Netherlands and rent it out to tenants. There are increased risks for me because tenants have a lot more rights in The Netherlands than in the USA. But having been a tenant in the past I can appreciate the stability that comes with restricting rental increases.
Does it mean I probably make less money? Yes.
But I like being able to walk around my city and not see homeless people everywhere.
It might be a demonstration that rent control without appropriate planning controls doesn't work so well. But that's a very different claim.
Very good ideas, comrade.
Businesses operate on leases, and usually long term leases, like 10 year leases for a restaurant. This will protect the business for the duration, then when it is up, its up.
I'm a commercial real estate appraiser. Real estate already has very low margins (10% - 20% for strong operations) - how do you expect the property owner to maintain the property (expenses, taxes, mortgage) and make enough of a profit to consider holding onto said property? Let's turn that around - you presumably like your job. Now, take a 40% pay cut - can you still afford to keep your job?
NYC has rent control, and it's hardly a vast slum.
And as a counter-dynamic, overbuilding and its associated crime rate increase is another way to turn a city into a slum. Few things breed crime like abandoned housing.
Grocery stores average a 2.5-3% profit margin, and I'd consider them a pretty essential business (because, you know, you have to eat).
I bet there's a nearly identical story from the gold rush era.
Source:
http://www.lrb.co.uk/v35/n03/rebecca-solnit/diary
Great article from a fantastic writer. She, apparently, hates me, and I disagree with a lot of what she's said here, but still, great article.
This cannot be good.
I don't really agree with a lot of this. It seems written by someone who is frustrated that they're not part of the "tech boom" and is angsty about gentrification of the city. There's not much actual critical commentary here; just a lot of complaining that people with lower-paying jobs are being out-marketed by those paid well at tech companies, specifically focusing on their age or that they look like students.
The reality is that owning property is not a right, and market forces can push you one way or the other. Just like New York and Brooklyn, or London and Camden/Islington, those people who can't afford "crazy" rents will move elsewhere (likely Oakland). There's no trickery or deception of these "young people" making six-figure salaries instead of driving cabs or making lattes. They simply chose to learn a skill in high demand. Just because they're "uncool, a little out of place" or "Asian male nerds in their twenties" doesn't mean they can't move to the neighborhood. And their salary is a direct reflection of the value they are adding at these tech companies (or often less, actually). It's certainly not charity.
There's a feeling of jealousy and borderline bohemian supremacy in the author's tone that doesn't sit well with me. Sure, the Google and Apple busses are nice. Both of those companies pay literally billions of dollars in taxes every year. Perhaps that money could be spent creating a better public transit system. Any New Yorker or European will tell you that the BART is laughably inadequate for the Bay Area. Imagine if traveling from Williamsburg to Manhattan took over 45 minutes.
Before Steve Jobs passed away, he presented plans for their new campus to the Cupertino city council. Part of the city's feedback was to ask for free WiFi. Jobs said that he always thought the role of companies was to pay taxes, and the city to take care of public needs. I feel the same way.
She writes, "[The Google Bus] means that the minions of the non-petroleum company most bent on world domination can live in San Francisco but work in Silicon Valley without going through a hair-raising commute by car." A sentence dripping in hyperbole. Those busses keep thousands of additional cars off the highways, and helps San Francisco avoid being a giant parking lot. They save hours of otherwise wasted time by some of the brightest minds in the world. How can you argue against carpooling?
More than anything, it's actually the city of SF that's limiting growth. It takes over 3 years to get permits to demolish and build new structures in older areas of the city. A huge wave of new permits went though recently, and I know of at least 4 new buildings on Market Street, and 7 or 8 apartment buildings in the Mission. But it's still not enough. To match demand, the Dogpatch should really be filled with high-rise apartment buildings. Or at least fix the Bart and build in Oakland (lots of folks are moving there anyway).
