In June 2016, Jay Bordeleau, a San Francisco restaurant-industry veteran with several successes to his name, had a meeting with three other neighboring food and beverage business owners. He had just laid his fine dining restaurant Cadence to rest in the “up-and-coming” Mid-Market neighborhood of San Francisco after six short months. The other business owners were struggling too.
They all needed a beer.
“I just remember that we had this moment where we realized everyone was bull on the market [for a restaurant in the area],” Bordeleau recalls. “Mid-Market is two blocks from major business districts in both directions and can connect in really quickly. They’re spending millions on 1600 new condos nearby. But there was just too much excitement. All the restaurant leases were too big. And a lot of restaurant operators called demand wrong.”
In 2011, a split board of San Francisco supervisors concluded months of hand-wringing to approve then-mayor Ed Lee’s high-profile Central Market Tax Exclusion (CMTE). Twitter’s threat to leave the city of San Francisco in advance of its initial public offering loomed overhead, and the CMTE would free companies like it (with over $250,000 in payroll) that move into a defined geographic subsection of the Mid-Market and Tenderloin neighborhoods from payroll taxes on new employees for up to six years. The measure also waived the city’s tax on earnings from an initial public offering on the stock market.
And so the CMTE is known colloquially — and sometimes begrudgingly — as the “Twitter tax break.” On May 20, 2011, it went into effect. Twitter, One Kings Lane, Uber, Zendesk, Lyft, Spotify, and ten other businesses signed up in quick succession over the course of 2011 and 2012. By the program’s 2017 end date, the city had accepted 34 applications for the exclusion. Critics have grumbled all along that the city is cutting a huge deal with tech companies while the surrounding neighborhood crumbles under the weight of homelessness and retail vacancies. Advocates continue to rejoice at the prospects.
“The tax break enticed me to the area,” said Kristian Cosentino of Dirty Water, an ambitious bar and restaurant that operated on the ground floor of the Twitter building for three years until it closed in July. “I thought it was going to offset all our local payroll. But the city made it such a hassle to apply. I have bigger things to do than spend a month figuring this out. In the end I realized it was really only meant for large technology companies.”
Restaurants opened in the area not just for the tax break, but also to chase the new clientele moving in. But it didn’t really pan out.
In 2014, restaurant sales increased less in the Mid-Market neighborhood than they did in the rest of the city — 15 percent less. The lower growth points directly to the difficulty in operating a business along Mid-Market and in the Tenderloin. The “ripple effect” of new technology companies was more limited than operators assumed. Although there’s no denying there was more movement and foot traffic in the area, the immediate results of the CMTE were effectively a Band-Aid as far as small business was concerned. It didn’t address any of their underlying issues with the area.
Still, Mayor Lee issued a public statement in October 2014 that declared the measure’s great success. While an audit by the city’s controller concluded that job increases in the Mid-Market area represented a best-case scenario of less than 5 percent of the city’s overall employment growth during the three years, Lee, the “eternal optimist,” said the neighborhood was “at the center of new job creation” and declared “revitalization.” Lots of press followed. And so did more restaurants.
Between January 2015 and July 2016, the following restaurants arrived in quick succession: the Market, a “totally bonkers food complex in the Twitter building”; Oro, from an “all-star cast”; Bon Marché, a French-inspired restaurant, brewery, and cafe from James Beard Award finalists; Cadence, Bordeleau’s fine dining spot with a pedigreed chef; Fénix, a casual Mexican spot from the award-winning AQ team; Volta, an architecturally stunning Swedish-American restaurant from the owners of two longtime Financial District success stories; and the Perennial, an environmental game changer.
It was an official Mid-Market land grab. But within the following year, six high-profile restaurants in the area, including nationally recognized chef Daniel Patterson’s Alta CA, would close for good or go up for sale. “Even for us, we’ve seen the area not really materialize the way that we originally thought,” Patterson told Eater in a 2017 interview.
Between 2012 and 2016, the city approved 50 new businesses for the Central Market Tax Exclusion, causing a cumulative loss of almost $64 million in tax money. Meanwhile, for restaurant owners, there was no gold rush.
“Instead the neighborhood turned into the freshman dorms,” says Bordeleau. “Many of the workers at these companies are young, inexperienced, and have cafeterias in their buildings. They have disposable income but they’re not spending it on food. Then there’s the fact that it’s fun to walk around Hayes Valley [just a few blocks away]; it’s not fun to walk around Market Street. So there was a major shake-up [with restaurants] and we reorganized.”
Restaurant owners cite a laundry list of hardships in the area, but homelessness is the most urgent. Mid-Market and the Tenderloin house a large concentration of the city’s social service providers, single-room-occupancy hotels, low-income residents, experimental dorms for adults, and decaying vacant buildings. On a walk in some of the city’s more prominent shopping districts, like the Mission and Hayes Valley, one might stumble into a $155 tasting menu or Woody Allen filming a rom-com. In the Tenderloin, you’re more likely to run into open drug use, garbage, and feces.
Chris Foley is the developer and real estate broker who operates the huge business on the ground floor of the Twitter building, the Market. It’s an upscale grocery with adjacent fast-casual restaurants that he conceptualized with lofty hopes to employ people living in SROs and nearby shelters. But he says employee turnover rates are at 65 percent.
“The meth/drug thing has crushed us,” he says. “It’s a battle of dollars and mental fatigue; it’s really unpleasant when someone threatens you with a hypodermic needle or spits in your face while stealing a bottle of wine. People steal our groceries and sell them between Seventh and Ninth on Market Street every day.”
