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Industrial Nightmare 

How San Francisco planners, in trying to save S.F.'s dwindling industrial base, would hamstring the city's economic future

Wednesday, Mar 5 2003
R&R French Bros., a commercial floor-covering showroom and warehouse on Alabama Street, has been part of the economy of San Francisco's industrial eastern neighborhoods since 1954. Founded by Robert and Ray Levesque, and now operated by their sons Jim and Brad, R&R French Bros. gives city offices and retail businesses access to support just minutes from downtown. Via R&R French, for instance, Lombardi's Sports was able to pave its store on Van Ness in stylish, commercial-grade carpet without having to travel to a warehouse in the East Bay.

San Francisco Pipe and Tube, a few blocks west of Hunters Point Shipyard, is another of the "production, distribution, and repair" businesses that, San Francisco planners contend, are essential to the smooth functioning of the city's economy. By making industrial raw materials readily available within the city limits, planners say, so-called PDR businesses allow the local economy to flourish while providing San Francisco with blue-collar industrial jobs.

This week the city begins the latest round of a half-century-old debate about the role of San Francisco industrial land and businesses like R&R French and S.F. Pipe and Tube. It's a debate that energetic hand-raisers at the San Francisco Planning Department have been preparing mightily for. During the past year or so city planners have completed several book-size reports replete with charts, economic jargon, and artfully written sidebars. They've held seminars, put on workshops, and directed neighborhood meetings, all with the goal of convincing voters and politicians that large swaths of eastern San Francisco land need protection from development that is not industrial in nature. Last week, in fact, 10 of these urbanists pulled all-nighters preparing an industrial-controls presentation for this week's Planning Commission meeting.

The choice, as these planners see it, is simple. "The success of these businesses is essential to the success of virtually every business sector in the City: services, restaurants, conventions, entertainment, finance, hotels, retail, and others. PDR businesses are typically less vulnerable to the boom and bust cycles of the economy because the goods and services they provide are so intricately woven into the daily lives of San Francisco residents, workers, and visitors," the planners contend in a report titled Profiles of Community Planning Areas: San Francisco's Eastern Neighborhood. "If these essential services move farther away from the City center, cost for services will inevitably be driven up and passed on to other business sectors and ultimately the consumer."

It's a seemingly compelling argument. It's also an argument that a few telephone calls to real estate brokers, industrial tenants, and economists show to be misleading in important ways.

There isn't really an industrial land crisis in San Francisco -- at least not in the way city planning would have one believe. Rather, San Francisco is experiencing the continuation of a nationwide trend in which industries have abandoned 1920s industrial facilities near city centers and moved to modern, suburban industrial parks.

San Francisco manufacturers and distributors, and their brokers, see in the current real estate slump an opportunity to lease or buy post-1970s industrial space in spacious business parks in Hayward, Daly City, Oakland, and beyond. And the manufacturers and distributors are going for it.

R&R French Bros. recently moved its core operations to Oakland for reasons that had little to do with zoning controls. San Francisco Pipe and Tube made a similar relocation. In the past month, brokers tell me, some 1 million square feet of San Francisco industrial space have gone vacant; 4 million were already empty. And there's not much the city can do to stop or reverse the trend -- unless it wants to mow down an infrastructure of 1920s industrial buildings and create an industrial sector as friendly to large semitrailer trucks as is Hayward's.

"San Francisco has always been difficult because of the way it was laid out originally," says Ken Hurbert, credit manager for R&R French Bros. "Areas that were commercial weren't designed for 18-wheelers and are now receiving them. That's one of the problems. We've always managed here to get them in and out. But it's always a problem."

We're amid an industrial land crisis is one of those phony preservationist shibboleths (others include Schoolbook economics doesn't apply here and The demand for San Francisco housing is infinite) that persist in San Francisco despite readily available countervailing facts. These notions hang in the air unchallenged until they insinuate themselves into policy debates. In the case of the discussion about industrial land, a group of city planners has taken a preservationist's belief in the need to "save" industrial land from new office or housing development, then couched the results to appear as if they were based on a spirit of economic inquiry.

Instead of objective analysis, we have belief, or wish, or ideological imperative dressed in the clothing of factual reality.

San Francisco has hosted vigorous dispute over industrial land use since the 1950s, when the city's traditional industrial job base began moving to cheaper land and more modern infrastructure -- and San Francisco appeared destined to become a Rust Belt city. Instead, as industry moved, city fathers developed an economy based on financial services and tourism.

And residents have reminisced about a halcyon era of foghorns and meatpacking districts ever since.

