Why San Francisco Needs Prop H, and Formula Retail, to Succeed

San Francisco, Proposition H, Prop H, retail, formula retail, Starboard Commercial Real Estate

By Hans Hansson

This November, we need to vote to help save our small businesses, which are closing at record numbers due to the pandemic. Just last month, Yelp reported that over 2,000 businesses closed in San Francisco since the onset of COVID-19. 

Prop H will help streamline the permitting process for businesses – which currently is time-consuming and costly to small business owners – and issue the permits needed to open their doors within 30 days. Site inspections and additional reviews will be expedited without additional cost to the business owners. In addition, our City’s restaurants will be able to secure permits in 30 days max (currently it takes one year). Vacant storefronts will be brought to life with arts activities and non-profits that are currently struggling to survive. Upper floors of vacant spaces will also house professional services small businesses, like lawyers, accountants, etc.

A story featured last week in the San Francisco Chronicle about a store owner trying to open an ice cream shop in the Mission explains all the reasons why San Francisco needs to pass Proposition H. As the article described his circumstance, this small business owner had already lost over $150,000 from trying to open his shop and will still need to wait months only to learn that whether the conditional use permit for his space may or may not be approved. Even after it is approved, he will still have no clear picture – or even assurance – if or when he will ever be able to open his ice cream shop in San Francisco. 

As a commercial real estate broker, I just finalized two retail deals that will require what should be an over-the-counter permit. However, we just learned our architect won’t be able to have an appointment with the city permit department until mid-January 2021. We were expecting to get our over-the-counter permit and complete all work necessary to open both businesses by the first of February. Assuming we get approval during our meeting, we will consider ourselves very fortunate to be able to open by May of 2021. A several month delay may not mean much to the City, but for us it means contractors will not work until we get the permit, the tenant will have several months of additional carrying costs with no income, no rent for the landlord will be paid, and another store remains closed and vacant on Mission St. for many more months than it should be necessary (or really even justified.)

While some may argue Prop H will turn retail into “workspaces for the rich” and “commercial landlords will seek higher and higher rents,” they are not looking at the bigger picture. Today’s retail is a shambles, and most San Francisco local retailers are mom-and-pop operators – not big corporations. Although, they are typically backed by large funding sources, because they can’t afford to open a business on their own. Delays caused by the City’s permitting process costs time and money. Because of the higher level of unemployment, more people are going to think about starting their own businesses. San Francisco needs to be proactive in that effort and attract these entrepreneurs by making it easier and less expensive to open a new business. 

As things stand currently, the San Francisco Board of Supervisors is simply unwilling to make the necessary changes to substantially reduce the over-regulation we have created for our business owners. All of these rules and regulations were originally intended to support small retail businesses. Instead, they have achieved a completely opposite effect. The City has stopped retailers from considering renting spaces, because of the uncertainty of the permit process and costs associated with it. 

San Francisco leadership has to do more to help retail thrive once again in our city. We must also eliminate formula retail restrictions. We have countless large spaces that remain vacant, and we need to invite larger retailers who want to come to San Francisco and open stores in our neighborhoods if no local alternative exists. With the already devastating impact online retail has had on brick-and-mortar stores, the enemy of local retailers will NOT come from formula retail. Rather, this group is their friend – by helping drive foot traffic across neighborhoods, it will only have a positive effect on smaller local shops at a time that they desperately need those visitors. 

While formula retail is not part of Prop H, it remains really important, because it can save retail in San Francisco. I urge our Board of Supervisors and Mayor London Breed to make these changes NOW, before it’s too late. 
Hans Hansson is Principal at Starboard Commercial Real Estate in San Francisco.

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