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Downtown San Francisco is beyond redemption

The vulture capitalists are circling over San Francisco. Credit: Getty

February 14, 2024 - 4:30pm

The recent announcement that Ian Jacobs, a scion of the famous Toronto-based Reichmann real estate clan, was coming to buy upwards of $900 million of San Francisco real estate, has offered the beleaguered California city a rare moment of hope. Some suggest that we could see a repeat of New York’s recovery from its nadir in the 1970s, during which the Reichmanns made a fortune gobbling up depressed buildings shortly before the city’s resurgence.   

Yet any effort to restore San Francisco’s appeal will need more than an infusion of vulture capital. The city’s problems are essentially demographic and political, and have transformed San Francisco from an icon to a disaster zone, particularly as workers opt for remote work. The city’s office vacancy rate continues to rise, now surpassing 35%, the highest in its history.

To be sure, San Francisco has been losing its middle class for decades, replaced initially by young single people, many of whom are tied to the tech industry. But as early as 2015, the city began losing net domestic migrants as growth shifted to the further exurbs. 

Since the pandemic, the city’s population has dropped and its social problems, long festering, have become a running sore. That’s likely why up to 10% of San Francisco’s residents have left the city — far more than in New York. “A lot of people have had it,” Heather Gonzalez, a longtime Democratic activist and mother of two, told me. “We have had neighbours and an elderly grandfather beat up on a bus and my kids have to watch people poop in public on Market Street. This is what we have to go through.” 

Yet there is some hope, Gonzalez suggests. She points to the recent recall of ultra progressives including the District Attorney and three school board members. There’s also been a concerted effort by moderate Democrats to root the radical Left’s hold on the party as well as an effort to replace several far-Left members of the Board of Supervisors. 

Amid a severe budget deficit, these efforts are critical. The city’s  understaffed police department is almost certain to lose the battle for resources with the city’s dominant and fervently Leftist public employee unions. That the city now suffers the second highest violent crime rate in California illustrates just how important this battle is.

These reform efforts finally have some backing now from the tech oligarchs, who in recent years have been indifferent or even supportive of the progressive agenda. This has roiled the Left-wing activists who see any movement backed by the billionaire class as a hostile takeover.  

Yet even if the city somehow regains its ballast, Reichman may be looking at the wrong places to invest. Although the office market may recover, the movement of business out of the state continues in a way far more profound than in New York back in the 1970s.

A far better strategy may be to focus on the city’s residential neighbourhoods, away from downtown and the areas most affected by drugs, homelessness and crime. Talented people will continue to be attracted to great urban neighbourhoods because, as the veteran real estate investor Johnny Sanfilippo notes, “downtown is increasingly irrelevant.” 

These outlying areas escaped the worst of the pandemic, and continue to offer urbanistas the quality of life that first drew people to San Francisco. After all, the city is in a lovely location with a wonderful climate. Add to that a history of bohemian charm, and it becomes a natural magnet for creative workers and the companies that depend on them. 

San Francisco’s challenge now is to stop the rot and focus on the neighbourhoods where creative people can cluster and create wealth — even if far from the steel and glass towers.


Joel Kotkin is the Hobbs Presidential Fellow in Urban Futures at Chapman University and author, most recently, of The Coming of Neo-Feudalism: A Warning to the Global Middle Class (Encounter)

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Alex Lekas
Alex Lekas
5 months ago

It’s interesting how many times leftist, left-leaning, radical left, and progressive are mentioned, as if the problem is self-evident in a city deeply lacking in self-awareness. That place is not likely to ever be conservative but how many policy ideas have to crash and burn before wonder whether 1) the outcomes aren’t intentional, 2) if a change is not desperately overdue, and 3) livability trumps social engineering.

Jim Veenbaas
Jim Veenbaas
5 months ago

I like Joel Kotkin. His essays are insightful and interesting, but I would suggest the Reichman’s know a little more about real estate than he does. I assume they are betting the commercial real estate sector in San Fran has bottomed out, or is close to it. From what I understand, the owner of large high end mall walked away from the shopping centre because its value dropped from $2 billion to $750 million. It doesn’t matter what anyone thinks of the politics in San Fran, but someone might perceive that as a good investment.

Alex Lekas
Alex Lekas
5 months ago
Reply to  Jim Veenbaas

It would be interesting to know what the $900 million in real estate purchased was valued at just five years ago.

Jim Veenbaas
Jim Veenbaas
5 months ago
Reply to  Alex Lekas

Very good question that should have been addressed

Howard S.
Howard S.
5 months ago
Reply to  Alex Lekas

Excellent point! In fact we have several instances in Manhattan of rampant crime and social dysfunction and lawlessness being permitted to drive down real estate values to a point where it was actually profitable for private real estate interests to buy up a section of the City for relatively next to nothing, pay for private police and sanitation patrols and reimburse the City for municipal police and sanitation departments overtime to clean out the areas they had purchased, and watch the value of the land skyrocket. Two areas I can point to, purchased by private investors and revitalized: Bryant Park, a large park and walking area just in back of the New York Public Library on Fifth Avenue. Turned from an outdoor toilet and drug shooting gallery under mayor, David Dinkins to a beautiful private park and entertainment area. And Union Square, just north of Greenwich Village, also a prostitute and drug infested park. Bought for next to nothing, the prostitutes and the drug dealers and addicts driven out, and now some of the most expensive commercial and residential real estate in Manhattan. Almost as if it was planned.

