Business Attraction Program Works to Attract Business to Castro

By Alexandra Kostoulas and Xander Piper

A strong community may have helped the Castro and Upper market neighborhoods weather the economic crisis. With unemployment in San Francisco at its highest rate in 25 years at 10.1 percent and office vacancies rising to 14.4 percent in the third quarter of 2009, the City has been hit hard. Despite this, the attitude in the Castro remains cautiously optimistic with leaders harnessing the strong sense of community in the neighborhood to forge a business attraction program to attract community friendly businesses.

Even before the economic crisis, the Castro had problems of its own. Some believe the neighborhood became a victim of its own success when neighborhood leaders mounted a campaign to discourage people from the large Halloween street party after shootings in 2006. Many San Francisco shoppers moved from the boutiques of the Castro to the newly opened Westfield mall downtown, which the LGBT Center’s Director of Economic Development Ken Stram believes “caused the Castro’s micro-economy to have its own recession.”

Many believe the Castro has weathered the downturn better than the city at large. “While retail vacancies in San Francisco are in the low teens, the Castro district fares better due to its popularity as a local destination … retail vacancies are considerably less than the rest of the city,” said Ross Portugueis, associate vice president of Colliers International San Francisco branch, a commercial retail brokerage firm.

Yet, with the economic slowdown in late 2007, along with some local opposition to formula retail, attracting new businesses became difficult. “When people mobilized against Walgreens expanding, it sent a general message that people should stay away from formula retail, which brought some new vacancies. Three years ago everyone said stay away. The successful campaign lasted longer than one day and new competition downtown emerged,” Stram said.

This led to the development of a Business Attraction Program (BAP), a two-year-old program in collaboration with the city, Merchants of Upper Market and Castro, the Castro Benefits District, and the LGBT Center. For the first two years of the program, it received a $25,000 grant from the Mayor’s Office of Economic and Workforce Development, whose Neighborhood Revitalization Initiative helped to develop similar public/private partnerships that promote business attraction program models throughout the city.

“Our hope was to reduce the vacancies in the Upper Market/Castro Area.” Stram said.

Tracey Williams, manager of the program, spends her energies trying to connect landlords, brokers and tenants. “We try and create a list of all the vacancies in the area. We’re able to provide a list to the brokers or business owners looking to place their clients there or relocate to that area. That’s one piece of the infrastructure. The second piece is that we do broker tours. At one point we were doing them every six weeks or so,” Williams said.

Connecting the brokers to the property owners is no small feat. While some small business owners do not feel that they need a broker, the program has found that they are an underutilized resource for small business owners and landlords who have inherited their properties. The brokers have more sophisticated process of gathering essential information on floor space and amenities so they can match business with vacancies effectively.

In addition to reaching out and developing strong relationships with brokers, the BAP also provides free one-on-one counseling to small business owners, helping them renegotiate lease agreements and even connecting them with micro-lenders through their Business Plan Loan Factory.
Establishing the strong relationship between brokers, businesses, and properties was also a key part of the strategy to overturn the idea that the Castro didn’t want new formula business. San Francisco’s formula business ban, Proposition G, has been a deterrent to businesses as many in the community have used it to keep chain stores out.

However, the opening of the Levi’s store on Castro Street proved that controlled formula retail within the Castro has a place in the neighborhood. Many believe the San Francisco-based company serves as a nice compliment to the high-end boutiques and trendy vintage stores in the area.
“The community says they don’t like formula retail,” Stram said. “But they soon find we do like the people who work with our community.” Even with Walgreens expansion blocked, the store serves as a 24-hour pharmacy, and Levi’s history of pro-LGBT policies has made it a strong addition to the community.

Whether the Castro neighborhood has truly warmed up to the idea of a mix of formula retail and independent entrepreneurs will also be tested as Trader Joe’s plans to move into the long shuttered Tower Records space at the Market and Noe Center. For three years this conspicuously vacant space lacked an anchor tenant. Previously, both Office Depot and Staples walked after the passage of Prop G. After the lease signing with the popular grocery retailer, it would then await approval by the city’s Planning Commission. However, they will still need the support of the community as the SF Planning Commission conducts studies and public hearings on the issue.

The October 19th meeting of the Duboce Triangle Neighborhood Association (DTNA) had a turnout of nearly 90 people, many with passionate interest in the deal. Peter Cohen, secretary of the DTNA, advised a healthy skepticism on the issue. “We are not so interested in a popularity contest as a way of taking the ‘right’ position. [It’s] better for the community and for DTNA to think before reacting. Of course, the popularity contest has already started and that may ultimately be what ‘informs’ the TJ’s project,” Cohen wrote in an email.

At the same time, supporters of the deal, which includes Supervisor Bevan Dufty, believe an anchor tenant like Trader Joe’s would be able to integrate itself into the fabric of the neighborhood, unlike the large office supply chains, which would have little to do with the area. Yet, with a large Safeway nearby and the planned opening of a Whole Foods down the street, it would mean three large formula retailers within three blocks of each other.

While the BAP provides support for small business owners, it is not averse to helping bigger businesses as well. “We are invested in creating a message that all businesses are welcome in our community,” Williams said. “It’s a case by case basis. Formula businesses, if they want to come in, need to approach the existing businesses so that their proposals can fit with the needs of the community.”

According to Stram, the program has “left us in a better position than we were before the recession.” However, the program will not be receiving City funds this year.

“We didn’t have money in the budget to issue any grants this year,” said Lisa Pagan, director of the Mayor’s Office of Economic and Workforce Development. “We had to cut our budget this year due to the economy.” Pagan said that the program could theoretically apply for other grants within the community development block grant program.

Still Castro leaders remain cautious but hopeful. “Our biggest challenge is letting the community in, and awareness, and letting them know about what we do,” Williams said. She said that interested businesses should not hesitate to get in touch with the BAP by contacting her or Stram through the LGBT center website.

“I don’t want to be too naively optimistic,” Stram said. “A lot of businesses have closed and there are others that are struggling. The Castro has—18 months before the recession—been doing all the right things.”

Copyright 2009 Castro Courier