- [Reporter] Before the pandemic, San Francisco's downtown
was one of the most dynamic commercial districts
in the country,
home to some of the nation's biggest retailers.
But today, many of those businesses have abandoned the city.
These closures follow the disappearance or scaling back
of many of the city's most prominent corporate tenants
like Facebook and Salesforce.
- Downtown San Francisco today
is really a shell of its former self.
- The way I see San Francisco from afar, it's amazing.
But once you get into the nitty-gritty, like, downtown
and get to the heart of it,
it loses its glamour that it has, you know?
- [Reporter] But while a national consensus
seems to have formed around downtown San Francisco's demise,
some investors and businesses think the worst is over
and that the city is now primed for a turnaround.
- San Francisco's always been a boom and bust town.
- There is a perception problem.
- [Reporter] Some retailers, like IKEA, are moving in
and San Francisco's office market is also seeing progress
for the first time since the onset of the pandemic
thanks in part to the arrival of AI companies.
But are these recent positive developments really signs
that the worst is over?
Today, almost 32% of San Francisco's office space is vacant,
which is more than seven times the rate
before the pandemic hit
and the biggest increase of any major US city.
Cyrus Sanandaji is the managing director
at Presidio Bay Ventures,
a Bay Area commercial real estate developer
that sees opportunity in the down market.
Recently, Presidio Bay Ventures acquired
the office tower 60 Spear Street
in the city's financial district
for about $41 million,
or some 62% less than it sold for in 2014.
- So we purchased 60 Spear
as an opportunistic investment unlevered
with a really long-term horizon,
understanding that San Francisco is a boom and bust town
and looking at historical market cycles.
We've not seen basis this low in over 10 years.
With the amount of vacancy that's in the building,
70% today,
we're able to really reimagine the entire building.
- [Reporter] 60 Spear's acquisition represents
a new positive trend within San Francisco's
downtown commercial real estate market.
After a long stretch when the city's office buildings
couldn't attract buyers,
sales are slowly materializing.
- The industry around artificial intelligence
could be a lifeline for a struggling American city.
- [Reporter] Recently, scores of AI companies have begun
leasing space in the city,
suggesting that San Francisco's appeal
as a tech hub hasn't evaporated.
- There's been a boom in artificial intelligence
in San Francisco,
and in fact, the top 20 companies in the world,
eight are in San Francisco,
with over 80 companies total
of the 223 companies for artificial intelligence,
they're here in San Francisco.
- [Reporter] Despite the new AI tenants
and signs of life in the commercial real estate market,
serious challenges remain,
especially concerning public safety and homelessness.
- San Francisco's downtown before the pandemic
was just absolutely bustling.
You know, I work on California Street
and there were just throngs of people.
It was like Manhattan.
It was like the city of gold.
- [Reporter] Since the pandemic,
many major US cities saw their office vacancy rates balloon,
but San Francisco is the leader nationally.
- There's really been a perfect storm,
which has kind of imploded downtown San Francisco
over the last four years.
One is the high housing costs really forced a lot of workers
to work many, you know, miles away.
Because San Francisco became
so concentrated with technology,
technology is the one industry
which got hit harder by remote work than any other,
and that's why here in downtown San Francisco,
these office buildings that surround me are mostly empty.
And then finally, there's been the problem
of crime and homelessness,
which has been around for years,
but it really festered and got worse during the pandemic.
- [Reporter] David Lee is a local restaurant owner
who has lived in San Francisco since 2005.
This year, Lee decided to close
his two profitable taco restaurants
after multiple robberies and instances of vandalism.
- So this is my old shop, this is the old taqueria,
but kind of sad to see it all gated up.
- [Reporter] Lee is one of many business owners
who have become fed up with San Francisco,
not just because of the petty crime,
but also because of a lack of foot traffic.
- When I first started my business,
I was averaging about $3,000 at lunch
and then about $3,000 at dinner time
and I was only open for six hours a day.
It was a short period of time.
But beginning of this year,
I was averaging around like a thousand dollars,
$1,500 a day.
Once upon a time, this was like the busiest street.
It used to be thriving,
but now there's nobody walking to or from work.
It's sad.
- [Reporter] Lee is now planning to move his business
to Las Vegas, Nevada, or Austin, Texas.
- [David] 'Cause I've been in San Francisco
for such a long time
and I've just kind of seen the decline of it
that I'm just ready to leave.
- Downtown San Francisco is absolutely crucial
to the health of San Francisco.
It accounts for 75% of the city's budget and revenues.
Most of the jobs are in downtown San Francisco.
Without these buildings full, the revenue's gonna go down.
So for the city to be healthy as a whole,
the downtown has to come back.
- San Francisco downtown as we know it
is not coming back.
And you know what? That's okay.
- [Reporter] In February, Mayor London Breed laid out
her vision for revitalizing San Francisco's downtown.
- Empty office buildings have fueled dire predictions
about economic doom
and screaming headlines about the death of downtown.
But let's keep some perspective here.
In 1907, downtown was mostly rubble and ash.
That's considerably worse than today's shift
in how people are working.
We do need to, you know, just be realistic.
Retail is not what it used to be.
Things have changed.
- [Reporter] Breed is working
to streamline the permitting process
for new downtown businesses,
as well as creating more flexible zoning
to diversify the uses of downtown properties.
- So our economic roadmap to recovery for San Francisco
includes a lot of legislative changes
to remove the barriers that make it difficult for us
to convert a lot of our office space from office to housing.
So we think that it's gonna lead
to some more housing options.
We think it's gonna lead to other uses besides office space.
And our hope is that we start
to reimagine what downtown can be
other than nine-to-five financial district
or even just retail.
And we're gonna focus hard on making sure
that people understand what we are as a city,
not what others say we are.
- [Reporter] Breed also pushed back against
what she said were unfair characterizations
in the national media.
- Tonight, Jesse Watter's prime time is declaring
San Francisco has hit rock bottom.
- There's concern that San Francisco could turn
into a so-called zombie city
with its downtown hollowed out.
- It's not to say
that, you know, we don't have our challenges.
We're a major city.
Major cities have challenges
with, you know, crime and violence and other issues.
So I do think that, you know, there's a perception
that when you see these videos
or you hear about what's going on,
it's like, "Oh my goodness,
what's going on in San Francisco?"
And now what we're finding is someone else has tried
to define what San Francisco is
and we have to change that narrative.
- The mayor has talked about San Francisco having
a perception problem
where people in other parts of the country think
it's basically a hellhole.
I think the reality is not true.
I mean, there are parts of San Francisco
which are in bad shape for sure,
but for the most part, you know, it's a beautiful city.
- I'd say if we're not at the bottom, we're very close.
From our perspective and with our investment horizon,
we don't need to be perfect and time the exact bottom,
though, we feel we're there.
- San Francisco is growing.
Companies are expanding and making commitments to the city.
But it's not just in the downtown office space.
Companies want different things now
and so we have to make sure that we are adjusting
to what the demand is
in so many different arenas.
(bright music)