Peter F. Lee
Peter F. Lee
5 months ago
Reply to  Alex Lekas

or what it was valued at when purchased.

J Bryant
J Bryant
5 months ago
Reply to  Jim Veenbaas

My guess is they’re betting, in part, on an anticipated push by major employers with downtown offices to force employees back to full-time, on-site working again.

Warren Trees
Warren Trees
5 months ago
Reply to  J Bryant

I agree. Because the second shoe that will fall is the drastically lower real estate tax revenue that will be realized after these properties get revalued.

Andrew Thompson
Andrew Thompson
5 months ago
Reply to  J Bryant

Good luck with that one

J Bryant
J Bryant
5 months ago

I know what you mean, but my sense is employees can be divided into a fairly small group with real bargaining power, such as IT professionals, and everyone else who is expendable and can probably be forced into returning to the office.

Bill Tate
Bill Tate
5 months ago
Reply to  J Bryant

ah… I suspect that horse has LONG left the barn. In the coming age of ML/AI, the prospect of getting employees back in the office seems especially doubtful.

Jim Haggerty
Jim Haggerty
5 months ago
Reply to  Jim Veenbaas

That’s the playbook Dan Gilbert has used in Detroit. He bought most of the abandoned downtown office space for pennies and then hired his own security. Cleaned it up and it is now getting a bit better there. He’s doing the same to a smaller degree in Cleveland

UnHerd Reader
UnHerd Reader
5 months ago

I lived in San Francisco from 1982-1988, and it was clean and beautiful (and expensive). Downtown, where I worked, had two three mentally I’ll people, but that was it. I don’t remember seeing any homeless enclaves. It breaks my heart to see left-wing extremists more concerned about removing Robert Louis Stevenson’s name from a school—because of a “racist” rhyme in a poem—than cleaning up the city.

Howard S.
Howard S.
5 months ago

Here on the other side of the continent, the City of New York announced last week that it was imposing an 11:00 p.m. on twenty of the almost forty “migrant” shelters the city maintains in schools and public buildings for recent arrivals from south of the border. This was up from the four shelters earlier that already had 11 p.m. curfews imposed by the City. The official statement from City Hall was that by requiring the shelter residents (mostly single young men in their twenties) to stay off the streets at night it was hoped this would reduce the rapidly rising overnight crime rate on the streets and in the subways, including increasing, sometimes violent attacks on patrons of the Broadway theater and restaurant districts. Our mainstream news media has whistled by the obvious ties between increasing crime and an increasing “migrant” population and the City administration’s hope that by keeping the residents of these shelters locked indoors at night, law-abiding citizens out for an evening’s entertainment might just be a little bit safer.

Daniel P
Daniel P
5 months ago

San Francisco has multiple intractable problems that their progressive policies have just exacerbated.

Their first problem is that they are in CA. The state is a disaster for business which is why so many are leaving for places like Texas and Fl and Arizona. Taxes are beyond insane. Regulations of all kinds just kill business and make residents miserable. When not doing that they attract the and feed an enormous population of drug addled homeless with whom the working poor have to share underpasses.

Stupid energy policy. Stupid tax policy. Stupid regulations. Stupid mandates.

The state is a la la land only the ultra wealthy and ultra poor can tolerate and the ultra wealthy are fast getting fed up.

The progressives fiddle and impress each other with how far left they can go while the state burns.

As for San Francisco? Who in the name of God wants to live in a place where you can spend $200 on dinner and have the privilege of watching someone shit 6 feet from your table? How lovely it is to stroll the streets wondering if your going to step on a used needle. Just the place I want to raise kids or think about my wife out taking a run at dusk. Hell, you cannot even own a gun to protect your house cuz your supposed to hand it over if some homeless gang member breaks in. Find yourself charged with murder for shooting a guy standing over your 5 yr old daughter in her bedroom.

Oh yeah, I would be desperate to return to an office where the downtown is abandoned, the thugs and mentally ill spit on and stab people. To hell with that.

It will only change if you see some hard ass coservative come to power who is willing to do the hard things to fix the place and only if the state legislature swings too. Neither of those things is likely to happen until the state hits rock bottom, total collapse and that could take a couple of decades and then a few more to turn it around again.

Fact is, Silicon Valley is gonna spread out to places like Texas, CO, Montana, Nashville, Raleigh. Better business environment. Better living environment.

My only hope is that all these nutcases that created that disaster do not move to those new places and screw them up too. A progressive plague spreading rot.