The civic land-use conversation reheated during the mid-1990s as businesses and residents in the Mission, Potrero Hill, and SOMA neighborhoods found office buildings and live-work apartments sprouting beside sweatshops and auto-body repair joints. In 1999 the city Planning Commission responded, passing what were called "interim zoning controls" in the eastern neighborhoods to prevent industrial space from being converted to office or apartment uses. The Board of Supervisors extended the controls, and then, last February, extended them for another year. Now, the city is faced with the choice of either abandoning the controls, extending them yet again, or making some version of them law.

Of course, the San Francisco real estate market has turned upside down since the dot-com boom went bust. South of Market, close to half of all office space is vacant. Real estate analysts don't expect a recovery until 2006.

Still, city planners are advocating drawing a line around significant sections of the SOMA, Mission, and Potrero neighborhoods and declaring those sections all but off-limits to housing and office uses. Not only do urban economists, industrial real estate brokers, and representatives of industrial firms (and the Planning Department's own statistics) suggest that the proposed controls won't keep jobs in San Francisco. Those sources also say that, by limiting options for business and suppressing housing construction, the strictest version of the industrial protection zones being proposed could cause significant economic harm.

Proponents of stringent industrial controls don't merely overlook real-world trends that encourage industrial tenants to leave San Francisco; they're creating a trend of their own. According to brokers, some S.F. industrial buildings stand empty because potential leaseholders fear S.F. regulations will prohibit them from adapting the space to suit unanticipated business changes down the road.

"Anybody that's going to make a capital investment to buy or lease a building is going to need to have an '"out,' a series of options you have in case your business plan doesn't go as you expected," says Chris Harney, an industrial space broker with HC&M Commercial Properties. "What if you rent the building, but you have to sublease, and you have to conform to those basically very, very cumbersome controls that somebody adopted? Any smart business owner says, '"Why the hell rent a building in the Mission if I put my company in more jeopardy?' If I have to sell the building, the pool of people that might rent from me or buy from me is very finite because of these anti-business controls that are in place."

Planning Department treatises on the importance of industrial protection zones suggest the idea that our local economy suffers irreparable damage every time a pipe foundry or rubber mat distributor moves to Hayward in continuation of a decades-old nationwide trend. When companies undertake such a move, the planners claim, jobs are "lost" to San Francisco.

But according to the Planning Department's own survey data, nearly half the employees working in San Francisco light industry commute from outside the city. Of these businesses, nearly one-third employ zero San Francisco-based workers.

The entire San Francisco Bay Area is an interconnected economic region that pays little regard to political boundaries. Saying that light-industrial workshops or warehousing concerns must remain in San Francisco to preserve economic vigor is to ignore this basic economic fact. Hayward won't collapse without a financial district, and San Francisco's other businesses will continue to function sans pipe foundries.

Another fact glossed over by proponents of extended industrial zoning for east San Francisco: Many of the warehouses in the area support very few jobs. The Concourse Exhibition Site, an exhibition hall on Brannan Street for example, employs just five people -- on several acres of land near transit lines and the new Mission Bay biotech campus. The owner of the facility fears the city's new Moscone West exhibition hall will make his business obsolete; he'd like to build a 600-unit mixed-use apartment project on the site. And the area and the city need new apartments. But under the proposed zoning controls he would not be able to alter the current category of use from production, distribution, and repair.

These days, if you're a small business, a nonprofit organization, or an independent professional, 2003 is shaping up to be an absolutely glorious time to look for cheap, nicely appointed, conveniently located new digs.

Citywide, one-quarter of all office space, or 17 million square feet, is vacant. Millions more square feet may further glut the market as downsizing firms seek to sublease. And huge amounts of office space planned during the dot-com boom are now under construction.

In the midst of the dot-com bust and a slumping national economy, commercial rents for Class A office space have plummeted from a peak annual average of $77 per square foot a couple of years ago to around $33 today.

In other words, markets function in San Francisco just as they do everywhere else in the world, despite what some may say. As demand for office space falls and supply continues to grow, prices come down.

I'd like to envision a day when a similar surplus of apartments caused residential rents to plummet. It wouldn't be so hard: Current market conditions favor housing over other uses, and builders are poised to construct lots of apartments right now. Eastern areas of the city, particularly the South of Market neighborhood, contain promising sites for significant new housing starts. Yet preservationists are advancing arguments, apparently pulled from thin air, that an east San Francisco apartment boom, and the cheaper rents that could stem from it, would harm the city's economy.

If you believe that, I've got a prime, spacious, modern, intermodal-ready industrial yard in east San Francisco to sell you.

About The Author

Matt Smith


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