Rising rent moves more shops south

Fillmore and California, Labor Day 2014 | Photograph by Dickie Spritzer

Fillmore and California, Labor Day 2014 | Photograph by Dickie Spritzer

FILLMORE STREET is “the hot retail spot in San Francisco” for fashion and beauty brands, Women’s Wear Daily proclaims, and the rent on commercial storefronts is rising rapidly to reflect the neighborhood’s newfound favor.

This year has already brought Ella Moss and The Kooples to the street, joining dozens of other clothing and beauty boutiques. Soon Rag & Bone will open its new showplace on the prime corner of Fillmore and California. And Rebecca Minkoff is bringing its designs to the former Pure Beauty store at 2124 Fillmore, the only empty storefront on upper Fillmore.

Now two more longtime neighborhood shops are packing up and moving south, where the rent is significantly less expensive.

• Copynet, the printing and graphic design firm that has occupied 2404 California Street for 20 years, will move this month to 2174 Sutter Street — a few doors from Jet Mail, which made a similar move earlier this year.

• Zinc Details, the home furnishings store that has been on Fillmore near Bush Street for 20 years, will move in October three blocks south into the empty National Dollar Store space at 1603 Fillmore, next door to the Boom Boom Room at the Geary
bridge.

The owners of both businesses see fresh opportunities in their new locations, but both acknowledge they were facing big rent increases that made it impossible to maintain their longtime homes.

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Paolo Shoes staying on Fillmore

Photograph of Paolo Iantorno, owner of Paolo Shoes, by Daniel Bahmani

Photograph of Paolo Iantorno, owner of Paolo Shoes, by Daniel Bahmani

By Chris Barnett

THE RANCOROUS LEASE DISPUTE between Paolo Shoes and its landlord has been resolved out of court, and the custom Italian shoemaker won’t be taking a hike from the corner of Fillmore and Pine for at least two more years.

The clash between the two San Francisco real estate dynasties was recently settled as Paolo Shoes and Webco Group LLC and their lawyers met in the halls of the courthouse awaiting a mandatory settlement conference of a lawsuit based on a disagreement that had dragged on for 10 months with neither side budging.

“We made amends and settled on a rent that is twice what I am paying now, but still below market,” says Paolo Iantorno, the tenant and owner of the store. Under terms of the agreement, he will pay $10,000 a month rent for the first year and $10,500 a month in the second year. Previously, he was paying $5 a foot for the 1,000-square-foot storefront at 2000 Fillmore Street.

Patrick Szeto, a member of the family that owns Webco Group and American Realty and Construction Co., did not return calls or respond to an email seeking comment.

“We met for four hours in the halls and we each had our lawyer with us,” Iantorno says. “The mood, to be honest, was fine. Very constructive. There was no anger or emotion and we talked everything out.”

Still, both sides were at an impasse and ready to go to trial until Iantorno’s father, Sergio Iantorno, showed up and acted as unofficial mediator. His son will not disclose what precisely brought the factions to an agreement. But he hints that his dad made certain amends and pointed out that Paolo had been in the storefront for 10 years and in the Fillmore neighborhood for 15 years and had been a good tenant during those years.

“For Patrick, I now understand that it was business and not personal,” says Iantorno. “We settled our differences — despite the fact that he had a prospective tenant ready to move in and pay $15,500 to $16,500 a month.”

The amiable resolution was a 180 degree turnaround from earlier this year when Paolo Shoes faced eviction on Valentine’s Day when his lease expired. Webco would not extend the lease, claiming Iantorno’s request in July 2013 for an extension did not meet a deadline in the existing lease.

Both sides hired lawyers and spent the fall and winter haggling.

These days, Paolo Iantorno, who has two other retail stores in Hayes Valley — including one called Duke et Duchess that sells its own line of jeans and accessories, — is spending most of his time working for the family real estate business, Realty West. He is doing hands-on renovations of apartment complexes and mixed-use retail and residential properties.

Iantorno says he is grateful his Fillmore Street hassle is behind him.

“My dad and I were talking,” he says. “Maybe there is some way our two families can work together on a deal. I would like that.”

EARLIER: “Getting the boot

Shell station may lose garage

The Shell station and garage at California and Steiner Streets.

The Shell station and garage at the corner of California and Steiner Streets.

PLANS HAVE BEEN UNVEILED to demolish the Shell station at 2501 California Street and replace it with a new high-end convenience store called Loop.

Loop is the next evolution in service station retail,” said Nick Goyal, one of California’s largest operators of Shell service stations, who now controls the local station and more than 100 others. During the past year he has opened six Loop stores at Shell stations in the Bay Area, with more on the way.

Loop stores offer groceries and fresh foods along with wine, espresso, smoothies, frozen yogurt, sushi and a soup and salad bar. “It will change your expectation of what you can purchase at your next fill-up,” Goyal said.

Shell Auto Repair would be eliminated and the fuel pumps reconfigured and rebuilt, if the project is approved by the city.

EARLIER: “50 years at the Shell station

Fillmore a case study on chain stores

The Kooples, now under construction at 2241 Fillmore, has more than 300 clothing boutiques worldwide but only six free-standing stores in the U.S. and therefore is not considered a chain.

The Kooples, now under construction at 2241 Fillmore, has more than 300 clothing boutiques worldwide but only six free-standing stores in the U.S. and therefore is not considered a chain.

