I’ve written a lot about how our country’s economy and society has increasingly centered around our homes, rather than public spaces. See this piece from earlier this month.
Why is this happening now? Of course, technology plays a role. We’re using DoorDash instead of going to the supermarket, shopping online instead of going out to stores.
But technology is only part of the problem. The other issue is that real-world businesses are now much harder to launch than online ones.
If you’re an ambitious person, founding an online business can seem sexy – it’s seen as innovative, path-breaking. And because online businesses can scale much more easily than in-person ones, they’re more likely to get large investments from outside funders, like venture capitalists.
By contrast, if someone wants to open a store or a cafe or, God forbid, a preschool, there’s seemingly no end to barriers. Starting a physical business requires navigating a byzantine maze of permits, licenses, inspections, and approvals that can take months or years and cost tens of thousands of dollars.
To give one local example, Little Susie’s, a hand pie company, announced last summer that it was opening a new location in my neighborhood. Nearly a year later, it’s still not open, posting on Instagram that they’re “waiting on some licenses.”
Beyond the administrative headaches, in-person businesses require a lot of upfront money for a lease, employees with regular hours, and some degree of customer service — none of which is required online where entrepreneurs are increasingly boasting of their monthly spend on AI tokens rather than employees.
One way to shift this problem is to reform the barriers to in-person business. As Ryan Puzycki notes:
Austin has paired zoning reform with efforts to streamline permitting, even as rising fees complicate the picture. New York voters have approved changes to speed parts of the approval process, while state leaders are pushing to reform environmental review laws. In California, lawmakers have begun to narrow the scope of CEQA for housing. And beyond these high-profile cases, cities from Seattle to Minneapolis are experimenting with ways to make development review faster and more predictable. These efforts matter. But they also point to the scale of the challenge: this is not a problem of a single rule or a single city, but of how we have structured the development process itself.
As Ryan concludes, reform only gets you so far. So then what?
In San Francisco, the city has been working for years to reform its permitting process through a program called PermitSF. Since Mayor Dan Lurie has been in office, San Francisco has legislated new reforms on permitting everything from sidewalk businesses to special events to housing and public works.
But the city is also recognizing that real-world businesses need real-deal incentives to grow.
For decades, we’ve created tax incentives to lure big businesses to relocate to office parks and commercial sites. Now, finally, at least one city is realizing that it needs to put serious money on the table to get the kind of retail it wants in its highest ROI location: downtown.
The San Francisco Downtown Development Corporation (SFDDC) has just launched a new $25 million Downtown Development Fund to get more high-quality retail into its downtown. Specifically it’s providing move-in grants of up to $500,000 to cover tenant improvements, equipment, working capital, and launch expenses.
In addition it will offer affordable loans of $100,000 to $1 million, with discounted interest rates and flexible terms through partner banks.
Lastly, it will pair tenants with expert technical assistance for leasing, permitting, and operations.
The broader Downtown San Francisco area has been struggling since the pandemic. Office occupancy is bad, but it’s not the only problem: Storefront vacancy makes the whole area seem bleak. Without a reason to be there for either work or shopping, locals are avoiding the area. This Fund is taking a pretty strategic approach though: it’s limiting its impact to a few key blocks where there’s both serious vacancy as well as upside to addressing the problem.
You may recall some of my coverage from a year ago on this topic when The New Urban Order subscriber tour met up with Simon Bertrang of SF New Deal’s initiative, Vacant to Vibrant.
Bertrang will be involved in this new project and was recently quoted in the SF Chronicle as saying that the fund is based on lessons learned over the past three years from the Vacant to Vibrant program. Unlike Vacant to Vibrant, which gets tenants into spaces for at least three months, this new fund will focus on more permanent tenancy.
The DDC is only able to make these massive investments possible because it’s fundraised $60 million from top tech companies, like Google, Amazon, and OpenAI.
So what’s new here?
The scale. This is a genuinely big investment. Most cities offer a few thousand dollars for a storefront sign or a workshop to help people run their businesses better. CDFIs might loan small businesses $10,000 to get going. This fund is making total investments closer to $1 million per tenant, a big portion of which is going to be grants that don’t have to be paid back. Whoa.
The scope. Oftentimes business improvement districts have focused on public goods — clean streets, accessible parks, security. But usually this work stops at the line between public and private space. This model is focusing on private businesses. The downside is that it’s going to be choosing winners here, and that’s innately going to leave some folks behind.
The partners. The Fund is leveraging connections to private sector businesses to provide top-notch TA (technical assistance). Gensler is going to provide design help. Cleary Gottlieb is going to provide pro bono legal help. It’s also important to note that the investors are also partners. Are those tech companies first crashing the real estate environment with remote work, then buying the dip on SF real estate, then controlling its upside? Sorry to be cynical, but the question has to be asked.
Is San Francisco’s model replicable? I think so. Yes, SF has raised a lot more money than other cities could dream of. And yet, I think the basics of this approach — big grants, pro bono technical assistance, loans — could be deployed in any other city, even if they’re all scaled back a bit. One advantage is that this is a time-sensitive, hopefully one-shot initiative. If the tenants succeed, there won’t need to be a fund like this in a matter of years.
Diana Lind is a writer and urban policy specialist. This article was also published as part of her Substack newsletter, The New Urban Order. Sign up for the newsletter here.
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