Brick by Brick

By Helyn Trickey Bradley
Photos by Charlotte Fioritto
Illustrations by Jason Marzloff

There’s a palpable buzz in the Bay Area these days, and much of it has to do with a local economy that is teetering on a slow but earnest economic recovery. This underlying current of optimism is welcome in a city that was bruised and battered following the spectacular dot-com bust in 2000 that saw over-valued tech companies crumble in a matter of months. And like a high-stakes game of dominos, other business sectors began to fail in quick order, causing one of the worst economic slumps to date.
Today, San Francisco’s tech industry is beginning to grow once again, mostly driven by social media companies and mobile startups, and there’s hope that the tech industry can fuel growth that will pump blood into other growth markets. But this time around the optimism is tempered with realism.
San Francisco Chief Economist Ted Egan agrees that tech is the Pied Piper of this turnaround, leading the way for more beleaguered industries, but “it’s certainly not yet another dot-com boom,” he told the Associated Press in April 2011.
Companies like Twitter (it just garnered a huge city tax break in return for staying in San Francisco and expanding into the Mid-Market area), and Zynga, a social media gaming company, are two dot-coms that have tongues wagging.
“A lot more growth will be coming down the line,” says Colin Yasukochi, vice president of research at real estate firm Jtones Lang LaSalle. He cites the planned expansions of Zynga, Twitter and other like-minded social media companies as an example that the tech sector’s significant growth cycle is just beginning, Le Liberal newspaper reports.
A recent study from Jones Lange LaSalle found that the current number of tech jobs in San Francisco is nearing the number of tech jobs in the Bay Area at the apex of the dot-com boom in 2000. But the sobering news is that the estimated 500 tech firms in the city aren’t physically expanding willy-nilly to accommodate more workers. Today’s tech workers take up roughly half the real-estate space their counterparts did during the dot-com boom, a signal that, unlike the euphoria that accompanied the dot com boom in the late 1990s, this time companies are being more conservative with their money and choosing not to plunk down dollars for expensive real estate just yet.
And the types of construction projects that are blooming around the Bay Area signal a different sort of economic recovery, too.
For instance, Cahill Contractors, a 100-year-old company helmed by CEO John Cahill, Jr. (LHD 99), received most of its business in the 1990s from commercial ventures funded by private investors. These days, Cahill says most of their projects are multi-family construction builds that are funded, in part, by the federal stimulus dollars. According to Cahill, private investors are still wary to invest in construction projects.
“Private projects are slower to move,” he says. “(Land and/or building) prices are low, so there’s some sniffing around, but private builders are wary to invest.”
The roller coaster economic booms and busts have made Cahill Construction re-think its business strategy. According to Guy Estes, Cahill project executive, the company’s strong presence in the affordable housing sector in the late 1990s caused revenue to plummet as much as 30 percent when the bottom dropped out of the market.
“This has forced us to diversify into alternate business lines such as healthcare, laboratories, universities and schools, where we have met with some success.  This diversification process has opened our eyes to new opportunities and has made us a stronger company,” Estes says.
In addition to several high-profile building renovations for Golden Gate University — including 40 Jesse, the university’s student services building, and the main building at 536 Mission — Cahill’s company is busy renovating 220 Golden Gate Avenue, a 100-year-old building with 176 housing units.
“We’re hunkering through, but we’re not hilarious with good news,” says Cahill of the current economic climate and its effect on his construction business. “We’ve managed to weather the storm, but we’re still waiting for the sun to come out.”
“We’ve only seen a hint of the economic resurgence,” says Estes. “It’s noticeable, but barely.”

