New heart for San Francisco

The city's office market may have gone south, but the South of Market district is still climbing
August 11, 2010

San Francisco holds a special place in the national psyche, known for its beauty, romance and earth-shifting danger.

But among developers and designers, it also is known for being as active in the review of its building designs as the region is seismically. This high level of official involvement by the city can be both a blessing and a curse.

"It's the stickiest place I've worked," says Jeff Till, a senior design architect for Hornberger + Worstell Inc. Architects and Planners, San Francisco, who has designed buildings in urban areas throughout the world. To win approval "a project has to be well thought through and it has to be strong visually," he says.

Till believes the result of the process often is counter productive. "Downtown suffers from all these influences whittling down an idea until you sometimes get a mediocre design," laments Till. Since the 1980s, he adds, "there are a lot of anonymous-looking tall buildings that you would never remember. That's somewhat a result of the difficulty of the process."

Lawrence Badiner, assistant director of planning for the city and county of San Francisco, believes that assessment is harsh. "I think people say that about architecture anywhere," he contends. "The city and the public are really concerned about what buildings look like. You may say the architectural vision is compromised, but we say we want to make sure that buildings are appropriate and fit into the city and its overall context."

When he surveys the city's skyline, the 20-year planning veteran sees "a collection of good buildings rather than a collection of individual outstanding buildings. But we are looking for outstanding buildings."

Office booms and busts

The high-rise commercial office market has been a focal point of the city's architectural review and approval process. After San Francisco's 1980s real estate boom went bust in 1989, 10 years went by before another commercial office building rose in the city. The dot-com revolution and robust economy of the late 1990s set off another wave of high-profile, high-rise office building construction.

 
Market Street, shown here in 2000 with the Four Seasons Hotel and Residences under construction in the foreground, divides South of Market from Union Square and the Financial District. The 101 Second Street building kicked off the office market building boom in 1999.

In 1999, spurred by the then-booming Internet economy, developers began piercing the skyline. New developments completed that year included the 25-story 101 Second Street tower designed by the San Francisco office of Skidmore, Owings & Merrill (SOM), Chicago, and the fashionable 31-story W Hotel designed by Hornberger + Worstell.



This growth has centered in the South of Market (SoMa) area, a once downtrodden section of the central business district that now abounds with high-rise office and residential towers, public gardens, museums and entertainment facilities. Market Street is SoMa's northern border that divides it from the Union Square shopping district, and the city's Financial District, home to San Francisco's trademark skyscrapers, the Transamerica Pyramid and Bank of America building (see map).

"[SoMa] is becoming a 24-hour neighborhood," proclaims William Witte, a principal with The Related Companies of California, Irvine, Calif., developer of the 39-story apartment tower called The Paramount. Designed by Kwan Henmi Architecture/Planning Inc., San Francisco, it opened last October. "The area has become the cultural center of the city with the Museum of Modern Art [designed by Swiss architect Mario Botta, and completed in 1994], and several other museums on the drawing boards, along with hotels. In addition, there is a public park — Yerba Buena Gardens — and the Moscone Convention Center."

Dot-com to dot-gone

When the fault line beneath the booming dot-coms gave way, however, it set off after shocks in the local office market that are still being felt. Before 2001, the market had been the tightest in the U.S. during the previous five years. Lease rates for prime office space at that time surpassed $100 per square foot.

The city's office vacancy rate hovered near 1 percent in 2000. "The lowest point for office vacancies was the first quarter of 2000, when the rate was just above 1 percent," says Daryl Delano, Reed Business Information economist, Plymouth, Mass. "By the fourth quarter of 2001, overall office vacancies were 14.9 percent," Delano says. Estimates now put the vacancy rate for class A offices at 10 to 12 percent, and for overall vacancies at 17 to 20 percent.

"Some of the office buildings coming online are empty and will be for a while," says David Wall, executive vice president of Fremont Properties, San Francisco, developers of the 23-story 199 Fremont Street building, which opened in October 2000, and was designed by Kaplan McLaughlin Diaz (KMD), San Francisco. He thinks the overall office vacancy rate could reach 25 percent by midsummer.

Others, such as Jack Myers, principal of Myers Development Co., San Francisco, developers of the 390,000-sq.-ft. 101 Second Street building, which opened in late 1999, are more optimistic. "The market seems to have bottomed out, and we think over the next two or three years, there will be a return to growth. But it's going to take a while to straighten the fallout from this dot-com phenomenon," says Myers.

A relieved Wall notes that the 426,000-sq.-ft. 199 Fremont Street building is 99 percent leased to stable credit tenants such as PriceWaterhouseCoopers, AON Corp. and the Fremont Group, Fremont Properties' parent company. "Even though dot-coms were offering to pay higher rents, we chose not to lease to any," Wall recalls.

He could see the dot-com collapse coming. "Dot-coms were saying to us, 'Our analysts tell us it's OK if we don't make money.' I would say, 'Well, it's not OK if other businesses don't make money.'"

Myers' 101 Second Street building was not as fortunate as 199 Fremont Street was, but it wasn't hit as hard as many were, says Jack Myers. "We had a bit to deal with in the dot-coms," he says. "But the tech space we did have in the building has largely been re-leased."