Fellow operator Umberto Gibin adds that the rough nature of the area is what sealed the death of his Mid-Market restaurant Volta: “Although I had to fight with homeless people every day, our restaurant did relatively well until June of 2016. Our problems began immediately after a dead man was found in the stairways of Bloomingdale’s and a week later a young man was assaulted and robbed in one of the restrooms at Bloomingdale’s again. The Chronicle reported the incidents for several days. It also republished an article that said that the block of Market between Fourth and Fifth recorded more calls to the police than any other blocks in the city. Our business went down 70 percent almost overnight. It happened so fast that I could not do much to save the business.”
“San Francisco really didn’t do anything to protect both people and business from the situation on the streets,” said Gibin’s partner and chef, Staffan Terje. “Police and security responses were laughable — if there was any response at all. I talked to a lot of colleagues in the business who owned restaurants in the same area. They felt the same.”
Jeannie Kim, who has operated Sam’s Diner since 2006, actually feels that problems related to homelessness in the area have increased over the past few years. “All the homeless have congregated in Mid-Market,” she said. “That’s where City Hall is and they feel comfortable. There’s been a huge influx of homeless from out of state. It’s getting harder for me to get tourist business because they are afraid.”
Of course increased homelessness means decreased foot traffic. Ryan Cole of Van Ness Avenue’s Corridor Restaurant, a modern counter-service spot that’s weathered the storm since it opened in 2016, adds that he wasn’t initially prepared for the lack of street energy, especially at night.
“Everybody projected that because all the technology companies are doing well, the area would become a bustling hub of the city.” said Cole. “What people overlooked is that post-6 p.m. there’s nobody here. There’s no entertainment and nothing drawing customers in. There are very good reasons to go to [San Francisco’s lively district on] Divisadero Street, like the Independent [music hall] and a nice area to walk around with lots of bars.”
Cole stopped relying on tech companies and works to cater to other lines of business. “They don’t realize our restaurant is two blocks away,” he said of tech workers. “Not everyone is so centered around food as I am. You gotta get the government employees engaged, but they need to be able to afford it. There are a lot of new people coming to City Hall and we have to figure out how to engage them. That’s on us to do the work to get them engaged. You can’t just hope that new tech businesses are coming into the area.”
Kim is also disappointed by the way the technology employees spend money. “They work 12-hour days, sometimes longer, and they don’t have time to sit and dine. It’s just not part of their culture. Twitter provides free food and drink at work. I think that has probably hurt people that were expecting that business.”
San Francisco Supervisor Aaron Peskin is acutely aware of the issues that come when workers remain siphoned off in their office buildings. In an interview with the New York Times, he said, “We gave huge tax breaks to revitalize neighborhoods ... But instead, they’re all walled into their tech palaces.” Peskin is at the front of a movement to ban corporate cafeterias in San Francisco and to push through an early repeal of the CMTE.
Although there are only four licensed cafeterias in the Central Market area — at Square, Dolby, Uber, and Twitter — those four cafeterias serve a combined 10,000 people per day. The cafeteria ban is a legislative measure that could go into effect as soon as October of this year and while it won’t shut down existing cafeterias, it will prevent future businesses from providing subsidized cafes. Theoretically, the ban will force corporations to pump millions of dollars into external food services. And it will certainly get workers out on the streets more.
Other frequently listed complaints: There’s a dire lack of parking in the area, non-existent signage for restaurants within office buildings (and a difficult approval process for new signage from the Planning Department), and restaurant lease sizes in the area tend to be so large that it makes the finances of running a restaurant difficult. Beyond that are the labor, construction, and economic burdens business owners across the entire city now face.
“We had no visibility from the street,” said Cosentino, the former owner of Dirty Water. “We needed that. I spent countless hours trying to get the city to approve a sign on Market Street. [The] Planning [Department] didn’t want to change anything. They’re notoriously difficult to work with in the first place.”
Many are depending on business from up-and-coming residential developments, but instead are faced with all of the not-so-fun logistical issues that spring from construction delays. Instead of feeding hordes of bougie new apartment dwellers, area restaurants have to counter the parking and driving difficulties associated with the delayed reconstruction of San Francisco’s Van Ness corridor. Residents are starting to move into a new residential unit at 150 Van Ness. But housing developments at nearby 1 Oak Street, Market and Van Ness, and 1500 Mission Street are still years from completion. And the nearby 5M project is held up in court.
“I was hoping to survive while the area was being developed and we would be there and established when the projects were completed,” said Gibin. “Moscone Center was finished on time as promised but everything else has yet to break ground.”
Many operators continue to hold out hope and believe the payoff is still to come. The area’s retail sales are catching up with the rest of San Francisco, its population is growing, and thousands of new residential units will eventually open.
Meanwhile, newly appointed Mayor London Breed is funneling more tax dollars toward the homelessness crisis, including a new homeless-tracking system that’s seen reliable success in many other cities. She’s also working on safe injection sites to address the opioid crisis. Supervisor Peskin seems hell-bent on improving the landscape for neighborhood small business owners. And the potential cafeteria ban — as far-fetched as it sounds — could become a reality. This is San Francisco, after all.
“I really believe in the long term of this project,” Foley said. “I liquidated a big chunk of my balance sheet to keep the Market alive. You have to grind through it and adapt. If you look at Mid-Market today versus 10 years ago, it’s better.”
But it’s a matter of at least five years before all of the buildings are built, before the effects of new homelessness policies settle in, before enough new businesses fill in the empty spaces, and tourists don’t flee the area immediately upon arrival. Bordeleau says, “If we can last five years, this is going to be golden.”