“I’m not concerned that this is a bubble,” says Victor Coleman (MBA 85), chief executive officer at Hudson Pacific Properties. “We’re dealing with much better quality companies than before,” he says. “Before, (worth) was based on perceived value. Now, you have major technology companies that are growing at tremendous rates.”
Coleman says he’s very excited about the growth potential in the city and Hudson Pacific Properties bears out his confidence, investing half a billion dollars in Bay Area properties in the last year.
Coleman, who’s been active in the real estate industry since the late 1980s and has seen all sorts of markets, good and bad, insists there is real reason to be confident in the Bay Area right now.
“(San Francisco) is unlike any other market on the West Coast. There’s some growth in Southern California and the Pacific Northwest, but there’s nowhere near the velocity of the Bay Area,” he says. Coleman is particularly excited about building and renovations in San Francisco’s South of Market (SoMa) area. “That’s where the growth is,” he says, attributing much of the activity to young dot-com workers who like to live close to their offices and near transportation hubs that make getting to amenities like restaurants, shopping and entertainment venues easier.
Coleman’s anecdotal assessment of SoMa’s growth seems right on target.
According to Jonathan Weber, a columnist with The Bay Guardian, SoMa is basking in the glow of economic optimism. In a New York Times article, Weber writes that “the office rental market (in SoMa) has tightened dramatically in the last six months, according to local real estate professionals, as fast-growing social media and Internet software companies snap up ‘creative’ spaces. For all the talk about how technology enables people to work anywhere, many of these companies clearly find value in being within a few blocks of one another. ‘There are pockets right now where you can’t get any space,’ said Steven Ring, city leader for client solutions at Cushman & Wakefield. Rents in the heart of SoMa are up about 8 percent since early last year, according to Meade Boutwell, a senior vice president at CB Richard Ellis, though they’re still well below the peak reached in early 2008, before the global recession hit.”
Recently, Coleman’s company, Hudson Pacific, acquired 1455 Market Street, a 1,012,000- square-foot office tower, and the company also made an approximate $40.3 million investment to acquire 51 percent of the 581,000-square-foot One and Two Rincon Center office project.
“Both properties are well-located, quality buildings with solid occupancies and amenities, attributes that meet our investment criteria,” says Coleman.
To survive in the construction industry, you have to be an optimist, says Michael Ghilotti (MBA 87), area manager for Ghilotti Brothers, Inc., a construction company that specializes in infrastructure projects. He agrees that while there may be a bit more optimism in the air, it’s a little early to claim a turnaround is imminent.
“It’s with a great deal of apprehension that people talk about (an economic recovery). They feel like it might be a passing phase,” he says. “Just when we think that we’re turning a corner, bad news comes out. It’s so complex.”
In part, Ghilotti blames the State of California and its handling of small businesses. “We’ve turned it into a state that has too many regulations in place to do business. It’s brutal to go buy a piece of property and get permits to do something.”
Still, Ghilotti says there are plenty of reasons to be optimistic about an economic resurgence. He cites the expansion of high-speed rail; infrastructure upgrades, including improvements made to the Golden Gate Bridge; the economic strength of Silicon Valley; and an influx of foreign businesses seeking to open offices in the Bay Area as signs of better times to come.
As for the future, Ghilotti says his company has several big projects keeping them busy, including an $8 million federal highway project in Marin County. He says revenue growth in the last five years for the third-generation family-owned construction company has topped 112 percent.

Another optimistic sign of local economic recovery is the city’s winning of the 34th America’s Cup scheduled for 2013. The high-profile sporting competition is the third largest sporting event in the world and is the only international sporting event to grace American shores this decade, according to community outreach manager for the America’s Cup Event Authority Ariel Ungerleider (JD/MBA 09).
“It’s going to be a giant exclamation point for our city,” says Ungerleider. “It’s going to make people want to move here, visit here, businesses will want to relocate here. It’s going to put us back on the map as a place where people can live and work,” she says.
In addition to shining an international spotlight on the Bay Area, San Francisco is sure to benefit from some of the transportation upgrades made to accommodate the crowds expected for the 34th America’s Cup, including express trains that would follow current routes.
“Members of the community have been asking for these (upgrades) for a long time,” says Ungerleider. “I think it’s possible that some of the limited lines may end up staying (after the America’s Cup is finished).” Permanent infrastructure changes may include making one of the transportation lines follow the waterfront from Caltrain to Fisherman’s Wharf.
The America’s Cup is expected to bring $1.2 billion into San Francisco’s economy and create as many as 8,000 new jobs.
According to an article in the San Francisco Chronicle, city officials hope to improve sidewalks and street aesthetics along Jefferson Street in Fisherman’s Wharf, as well as extend the F-line tracks via an existing tunnel from the wharf through Fort Mason.
Ungerleider has lived and worked in the Bay Area for six years and says the city’s assets remain as its entrepreneurial, creative roots.
“San Francisco is an incubator for ideas. A number of creative companies have grown here and started here, but it’s hard to retain them,” she says. “That’s why we’ve seen the payroll tax exemption for companies like Twitter. We need these jobs and we need them to stay in the city.”
Coleman remains optimistic that the Bay Area’s recovery will continue as long as we nurture our strengths.
“I’m a big believer in California,” he says. “I think we’re in a very unique cycle where government entities need to facilitate growth by doing more than just saying we’re business friendly. Prove it. Local government needs to be as creative as local businesses,” says Coleman. “I believe in the future prosperity here. We’re going to go into a recovery, and the answer to the recovery is right in front of us: the small tenants; the small and entrepreneurial companies; and entrepreneurial growth. That’s what is going to get us out of trouble,” Coleman says.