SF to release Transbay housing developer from grocery store commitment

A developer is asking The City for permission to drop plans to bring a grocery store into the Transbay neighborhood as part of a nearly 550-unit housing development, saying no grocers are interested in the site.

The development at 450 Folsom St., approved in 2015, includes a 55-story residential tower and two podium buildings with 548 housing units, along with 17,600 square feet of retail space.

A development agreement reached with The City called for developer Related California to make “good faith” efforts to lease 12,400 square feet of that retail space to a grocery store within a year of the completion of construction.

Construction of the project, which includes 70 below-market rate units in the tower and 80 publicly-funded below market-rate units on the lower podiums, began in November 2016 and is expected to finish mid-2019.

But on Tuesday, the Commission on Community Investment and Infrastructure will vote on a request to remove the requirement for a grocery store.

The developer has argued the site’s proximity to the grocer Woodlands one block away, the lack of onsite parking and a challenging layout of the retail space made it difficult to attract a grocer, according to a letter from Jonathan Shum, a senior project manager for T8 Urban Housing Associates, LLC, an affiliate of Related California.

Shum wrote that a grocery “would be a tremendous amenity to our residents and the neighborhood; however, we request that OCII release the developer of its obligation under the [Disposition and Development Agreement] as it has become clear there is no immediate path to securing a grocer.”

In a prior letter, Shum said the the entire project has 218 parking spots and “can only provide approximately 10 spaces to the entire retail footprint per code; a number that is unfortunately not sufficient for many grocer tenants.”

The project also has a “unique retail layout with five scattered retail lots totaling approximately 17,000 sf, of which roughly 10,000 sf is below grade,” Shum said. “This non‐contiguous layout, while thoughtfully designed to encourage curated retail, does not necessarily lend itself to a large grocer concept,” he wrote.

The developer began working with Colliers International in 2016 to find a grocer, the letter said.

A December 2017 Colliers document shows 18 different grocers with a presence already in San Francisco or the Bay Area 18, including Amazon Go, Trader Joe’s and Whole Foods Market 365, passed or didn’t respond to requests to lease the space. Some wanted a larger space. Others more parking.

Whole Foods Market 365 had attempted to move into a much larger space in a different part of town, the approximately 30,000 square foot space in the former Lombardi Sports building on Polk and Jackson streets. But that effort was opposed last month by the Planning Commission, who backed residents’ calls for housing on the site instead.

OCII hired retail consultant Strategic Economics earlier this year to verify the developer’s claims. That analysis didn’t agree that parking was a barrier, noting that “two of the five nearby grocery stores have no parking” and that “potential customers are likely to either make smaller and more frequent purchases by foot or bike, rely on rideshare or use a delivery service.”

But the report did agree the market conditions were unfavorable to a prospective grocer and the retail space design also posed challenges.

“Brokers familiar with the Transbay neighborhood have said the neighborhood has the potential to grow into a retail destination, but currently lacks the foot traffic and name recognition to compete with more established retail centers in San Francisco,” Strategic Economics said in a report.

The report also highlighted the changing grocery industry: “The projected residential growth of the Transbay neighborhood could warrant additional grocery in the coming years, but it is unclear how that demand will be met.”

With meal kit and food delivery services like Blue Apron or Amazon Fresh, traditional grocers are forced to offer similar delivery services, so “meeting new demand is less tied to a specific geography than it once was,” the report said.

In a memo to the commission, OCII’s executive Director Nadia Sesay recommends freeing the developer from its grocery obligation. She wrote that “there is currently insufficient demand in the Transbay market area to support a new grocery store and that the Block 8 [450 Folsom St.] space is not properly designed for a grocery tenant.”