Many Stories Lie Behind Valencia’s Vacancies

By NICHOLAS KUSNETZ

The recent debate over American Apparel’s bid to open a Valencia Street store drew attention to the street’s retail vacancies.

Some business owners said the retail chain would have been a welcome magnet for new foot traffic. The San Francisco Chronicle even used a number—27 vacancies—to chide those who fought American Apparel, calling the opponents out of touch with reality.

Mission Loc@l decided to take a close look at the street’s vacancies and found a real estate landscape more complicated than one created by the economic meltdown that began this fall. To be sure, the sharp recession has affected commercial leasing citywide. “I’ve never seen this many commercial vacancies in 20 years,” said Kent Kockos, a broker with Coldwell Banker.

But the stories behind Mission Loc@l’s count of at least 16 vacancies are more involved than simple recessionary tales.

• Eleven vacancies between Duboce Avenue and Cesar Chavez are available for rent or for sale.
• Five vacancies are being held off the market by the owners.
• Six storefronts that appear vacant are either being renovated or are in some stage of a permitting process.
• For the remaining eight apparently vacant storefronts, Mission Loc@l failed to come up with any reliable information. See our map, and if you have any information, please send in a comment and we will check it out.

The 1100 block between 22nd and 23rd streets offers a microcosm of Valencia, with its diverse mix of retail and restaurants, new and old businesses, and a few houses as well. At El Majahual, pupusas sell for $2.25, while just down the block at Beretta, a lamb osso buco runs $17.

Valencia Printing, where presses clutter the narrow space, has held its place at 1176 for more than 50 years, the owner said. Two doors down 1152 sits empty, a flowerless orchid and a half-dead houseplant can be viewed through the window. A handful of tenants have tried their luck at the spot, including Senses and, most recently, Janitzi, which closed in December.

A sign in the window states “Lease, Sale” along with a phone number. The number is answered by a man who said he is the owner. The man declined to give his name so it is unclear who he is, but he said he plans to reopen a restaurant in the space soon.

Across the street, an old window store has been empty for years. The owner died in 2000 and the store closed around that time. His wife still owns the space but is not renting, according to neighbors.

Another two empty restaurants at 1132 and 1136 are being renovated. 1136 already has a sign up for Zaytoon, a small Middle Eastern restaurant. There is no indication of what exactly will open next door.

One pattern that emerged for the newer vacancies was a mismatch in expectations. Right before the economy started to collapse in the fall, rents along Valencia, generally between $2 to $4 a square foot, had been moving closer to the $4 range and some owners were unwilling to renegotiate, real estate agents said.

The upward pressure came from chains that were able to pay more such as the T-Mobile store at 17th Street, and restaurants, which are also able to best what retail can pay, according to real estate agents. Even with this increase, however, rents on Valencia remain low compared to the Castro’s $4 to $6 a square foot, or Hayes Valley’s $3 to $5 a square foot.

Nevertheless, at least two stores moved out when a tenant could not match a rent increase. Botanica Yoruba recently moved from 998 Valencia to 19th Street off Mission, and the church El Santo de Israel left its shop at 1017 at the end of January.

For others, staying open simply wasn’t paying the rent.

“My pockets weren’t deep enough to sustain us through slow times,” said Kate Richbourg, who owned Beadissimo at 1051 before it closed last summer.

That space has been rented to Nancy Charraga, who plans to move her Casa Bonampak store on 24th Street near BART within the month. She said she could afford to move because she will be paying 25 percent below the original asking price for 1051. She declined to disclose her lease amount.

While Charraga got a price break, some owners remain reluctant to reduce their prices. Mark Kaplan represents two properties on Valencia, one of which had an offer before the stock market crashed in September, at $3 per square foot with $250,000 up front. The offer was rescinded and now no one is biting.

“In my opinion, it should be 20 percent less, or maybe more,” Kaplan said. “Every transaction I’ve done and put into writing is lower than it would have been in the summer.”

Kaplan said he has seen deals closing as much as 50 percent below the original 2008 asking price. The last two months have been more active than the end of 2008, he said, and the new activity could indicate that owners are ready to bargain. But the market is still slow.

“I think people are holding off, and just waiting to see how far down is down,” Kaplan said.

A similar case sits a couple blocks away at 1270 Valencia between 23rd and 24th streets. That address has three spaces that used to be an auto-repair shop. The owner is in the process of getting permits to open restaurants and retail, a change in use that would boost rent.

The spaces were fully leased a few months ago, but the permitting for a change in use was taking too long and the renters, one for each space, all pulled out, said Jay Pon, the broker listing the property. Pon said the deal would have gone through if the economy had not cratered.

So far, the owner has not substantially changed his $3.25 a square foot asking price, but Pon said he is willing to negotiate.

But the economy or an owner reluctant to negotiate fails to explain all the empty storefronts.  At least five of the vacancies have been empty for more than five years, and another few for at least a year.

Three of these five storefronts are owned by Charles Phan and include the original site of his restaurant, the Slanted Door. About seven years ago, Phan wanted to expand the restaurant but ran into trouble with neighbors and the permitting process and moved downtown instead. The properties have sat vacant ever since.

“Sometimes you just have to deal with it because you don’t have a lot of money,” he said.

Money is even harder to come by now, Phan said, but he hopes to open a restaurant at the site by the end of the year. He said he’s been distracted for years with other projects, such as the recently opened Heaven’s Dog in the SOMA Grand, and a new Out the Door, which is expected to open in Pacific Heights this year.

The city’s permitting process combined with public opposition to new projects such as Phan’s proposed expansion or American Apparel’s recent bid make prospective business owners leery of the neighborhood, said Clinton Textor, a broker with Marcus & Millichap.

“I think if you talked to a lot of people who own buildings on Valencia and Mission, you’d find frustration,” he said. “If you try to put in a new type of tenant, you get a lot of backlash.” These conditions, however, are true elsewhere in the city as well and are more stringent in Hayes Valley and North Beach, where chain stores are banned.

New College, which folded last year, accounts for three empty spaces between 18th and 19th streets. Two are in foreclosure and vacant. Ashwin Navin, a volunteer fundraiser for the school, purchased the third space at 780 Valencia and plans to open a co-working space with a café.

Finally, there are cases when a space is simply left vacant because it may be cheaper than spending the money to make it ready for renting.

The Mayor’s Office of Economic and Workforce Development does have a program that works with seven corridors in the city to reduce vacancies, but no such effort exists for Valencia.

Regina Dick-Endrizzi, acting director for the Office of Small Business, said neighborhoods have a right to dictate the type of businesses that come into their communities, and that the conditional use process should not be seen as a cause of vacancies.

“I think it’s kind of an easy scapegoat, to sort of say that that’s the reason, when I just think that the economy is the biggest reason,” Dick-Endrizzi said. “Because I think there are probably many businesses that want to open and can’t, because of the economy. Or there are many business that want to stay in business and can’t.”

Despite signs that the recession may last long, real estate agents remain optimistic about Valencia. Vacancies may be up, but the larger trend of a more vibrant Valencia will continue, Pon said.

“People still have faith in Valencia Street,” he said.

UPDATE: Since the reporting and printing of this story, Burrito Justice wrote that Suriya Thai is being evicted from its spot on Valencia between 25th and 26th Streets. Add another one to the list.

Map of Valencia Vacancies

Click on the icons to learn more about Valencia’s empty storefronts. Red icons signify properties that are vacant and on the market. Yellow properties are being held vacant by the owner. Blue properties are currently empty but being renovated or in the permitting process. Green means the site appears empty but no reliable information is available.

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