© Reuters. Tourists look toward downtown San Francisco including the Transamerica Pyramid building in California, US, July 7, 2023. REUTERS/Carlos Barrea
2/5
by Krystal Hu
SAN FRANCISCO (Reuters) – Venture capital firm Headline used to be in one of San Francisco’s most attractive skyscrapers: the pyramidal Transamerica Building that has defined the skyline for decades. The staff enjoyed the views from the 43rd floor and the convenience of being downtown.
Then came the epidemic.
As the tech industry shifts to working from home or downsizes, a city center that was already plagued by drugs and homelessness has slid into further urban decline. Businesses closed and visitors got scared, creating a vicious cycle that coincided with the changes already happening in the city’s real estate market.
With Headline’s lease expiring, the company decided to look elsewhere. The executives considered building an office on a boat or moving into a residential home. In the end, they moved their $4 billion operation to the — and safe — Presidio, a former military base turned national park next to the historic Golden Gate Bridge.
And they are not alone. Venture capital firms are increasingly joining retailers and other businesses in finding homes outside of downtown San Francisco. For example, Westfield said last month it would retire its downtown mall after 20 years, when foot traffic is down 43% from 2019.
Where venture capital firms can end up with implications for the broader tech industry is that these firms typically help form a center of gravity for the startup founders and communities.
“The Presidio really represented what we thought the future of work should be,” said Matthias Schilling, Managing Partner at Headline, on a sunny afternoon recently. Nearby, a dozen employees were sitting at a long, communal wooden table in the bright kitchen, eating lunch against a backdrop of lush greenery, palm trees, and panoramic views of San Francisco Bay.
“It’s a very calm and serene place, something I think instills creativity and stimulates people,” said Schilling. “We take meetings outside and take a walk in the big garden here.”
Other venture capitalists — including Felicis Ventures, which has backed Shopify (NYSE:) and Fitbit (NYSE: ), as well as Forerunner Ventures and Venture studio Atomic, have filled the clues in the Letterman Building, one of the Presidio’s largest office complexes.
Converted from a former military base, the Presidio is located at the tip of the San Francisco Peninsula, several miles west of the Financial District. As a national park, it is patrolled by the Federal Police.
“It feels 100% safer than downtown. There’s no open drug use in the Presidio. There are no homeless camps. There are very few homeless people walking around, and that’s because it’s federal land and the federal police are a big part of it,” said Rex Salisbury, who runs a business. An adventurous Cambrian Venture, he has lived and worked at the Presidio since 2017.
Transformations in the tech ecosystem
Venture capital firms play an integral role in the San Francisco Bay Area tech ecosystem, with startups accounting for approximately 35% of all venture capital funding in the US in 2022.
Since the internet boom of the 1990s, venture capital firms have virtually congregated in hotspots close to startup founders — including Sand Hill Street in Silicon Valley and South Park in downtown San Francisco.
Some companies now say they feel less obligated to stay downtown because startup founders have become more scattered since the pandemic, while the Presidio is a convenient location for company partners who live in the northern part of town or Marin, the county across from the Golden Gate. Bridge from San Francisco.
“The Presidio was so far away, pre-COVID, that no founders really wanted to come. The founders weren’t downtown anymore, so we didn’t have to be there anymore. We felt like it wouldn’t be a burden to us,” said Eurie Kim, whose venture firm left. Forerunner Midtown to Presidio in early 2022, the founders have come in. They’re actually really excited.
While there are no statistics on venture capital firms’ locations by neighborhood, the Presidio vacancy rate is about 5%, compared to San Francisco’s overall commercial real estate vacancy rate of 35%, up from 4% before the pandemic, according to Real Report. the real estate company CBRE and the Presidio Trust, the federal agency that manages the area.
This is despite commercial real estate in the Presidio being 20% more expensive on average than downtown, according to CBRE data.
There has been widespread interest in moving out of the city center since 2020, said Lisa Petrie, a spokeswoman for the Presidio Trust. “They all cite the amenities and beautiful surroundings of this urban national park as the number one reason for locating here,” she added.
Presidio has long attracted non-profit organizations and entertainment companies. Lucasfilm has been based here since 2005, and Walt Disney (NYSE:) The Family Museum in the Park opened in 2009.
Some venture capitalists say they remain committed to downtown. When General Catalyst outgrew its South Park office in San Francisco earlier this year, they moved to another downtown building a few blocks away.
“We found a convenient location close to public transportation, downtown hotels, and restaurants,” said General Catalyst chief technology officer John Rehagen, adding that the company was partnering with local restaurants and service providers. “We hope this will help revive the tech corridor in the city center that is still recovering from the pandemic.”
Staff at the Presidio were also hopeful that downtown would recover — but said for now they’re glad they no longer need to commute there.
“This part of town hasn’t been developed in a long time,” said Molly Martell, Vice President of Brand at Headline. She said she hopes that focusing attention on her problems will be a catalyst for change. “It’s so tragic to see what’s happening,” she added.
A spokesperson for the San Francisco Mayor’s London Post said the government wants to support businesses of all kinds across all boroughs in the city.
“Mayor Breed continues to implement strategic initiatives to help stabilize existing businesses and hire new ones as part of the roadmap for the future plan for downtown San Francisco. We will continue to emphasize efforts to support the revitalization of downtown, but we also welcome investments in all parts of our city,” the spokesperson said in a statement. email.
Colin Yasukuchi, executive director of Tech Insight at CBRE, compared the Presidio to Sand Hill Road, the historic address for venture capitalists in Silicon Valley.
“We have this phenomenon that we call ‘journey to quality’ in real estate here,” he said. “The Presidio has evolved into San Francisco’s Sand Hill Road.”