UnHerd Reader
UnHerd Reader
5 months ago
Reply to  Daniel P

San-
Francisco like environment might be replicated also in other parts of the country

Betsy Arehart
Betsy Arehart
5 months ago
Reply to  Daniel P

“My only hope is that all these [people] do not move to those new places and screw them up too.” That is exactly what they are doing. And, unfortunately the “creatives” that Kotkin speaks of deserving nice neighborhoods, etc. are in the vanguard of cultural rot.

Cal RW
Cal RW
5 months ago

I’m not sure about the beyond redemption part. I recall when I lived in Washington DC in the early 80’s, my wife and I would go up to New York city a few times a year for a weekend, see a broadway show, and hit the restaurants. At that time, Times Square and theater district was a mess: Bums, illegal street vendors, prostitutes, porn shops, muggers, etc. When you entered the city in your car from one of the tunnels, at the first stop light “squeegee guys” descended upon your car, spread dirty water on your windows, and pretended they were washing them. If you didn’t pay they would kick and beat on your car. the city was a mess and considered beyond redemption. About 15 years later, late 90’s, I was invited to go see an NBA finals game at Madison Square Garden. I hadn’t been there since the 1980’s. I went and stayed in Times Square. The vibe was totally different. I was able to walk 15 blocks at night to and from the game and felt completely safe. There were families wandering around the theater district. It had completely changed from the 80’s. Then I noticed something else. On almost every street corner there were visible uniformed police. I had not seen that much policing since being in the Philippines during Marcos’s Martial Law era. Rudy Giuliani was mayor and what I experienced was what happens when someone determined to clean up a city takes the necessary actions. He is not my favorite person these days, but he certainly cleaned up the city back then.

Pedro the Exile
Pedro the Exile
5 months ago
Reply to  Cal RW

and if you’d bought real estate in NYC in the early 80’s you would have made a fortune.The Jacobs investment is nothing other than buying at the bottom and if you do it cheaply enough you can hand on in their for a very long time at little cost.He;s takinga multi decade view that SF is intrinsically so valuable that it will see a resurgence in the next 20-30 years-its a good call but ultimately a risk.

UnHerd Reader
UnHerd Reader
5 months ago

Can someone illuminate me please? What is the ‘ progressive agenda’?

Studio Largo
Studio Largo
5 months ago
Reply to  UnHerd Reader

Ask Xi.

Mark epperson
Mark epperson
5 months ago

San Francisco will come back, as it always has after whatever issues, natural, and man-made disasters (which are the cause of the present crisis). Its symbol is the Phoenix, rising out of the ashes and it is probably the most unique and beautiful city in the U.S.
The question is what will what will it look like? I believe it will be 5 to 10 years before that question will be answered and it will be the result of folks wanting safety, stability, and freedom. The San Francisco of the mid 1960’s was the coolest place on earth, it was a live a let live philosophy and there was real freedom. That lasted until the 1990’s when the Democrats sold out to Wall Street and Hollywood and now, to a lot of folks, the atmosphere of the 1960’s has been replaced by that of the defunct East Germany’s.
It will change, let’s hope for the best.

Sophy T
Sophy T
5 months ago
Reply to  Mark epperson

the atmosphere of the 1960’s has been replaced by that of the defunct East Germany’s.
Yes except drug addicts and homeless people wouldn’t have been allowed to set up encampments in cities in the GDR.

Sophy T
Sophy T
5 months ago

While the democrats are in power in SF its problems won’t be solved. It will just become a mini failed state – a microcosm of South Africa.

Ray Andrews
Ray Andrews
5 months ago

I keep wondering when/if we will see some American city actually collapse — become a ghost down. NYC almost, but they recovered. A few decades ago it looked like Detroit was terminally ill, but they’ve survived. Compton — who in their right mind would live in Compton? Ditto Oakland. Somehow the cities seem to always pull out just when all hope seems to be lost. But surely the woke must finally succeed in killing a city dead?

Emmanuel MARTIN
Emmanuel MARTIN
5 months ago
Reply to  Ray Andrews

Detroit and Baltimore are dead cities
Frisco or Big Apple are home to some of the most lucrative businesses of the world. They stll have hope to recover, even as the policies needed to restore the place are not the ones that the highes tearning workers are likely to embrace.
Nayib Bukele (or one of his admirers) would clean up San Francisco if in charge, but he symblizes values that upper class people despise.

Barry Stokes
Barry Stokes
5 months ago

Let’s not beat about the bush here….Los Angeles & San Francisco have been turned into literal shit-holes by the so-called progressive leftist policies of Gavin Newsom and his cabal.

Grumpy Old Git
Grumpy Old Git
5 months ago

The weather in SF is way over-rated. Yes, it’s sunny most days from eleven till four. The other 19 hours a day it’s foggy and 45F. In springtime many neighborhoods get fogged in for days at a time.
In midsummer the average daytime high is 58F. After midsummer comes smoke season from all the nearby wildfires. Smoke season is followed by rain season. Rain season is followed by fog season. And so it goes.
Worse still the people are insufferable, smug prats with Stockholm syndrome being the only rational explanation for why they continue to live there.