Towers keep climbing

Despite the drop in demand for office space, the office construction boom has not ceased. Though some developers are shelving proposals for new office projects, high-rise offices that were already in the pipeline continue to come on line.

For instance, the 26-story 55 Second Street tower, another Myers property, designed by the team of Heller Manus Architects, San Francisco, and HKS, Dallas, opened in January. And the 31-story JPMorganChase building, developed by the San Francisco office of Hines Interests, Houston, and designed by Cesar Pelli & Associates, New Haven, Conn., will be completed in May. At 665,000 gross square feet, the Hines development, which will serve as the western headquarters for JPMorganChase Bank, will be the largest high-rise developed downtown in the last 15 years.

Still, the pace of work on some projects is slowing as developers wait for demand to catch up to supply. Other jobs, however, are forging ahead with design development. For example, the 1.58 million-sq.-ft. 835 Market Street complex being developed by Forest City Enterprises, Cleveland, and designed by Hornberger + Worstell, will feature a 31-story hotel, along with residences and mixed-use development (see page 68). The 40-story St. Regis Museum Tower is being developed by the San Francisco office of Carpenter & Co. Inc., Boston, with Starwood Hotels & Resorts Worldwide Inc., White Plains, N.Y. Designed by SOM, the tower will encompass a 388,000-sq.-ft. luxury hotel, 119,000 square feet of condominiums, and an African-American cultural center.

 
Twenty percent of the apartment units at The Paramount are rented to low-income tenants.

Tight caps on office space

The rapid fashion in which these and other buildings in SoMa have risen is somewhat surprising for a city that is known for keeping a tight reign on its high-rise development. As far back as the late 1970s, ways were being sought to prevent what locals call "Manhattanization." In 1986, voters passed Proposition M, which limits the amount of office space that can be approved for development in the city in a year to 950,000 square feet.

The ordinance enables square footage that isn't approved for development in one year to roll over into the next. When the market went bust in the late '80s, it kept developers from submitting proposals for the limited amount of square-footage available. By 1998, a year in which the planning commission approved the first office high-rise in seven years, more than 2 million square feet of undeveloped space had accrued in what the planning department calls its "annual office limitations program."

Many buildings had received their entitlements from the city to proceed with development as far back as 1989, but were never built. Examples include 101 Second Street and the 38-story Four Seasons Hotel and Residences, developed by Millennium Partners, San Francisco, and designed by the team of Gary Handel + Associates, New York, and Del Campo & Maru, San Francisco. "Some of the projects that are approved may be delayed or not built at all," says Craig Nikitas, senior planner for the city and county of San Francisco's northeast quadrant, which includes downtown.

Beauty is in the eye of the planner

Acting in unison with Prop M, and as part of the city's master plan, is a process within the annual office limit program known as the "Beauty Contest." Instituted along with Prop M, the contest promotes competition among developers for the available square footage. It requires developers to adhere to prescriptive guidelines intended to enhance building design.

"There is a series of seven criteria [in the guidelines] that developers are supposed to consider, and architecture is one of them," says city planner Badiner. Confessing that he hates the use of the name "Beauty Contest" to describe the review process, Badiner says the process considers such things as design, location, transportation, types of space and anticipated uses. "The annual limit was instituted to ensure that a development is appropriate in scale and form to its surroundings," he says. Projects are given points by the planning commission for providing amenities such as public spaces, rooftop gardens, public art and retail.

Still other ordinances place additional limits on developers and architects. The "Shadows" proposition also enacted in the mid-1980s prohibits buildings from casting shadows on a park or recreation space.

A bulk reduction requirement creates a series of building profiles and setbacks that yield "these wedding cake forms," says Craig Hartman, partner in charge of design for SOM in San Francisco. "This often results in stubby, awkwardly proportioned buildings," he says. These proportions are only exacerbated by the 500-ft. height limit on buildings, Hartman says. Height limits are even less in some areas. For instance, the limit for 101 Second is 320 feet.

But there is benefit to the process, says Hartman, adding that he believes such involvement by cities is becoming the norm around the world. He cites Hong Kong as an example.

In San Francisco, of course, seismic concerns also factor into the process, but surprisingly less so for high-rise buildings. Seismic requirements are stringent, but now standard. "Our high-rise buildings don't fall down in an earthquake, our old buildings do," says Badiner.

Overall, the approval process has improved in recent years under Mayor Willie Brown's administration, says developer David Wall. He says the city was instrumental in assisting him and KMD in the redesign of 199 Fremont Street, which received its entitlement in 1991. "In 1997, we changed the design from post-modern to a more contemporary look," he adds.

Ironically, the recent market downturn has devalued the contribution that the Beauty Contest can make, says the city's Nikitas. He notes that such competitions have not been held in either of the last two annual approval cycles. "Compared to the proposals being submitted, there is enough of a surplus of square footage that the Beauty Contest isn't needed. Proposals are now taken in order of submission.

Of note, speculative office development now is virtually nonexistent in SoMa or anywhere else in San Francisco. "No one in their right mind will start a new office building today unless they have a build-to-suit tenant," says Wall about the current market. "No lender will loan the money, so there will be no new high-rise offices for a while until the vacancy rates come down," he says.

         
 

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