Dot-com companies snatch up land in San Francisco's `SOMA' area

Journal Record, The (Oklahoma City), May 1, 2000

SAN FRANCISCO (AP) -- In a land grab reminiscent of the Gold Rush, dot-com companies are snapping up every available square foot of office space here, causing wrenching change in a city known for its diversity and bohemian character.

At least 500 Internet-related companies with roughly 40,000 employees have set up in San Francisco, most squeezing into SOMA, a trendy former industrial district south of Market Street.

"This is what I call the new Gold Rush," said Fire & Gold author Charles Frachhia, an authority on San Francisco history.

"The clothes are different. But I could close my eyes and see the parallel. Here we have young kids from all over the country coming here to get rich."

Some critics say the city is foolish to bank its future on what they feel is a tenuous industry already feeling a shakeout as Nasdaq stocks become more turbulent than ever.

But the recent Wall Street volatility, which has sent the Nasdaq Composite index down more than 20 percent from its high, is doing nothing to slow the demand for dot-com office space, and some city leaders have since intensified their efforts to relax voter-imposed development limits to make more room for the "new economy."

"With or without a hiccup in the markets, those needs are there," said John Jensen, a real estate broker for Grubb & Ellis who knows the SOMA district like the back of his Palm electronic organizer.

Landlords have seized this moment, ending leases with longtime tenants for a chance at the dot-com dollars -- and even demanding stock in startups along with million-dollar deposits. In some places, warehouse space with exposed brick and beams is renting for more than luxurious suites in Financial District skyscrapers.

"It's crazy," Jensen said as he knifed his Volvo station wagon through bustling downtown traffic on a weekday afternoon. "Everyone wants to be here."

Jensen has been working overtime to appease new executives whose business plans depend on securing space where their companies can grow exponentially.

Executives like Keyur Patel, chief strategist for Brience Inc. He and his three partners -- who hope to create software that helps big companies deliver content over the Internet -- just got a $200 million investment to turn their idea into a business.

But they needed space for 40 people -- immediately. And since they want to recruit top-level engineers and establish their company's reputation as a key Internet player, it had to be in SOMA.

"Get me a building in one week," Patel told Jensen.

"We told him it has to look cool and be in move-in condition," he recalled. "We were being ridiculous."

Days later, after a stream of faxes, e-mails, bank wires and legal consultations, Jensen delivered the hippest digs -- a 17,000-square foot low-rise brick building 14 other outfits had been hoping to get.

But it didn't come cheap.

With a vacancy rate of less than 1 percent in the heart of SOMA -- a part of town known as Multimedia Gulch -- they were happy to pay $68 a square foot, or nearly $1.2 million a year.

And to close the deal, Patel even gave the landlord, Tiffany Gin, a piece of the company. It was "a lot of stock," said Gin, who studied the business plans of all 15 bidders before going with Brience.

Many hot programmers who can pick their companies and name their salaries prefer to live and work in San Francisco, where they can avoid the Silicon Valley's long commutes and enjoy the city's nightlife.

But critics say these affluent newcomers are spoiling the quality of life they came for.

"The beauty and charm of the city is not just in its geographical location and natural wonders," said Andrew Hoyem, the publisher of Arion Press, the nation's last fully functional type foundry, whose landlord isn't renewing his lease.

"It's about mixture, variety -- and that's rapidly becoming lost," Hoyem said.

In the early 1990s, cyberpioneers were lured to Multimedia Gulch, a gritty pocket of brick and timber lowrises, factories and warehouses, by the austere atmosphere, proximity to highways and relatively cheap cost of living.

Now, average rents in SOMA are already surpassing the $60 per square foot it costs for space in this city's Financial District. And in Multimedia Gulch, some rents have more than tripled over the past few years to upwards of $80 per square foot, rivaling rates in New York City's Silicon Alley and topping rents in Chicago skyscrapers.

The high prices are causing startups to push into surrounding neighborhoods and relocate across the Bay to Oakland or San Mateo County to the south. Some are even reluctantly looking across Market Street to the button-down Financial District, where engineers with body piercings now share elevators with corporate lawyers.

A growing coalition of artists, fixed-income residents, longtime tenants and advocates is arguing that this obsession with image has led to uncontrolled gentrification, irrevocably changing San Francisco's character, narrowing its diversity and spoiling its vitality.

"Enough is enough," Debra Walker of the Coalition for Jobs, Arts and Housing, said during a protest on the steps of the Mission Armory, a homeless shelter undergoing a $50 million conversion into office space.