This stance highlighting market inequality doesn't propose a solution, and therefore just seems narcissistic banter to me. Maybe this is just my capitalistic tendencies, but I bet the author wrote that post on a Macbook, did her research with Google, and shared it with her readers via Facebook and Twitter. And most people reading it will be doing it on an iPhone or Android.
http://bits.blogs.nytimes.com/2013/04/21/san-francisco-hango...
This is one person's property rights versus another's, not property rights versus something else.
Your statement, 'what culture?', taken out of context, describes the situation perfectly.
Why are these newcomers with their hefty salaries moving to the Mission, instead of some suburb closer to their work? Because of the culture. The music, the art, the creative forces that make San Francisco the appealing place that it is. Guess who isn't making enough to afford even $1500/month rent? That same artist who made this neighborhood the place you want to be in.
I am heavily involved with the art and music community in San Francisco and I don't see ANY large influx of young tech workers getting involved with or even supporting local artists. Sure, if some touring indie rock band plays The Fillmore it is filled with Facebook employees, but that's not the sort of grass root support that feeds a living artistic community.
Your job making web sites and iOS apps does not make you an artist or even a remotely credible creative individual, no matter how much smoke your fellow tech friends are blowing up your ass.
Thank you for setting me straight about my job making web pages and iOS applications.
When you get some artists worthy of grassroots support, trust me, it'll come. Believe it or not, I came to SF 6 years ago to become a writer. It took me less than a year to realize that most of the writers in SF live in denial and are delusional. They believe the writing community here is as great as LA and NY and the only reason they can't get published is because of the evil, corporate publishing companies. This type of attitude is typical for all walks of life in SF, too, which is one of the reasons it will never regain the artistic prominence it had in the 60's. SF has yet to move past its counter-culture roots, despite the fact the rest of the country already has. That makes everything holding on to the old message feel dated and stale. Dated and stale do not make for good art.
>This story isn't about The Grove, it is about the tragedy of gentrification.
Gentrification isn't the real tragedy, here. It's complacency. Manhattan remains THE center of art and culture in America, despite several decades of heavy gentrification and a staggeringly high cost of living that SF has only recently been able to match. What's your excuse, again? They're closing your favorite late night hangout? Find another.
If you follow http://www.dnalounge.com/backstage/log/ you get a pretty good view of some of the regulatory obstacles.
* http://www.dnalounge.com/backstage/log/2012/09/28.html
* http://www.dnalounge.com/backstage/log/2012/10/09.html
* http://www.dnalounge.com/backstage/log/2012/09/11.html
* http://www.dnalounge.com/backstage/log/2012/06/13.html
* http://www.dnalounge.com/backstage/log/2012/06/01.html
I'm not an idiot. I recognize Ayn Rand's novel Atlast Shrugged for what it is: fantasian philosophy. However, I read it to understand people influenced by it. One tiny part of then novel kind of explains radicals to me.
Mystics of Spirit: Right Wing Religious nuts who want to force you to suspend reason to placate their moral world-view by modeling all your actions according to their deity, evene if these actions are, in your mind, considered wrong/evil/etc.
Mystics of Muscle: Lefty nuts who want to force you to suspend reason to placate their moral world-view by giving money to others who are quantified by the group as "needing" it the most. "Need" is never straightforward or clear. It is something that, like fashion, shifts over time and often is imagined.
In this case, the "need" is for San Francisco to never change, and for people in houses to never have tall buildings block their view, because........ well, they have no real reason that isn't in some way imposing their unquantifiable need above the very quantifiable problem of too much demand and too little supply.
That's what happens with technological progress, it ebbs at lifestyles and sects before they are even acknowledged to exist.
http://goo.gl/maps/zwBes
It's really amazing how underdeveloped the area is. It looks like a 50-year-old farm town.
The space was vacant for a long time, and I don't think the landlord ever got the new rent - something happened to the local economy around 2001, but I can't quiet remember what.
The article mentions an annual rent of $246k. Assuming the place is open 360 days per year and 10 hours per day, that amounts to $68 per hour. If there are 20 tables in the restaurant, the rental cost is around $3.40 per table-hour at full utilization. This seems achievable for a popular restaurant.