Along with spending $1 million to renovate and remove asbestos from its nine-story office building in San Francisco's Mission District, Bigstep.com will soon offer internships to the area's low-income students, rent out at least two floors to nonprofits at below-market rates and recently reward another group with about $1 million in company stock.
CEO Andrew Beebe says the Web development company also is forming a foundation to funnel money from new-economy entrepreneurs to Bay Area charities. "Communities need a lot of support in times of growth," he says. "You have to focus on the community or else you won't be accepted."
Welcome to the new economy, San Francisco-style. Only a few years ago, when the city languished in a recession and unemployment hovered around 13 percent, San Franciscans begged companies to bring jobs. Come they did -- in droves -- to join in the high-tech frenzy. Now, office vacancy rates sit at around 3 percent.
But today, locals apparently regret the warp-speed growth and are staging anti-development marches to protest companies that have displaced the city's artists and nonprofits, while Web sites tell tales of landlord woe. As a result, companies are being forced not just to pay average rents of $65 per square foot, the highest in the nation, but they're bending over backwards to be good neighbors, altering building designs, adding extra parking and giving time, space and money.
Nevertheless, even these maneuvers may not be enough. Two propositions on San Francisco's November ballot seek to make it even harder for technology companies to open offices here.
Both grow out of a desire to amend Proposition M, the nation's first development cap, which San Francisco voters approved in 1986. Until recently, the proposition mattered little because annual office growth never reached the limit of 950,000 square feet and the extra space was "banked," or added to the following year's limit. But when e-commerce started to boom in the mid-1990s, even that wasn't enough.
Since 1995, when Netscape's IPO ignited the demand for dot-com office space throughout the Bay Area, the city has seen over 6 million square feet of new office space fill up quickly, according to San Francisco Partnership, a nonprofit economic development organization. "Yet companies are still fighting for space," says Marie Jones, the group's director of economic development.
City Hall, businesses and anti-growth activists like Sue Hestor, who helped draft Proposition M, agreed it needed fixing, since dot-coms had made a habit out of sidestepping the rules by declaring that their facilities were for non-office uses, Hestor says. Thus, companies such as Bigstep.com managed to move into residential areas like the Mission, where office growth is prohibited under Proposition M.
To put an end to this, Mayor Willie Brown put on the ballot Proposition K, which redefines the uses of an office to include e-commerce, Web design, research and development of computer technology, information technology and other computer-based technology. (Somehow, movie production and life sciences uses were exempted.)
Meanwhile, Proposition L, sponsored by the Campaign to Save San Francisco, a volunteer organization set up to lobby for the proposal, uses a similar definition for the same purpose -- to rein in the technology sector. (The primary difference is that it doesn't mention life sciences developments.)
Surely, these attacks must confuse the generation of executives who came of age in the mid-1990s -- those who have long believed that the technology sector saves everything it touches. But these proposals, here in Year 9 of the nation's economic boom, reveal that the cheerleading mood has expired. They point to a future both here and in the rest of the country where companies must care not just for investors, but for their neighbors.
To force this end, Propositions K and L both require companies to contribute money for transit, childcare and charities. They place a moratorium on office growth in certain neighborhoods such as the Mission and parts of nearby Potrero Hill, another hot spot for dot-coms. And whereas Proposition M awarded the right to build or renovate space on a first-come, first-serve basis, both K and L allow the city's planning office to decide which developments are best for the city.
Yet, K and L differ greatly in terms of how much growth each actually allows, and thus how hard companies end up working to gain admission. Proposition L, for example, would cut off millions of square feet in development that K would permit. Proposition L also places a moratorium on growth not just in the crowded residential areas like the Mission, but also in industrial areas like Mission Bay.
"This is an extremely critical difference," says Ron Kaufman, a San Francisco developer. "Mission Bay is the old Southern Pacific rail property down by PacBell Park and there's already over 5 million square feet of space that's been approved. So if L passes, there won't be any development outside of Mission Bay for five years. It completely cuts off growth."
Although Jones believes L goes too far, she denies it would cut off all growth. Still, her group opposes the measure out of the belief that it would be detrimental to San Francisco's economy. "You'd have very little development -- a few thousand square feet -- anywhere outside Mission Bay," she says.
Essentially, L would prohibit neighbors from allowing future developments like that of Macromedia, which hopes to build an eco-friendly complex in Potrero Hill. Nevermind that the 1,200-person company has brought hundreds of jobs since setting up shop here in 1989. Forget the fact that Macromedia, which makes Flash and other Web animation tools, also has altered its building design, added parking underneath the garden-topped building and agreed to pay for shuttle buses to transport employees to public transportation.
Even charity counts for little. Sure, in September, the company plans to send 50 to 100 employees a day to volunteer at the Potrero Hill Neighborhood House, a social service group. And in the past year alone, Macromedia has given away over $1 million worth of software to 32 Bay Area organizations, including schools, the Asian Women's Resource Center and Arriba Juntos, a 35-year-old employment agency in the Mission for the homeless.
But L and K are blind to such efforts. Fans of Proposition L say, however, that there are big-picture benefits. If other businesses like Macromedia and Bigstep.com -- which would be unaffected by the new law -- go elsewhere, competition for space would decrease and rents would subside, says Debra Walker, co-chair of the Campaign to Save San Francisco. "It will help everyone who is struggling to stay in this city, everyone from artists to mechanics who are being pushed out," she says. "There is only so much that San Francisco can absorb."
Critics contend, however, that by cutting off technology companies, voters also would throw away not just charity dollars, but jobs. According to a July study by the San Francisco Partnership, the Internet boom has created 42,000 new jobs in the city during the past five years. Another 8,000 will be added by the end of the year, and since those who work for traditional companies' Web sites like Gap.com weren't counted, this may even be a conservative estimate.
Technology companies also have contributed millions in taxes. Plus, urban planners and executives say that Proposition L, and possibly even the weaker Proposition K, won't help depress rental prices. In fact, they say, limits only drive prices closer to the stratosphere. "As a business person with an economics background, I can't understand how you can decrease prices by lowering supply without lowering demand," says Beebe at Bigstep.com.
Lars Lerup, dean of the school of architecture at Rice University, says: "It's basic economics. The supply should meet demand."
Of course, to a certain extent, this is beginning to happen. Since the stock market nose-dived in April, several e-commerce companies like Quokka Sports and Della.com have given up space that they were holding in anticipation of growth. But demand continues to run high. In fact, as soon as Della.com let go of some room, Concrete Media, a Manhattan e-business consulting firm, scooped it up -- despite a price tag that's more than 40 percent more than the company pays for its new space in New York.
"San Francisco is still the epicenter, the mecca of all things technology," says John Fox, the general manager at Concrete Media. "And that means there are not just cultural reasons to be here, but also tangible reasons, like the talent which that culture breeds."
So as long as this demand continues, building a business in San Francisco will entail not just beating the competition and becoming part of the new-economy clique, Beebe says. It also means joining a community -- one with a history that includes not just the gold rush, but progressive politics. And in the long run -- regardless of how many companies build or do not build here -- that may not be a bad thing. Beebe even hopes that the mood here will become contagious.
"Dot-com or not-com -- all businesses need to be socially responsible," Beebe says. "That's the great thing about this development war; it's forcing businesses to give back."
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