August 2014

Showplace Square Tenants Fend Off Eviction

Keith Burbank

Last month commercial tenants defeated efforts by a large out-of-state property owner and a rising high-tech enterprise to turn half of the San Francisco Design Center into office space. Currently, most of 2 Henry Adams Street consists of home interior showrooms. The building’s owner, Chicago-based RREEF, wanted to eject existing occupants, and replace them with Pinterest, a web-based company that helps users catalogue things they like.  But roughly 50 tenants and their supporters convinced District 10 Supervisor Malia Cohen to block RREEF’s attempt to designate 2 Henry Adams a historic resource, which would have enabled the evictions.

 “They should be here, but not at this location,” said former San Francisco Mayor Art Agnos, about Pinterest. According to Agnos, the controversy surrounding the Design Center is a citywide issue. Cohen said there are 13 other San Francisco buildings that have been targeted by their owners for historic designation, potentially disrupting a large amount of production, distribution and repair (PDR) space. Historic designation allows a building’s owner to change the property’s use, rather than its underlying zoning, a fact the View misreported in its July issue. 

 The City permits the conversion of PDR space to office use in buildings designated historical because office uses typically yield higher rents. The owners can then use the extra money to pay for the buildings’ expensive maintenance costs, so the theory goes.  The design center, however, has been well maintained, according to Bay West Development, which manages the property. 

 Agnos called the option to convert showrooms into office space a commercial version of the Ellis Act, a statement dismissed as hyperbole by Charles Goodyear, Goodyear Peterson Hayward & Associates, a public affairs consultancy representing RREEF.  According to Goodyear, RREEF has forgiven $1.5 million in unpaid rent, is carrying $185,000 more, with some tenants 10 months behind in their rent. He said some of the tenants who criticized Bay West Development and RREEF are in rent arrears. Ultimately, “the property has to be managed for profit,” he said. 

 Bay West Development partner Sean Murphy argued that the design industry is contracting; Goodyear echoed that RREEF is responding to market forces. According to Murphy, tenants have been asking for smaller showrooms.  However, at a late-June meeting with Cohen, tenants disputed that claim, insisting that they wanted more space so they could expand. Some pointed to the Great Recession as causing a short-term decline in their business, which is finally coming back. Cohen said her own research shows the design industry is expanding, an assertion the View couldn’t confirm.  

 Murphy argued that tenants would be able to find alternative space in Showplace Square, but 2 Henry Adams occupants countered that scattering them to other buildings would be bad for business. They said the convenience of shopping in one place attracts customers. One tenant asserted that there’s no other place available in the design district.  Another feared that the first floor would be a ghost town if Pinterest moved in; she moved to 2 Henry Adams because customers visiting other showrooms might stop in hers. 

 Cohen didn’t argue that 2 Henry Adams Street deserves historic designation. But the designation decision would set a precedent, she said. Moving Pinterest in would have converted 245,000 square feet of the building’s 311,000 square feet to office space.  

 

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