Longtime efforts to revitalize a downmarket part of Market Street, San Francisco’s most important commercial corridor, are finally getting somewhere.
The seven downtown blocks between the heavily touristed Powell Street cable-car turnaround and Van Ness Avenue, site of City Hall and the War Memorial Opera House, have been besieged by porn theaters, video arcades, fast-food joints, discount stores and sidewalk drug dealing since the 1960s.
Known as Mid Market, the area’s tawdriness and crime have slowed the changes that have transformed other once-marginal downtown areas. Smaller loft developments have attracted a hip younger crowd to the adjacent South of Market, or SoMa, neighborhood. But large-scale projects have been confined largely to the new waterfront neighborhoods of South Beach, Rincon Hill and Mission Bay, where condo towers as high as 60 stories are replacing obsolete warehouses and rail yards.
Those areas not only have better views but also few existing businesses and residents to block new development. Mid Market, however, is an active, though depressed, commercial zone flanked by established neighborhoods with some of the city’s highest poverty and crime rates.
But with at least nine residential projects totaling 3,000 mostly market-rate units slated for development over the next several years — including the largest residential project in the city in the last half-century — Mid Market looks set for a major transformation. Project backers believe the influx of well-heeled residents will stimulate a commercial revival with low-end businesses replaced by high-end restaurants, live theater and upscale shops. Unlike the burgeoning waterfront neighborhoods pushed by the city’s redevelopment agency, this drive for change has come largely from the private sector.
Surprisingly, the first project is a super-luxury development that seems out of character with its seedy environment. The 22-story Soma Grand, located a block off Market between Seventh and Eighth streets, is a hotel that also features 246 upmarket condominiums, though at substantially less than upmarket rates. The one- and two-bedroom units will be 704 to 1,600 square feet in size and priced from the low $500,000s to more than $1 million.
The building is scheduled to open in November, and a third of the units have already been reserved or contracted based on computer simulations, says Eric Tao, principal and chief investment officer of San Francisco-based AGI Capital Group. AGI is developing the project in partnership with another local company, TMG Partners.
The developers contracted Joie de Vivre Hotels, also in San Francisco, to manage the property and provide concierge services. Some services, such as underground parking, twice-monthly house cleaning, regular wine parties and use of a fifth-floor roof garden, are included in the $400 to $600 monthly maintenance fees. Others, like dog walking, fitness training and massage, are optional.
Residential sales are down in San Francisco, as elsewhere. According to DataQuick Information Systems of La Jolla, Calif., the market recorded 507 residential sales in June, down from 556 sales a year ago. But Tao maintains the Soma Grand’s sales are not affected because low land costs have enabled the developers to price units $100,000 to $300,000 below projects of comparable quality. Rates per square foot average about $800, compared to more than $1,000 for the Watermark, a similar project in nearby Mission Bay.
Michael LaPeter, a broker with Zephyr Real Estate in San Francisco who tracks real estate sales on SFCondoSales.com, reports the average condo listing price for the Soma Grand’s zip code was $675,000 in June. The average for the South Beach zip code was $806,914. The median San Francisco condo sales price was $855,000 in June, according to DataQuick.
Tao says AGI and TMG have deliberately withheld most of the Soma Grand’s units until construction allows potential buyers to tour the building, probably by early fall. “Once people can walk in and see the quality, we feel there will be more momentum, enabling us to get higher prices,” he explains.
While other luxury projects pull in many outsiders looking for San Francisco pieds- -terre, the Soma Grand sells primarily to people who plan to live there full time, Tao says.
“They’re urban. They’re savvy. They understand this area is transitional. They see it as an opportunity, not a risk,” he says. “We have young professionals, who maybe are more daring, but our premier penthouse unit sold to a couple in their 70s who are nationally respected land economists.”
He touts the advantages of living within easy walking distance of employment and the city’s arts, shopping and dining offerings, and says safety concerns are overblown and will ease as the neighborhood transforms.
Whether the Soma Grand’s completion will spark the neighborhood resurgence that developers hope for remains to be seen. While construction has begun on a second Mid Market project, the 179-unit Argenta at 11th and Market, its Australian developer, Sydney-based Anka Property Group, has not started sales. The 20-story building is slated for completion next year.
Across from the Argenta, Miami-based Crescent Heights has completed demolition for development of a 35-story tower with more than 500 market-rate condos aimed at first-time buyers. Prices for 750-square-foot one-bedrooms are projected to start in the $400,000s. The building will be paired with a 130-unit affordable housing project initiated by two local nonprofits.
Another project, San Francisco’s largest residential development in more than 50 years, is the 1,700-unit Trinity Plaza, a five-building rental project set for the Market Street side of the Soma Grand block.
To secure approval, San Francisco-based Trinity Properties guaranteed that residents of an existing 360-unit building slated for demolition would get units in the new project at their current rents and remain under rent control. Trinity also agreed to offer 15 percent of the remaining 1,340 apartments at below-market rates.
LaPeter says Mid Market is about five years from revealing its potential but remains confident in the neighborhood’s resurgence. “Since there’s not as much concrete to see, it’s not as attractive for a lot of people, especially with crime and vagrancy,” he observes. “But once we see two or three projects actually built, it will overrule those concerns.”
In the meantime, Tao reports his company is negotiating to lease the Soma Grand’s ground-floor retail space to a “signature restaurant with a signature chef.” A local cafe/deli operator has signed for a smaller space.
“We never doubted this project would work, despite the area,” Tao says. “We see progress marching west on Market Street. Ten years from now, everyone will look back and say, ‘How obvious.’ Fortunately, we were the first.”