CityPlace Makes $100M Retail BetSan Francisco Business Times
November 20, 2009
Urban Realty pitches ‘value’ on Market St.
David Rhoades and Martin Sawa hit Market Street in 2004 in stealth mode, quickly accumulating properties on the mostly vacant block between Fifth and Sixth streets.
Eight transactions and $100 million later, their company, Urban Realty, had assembled two impressive San Francisco development sites: a 46,000-square-foot parcel with 275 feet of frontage along the south side of Market Street; and a 25,000-square-foot assemblage across the street behind and next to the Warfield Theater. In addition, they bought the historic 210,000-square-foot 901 Market St., and 982 Mission St., which they acquired to house a tenant in one of the Market Street buildings set for demolition, a UCSF mental illness facility.
“We were very quiet,” said Rhoades, standing on the south side of Market Street. “It was eight different transactions — and no one knew about any one of them.”
Now Urban Realty is set to go through what should prove to be a very public approval process. The developer is gearing up for a Dec. 10 Planning Commission hearing, likely the first of many, on CityPlace, a 250,000-square-foot value-oriented retail development on the 900 block of Market Street. A vote on the project is likely to happen in 2010. The proposed retail is the most promising proposal in a generation to revive a depressed block that has stubbornly resisted investment, despite being a stone’s throw from the $460 million expanded Westfield San Francisco Centre, according to Market Street Association Executive Director Carolyn Diamond.
“Those sites have been looked at over and over for development, and this is the only one that has any legs to it,” said Diamond.
Goods for the masses
The strategy for CityPlace had its roots in the acquisition of the properties. By working in 2004 and 2005, Urban Realty was able to acquire the properties before the market took off. That created a low cost-basis, which in turn means that the developer should be able to offer not only larger floor plates but lower rents than other buildings in the city’s downtown retail core. While the neighborhood is replete with deluxe retailers from Bloomingdale’s to Barney’s to Saks, CityPlace is looking to attract mass-market retailers like Target or TJ Maxx.
Rhoades said value-based tenants have shown tremendous interest, but that no deals would be reached before entitlements are secured.
“If I can tell them when to deliver, then they will make commitments,” said Rhoades. “We understand the dynamics and what they need. It’s the big tenants, the discounters, the value-based retailers that are growing and expanding, even today. You just can’t gouge them on rent. You have to stay affordable, and this is affordable rent. They need big floor plates, efficient floor plates, parking, good access. They love the neighborhood. It all works. It’s just timing.”
The glass-curtain building, designed by Gensler, would consist of five wide-open 45,000-square-foot floor plates. It also calls for two levels of underground parking, which will likely end up being the most controversial aspect of the plan.
To park or not to park
Urban Realty argues that the type of proposed retail tenants — cost-sensitive value-based chains — specialize in the sort of bulky household items most San Franciscans now drive to the suburbs to buy. And the amount of parking it is proposing, less than one spot per 1,000 square feet of retail space, is 20 to 25 percent of what most suburban retail malls offer. While Target and similar chains have opened stores without parking in New York, San Francisco is not as dense as Manhattan, and it’s unclear whether they would be willing to take a chance on what is a blighted block of San Francisco unless the building has parking.
“Parking is and continues to be a complex issue,” said Alex Clemens of Barbary Coast Consulting, the lobbying firm helping Urban Realty with entitlements. “When you’re dealing with a value-based retail organization and you’re dealing with bulky items, there are some questions about whether it will succeed if folks are required to use public transit. It will be part of the debate.”
Tom Radulovich, executive director of Livable Cities and a BART board member, said CityPlace should be held to the same standard as the $460 million Westfield San Francisco Centre, which was built without new parking.
“We all supported the San Francisco Centre going in with no parking, and that was the right response,” said Radulovich. “We have spent billions of dollars bringing fantastic transit right to the front door of this development and we are looking for development that takes advantage of that.”
He said the recent car restrictions on Market Street have made the street safer and more attractive and that 80 percent of the shoppers downtown take public transit, walk or bike.
“We have been trying to lessen automotive impact on Market Street — we don’t want a big new development to pull in the opposite direction,” said Radulovich.
But Diamond of the Market Street Association said she doubts the project can go forward without parking. “To sacrifice much-needed retail because of parking would be another nail in the coffin because, once again, nothing is going to happen here.”
Tenderloin Housing Clinic Executive Director Randy Shaw, a longtime neighborhood activist who supports CityPlace, pointed to the recent defeat of another proposition which would have brought new investment to the area. Proposition D would have allowed Mid-Market property owners to display electronic signs, and a slice of funding from the signs would have supported an arts district and other neighborhood enhancements.
“The various people who defeated Prop. D are going to be hard-pressed to say they want to kill CityPlace, too, because of the parking,” said Shaw. “If you oppose this, too, that means you don’t want anything to happen to Market Street.”
Meanwhile, Urban Reality continues to pump more money into the neighborhood. They recently spent upwards of $2 million to renovate the historic 8,000-square-foot 925 Market St. They are proposing to expand the glass façade on 901 Market St. from 10 feet to 18 feet. And they are in early talks about what to do with their property on the other side of Market Street, a site that could be suitable for housing, a theater or both. Rhoades said they are in talks with the other two property owners on the block about a joint venture.
“I’m sure we’ll sit down and talk — right now, all we have is an agreement to agree. We all see that it’s time to do the right thing.”