FILLMORE STREET CONTINUES to remake itself into a mecca of high-end fashion labels from around the world, despite the city’s professed intent to limit chain stores in neighborhood shopping districts.

Partly that is because the rules limiting “formula retail” — defined as companies with 11 or more stores — do not include stores outside the U.S.

An attempt to change the rules to include international stores and spinoffs of existing chains was put on hold last year when the Planning Department commissioned a study of the issue. Now the Berkeley consulting firm conducting the study, Strategic Economics, has produced a draft of its final report, which will be the basis of policy recommendations to be presented to the Planning Commission on May 22.

The report includes detailed case studies of three neighborhoods, including the Upper Fillmore Neighborhood Commercial District, stretching from Bush to Jackson Streets. The other neighborhoods included in the study are Ocean Avenue and a portion of outer Geary Boulevard.

“Upper Fillmore . . . is a rapidly changing district that in recent years has seen a significant shift in the types of retailers occupying local storefronts,” the report says, including “a growing number of new high-end formula clothing stores and other chain retail establishments.”

The report notes: “As the mix of retail in the district has changed, residents have raised concerns about a loss of neighborhood-serving businesses, while some independent retailers have expressed unease over competition from national brands.”
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The buzz on Divis: change is coming

Photographs of Divisadero Street by Erik Anderson

Photographs of upper Divisadero Street in San Francisco by Erik Anderson

By Chris Barnett

THE FOUR CORNERS of the dingy intersection of Divisadero and Bush won’t win any architectural awards today, but the location is increasingly prized by investors, and all four corners are in transition.

Bulldozers are rumbling over the dirt on the southwest corner, home for decades to the San Francisco Community Convalescent Home. More recently it has been a slot machine for speculators. Owner Jocelyn Carter cashed out seven years ago for $4.6 million from a San Francisco builder and his Manhattan money partner. Then, in foreclosure, they lost the location to a Mill Valley condo developer and investor who paid $14.6 million in 2012 — and quickly flipped it to Los Angeles-based megabuilder KB Home for a jackpot $38 million.

Now a six-story residential and retail complex with 81 condos is under construction, with a grand opening slated for early next year. Price tags on some units are sure to top a million apiece.

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Rag & Bone is a go

Rag & Bone will open in the prominent space at the corner of Fillmore and California.

Rag & Bone will open in the prominent space at the corner of Fillmore and California.

AFTER PAYING $25,000 a month rent for seven months on a key corner location at Fillmore and California streets, the New York-based fashion retailer Rag & Bone finally on February 20 got the blessing of the city Planning Commission to open a store there.

Rag & Bone will occupy the two spaces that were home for decades to Royal Ground Coffee and the laundromat next door. It plans to offer both men’s and women’s clothing.

By a 4-3 vote, the commission decided that while Rag & Bone may technically qualify as a chain store in San Francisco, it nonetheless will be a good addition to the neighborhood.

The city’s formula retail ordinance defines a chain store as any company with 11 or more retail outlets in the U.S. Currently Rag & Bone has 12 stores and leases on four more locations.

Local residents and merchants lined up to testify that there are already too many chain stores on Fillmore and an overabundance of fashion boutiques. Others said Rag & Bone was unique and would be a good neighbor, especially given its vow to support a local school and set up a loan fund for independent businesses.

“I don’t think it rises to the level of some of the other formula retails we’ve seen,” said commissioner Rich Hillis, who voted for Rag & Bone.

“The street looks great right now,” said commissioner Rodney Fong, another Rag & Bone supporter. “It’s alive. There’s a good mix.”

Commissioner Hisashi Sugaya disagreed. “I used to live on Webster Street back in the ’80s,” he said. “It was really different then. It’s rapidly turning into an apparel and cosmetics and restaurant row.”

Rag & Bone has enlisted a local design firm to help build what it promises will be a special store worthy of its prominent location. It opens this summer.

Getting the boot

Photograph of Paolo Iantorno, proprietor of Paolo Shoes, by Daniel Bahmani

Photograph of Paolo Iantorno, proprietor of Paolo Shoes, by Daniel Bahmani

By Chris Barnett

SCIONS OF TWO San Francisco real estate dynasties are racing toward a costly collision on Valentine’s Day after seven months of legal jousting. The prize: the storefront on the prime northeast corner of Fillmore and Pine occupied for the last 10 years by Paolo Shoes.

The lease there is officially up on February 14 and the landlord, Webco Group LLC, wants to give the stylish handmade Italian shoe retailer the boot. The store owner claims his lease gives him an option to extend for another five years at today’s prevailing rental rate — which he is willing to pay even though a number hasn’t been put on the table. Webco insists the tenant didn’t exercise his lease option on time and in the proper manner.

The combatants are:

• Paolo Iantorno, 37, the tenant and sole owner of Paolo Shoes, who grew up in tony St. Francis Wood, graduated from prestigious St. Ignatius High School, a third generation member of an Italian family whose father, Sergio Iantorno, and grandfather, Clarence Dahlberg, run San Francisco–based companies that build custom homes throughout the Bay Area.

• Patrick Szeto, 39, the landlord’s representative, raised in San Francisco, and graduated from equally prestigious Sacred Heart Cathedral Prep, a second generation member of the large and powerful Szeto family, owners of Webco Group and American Realty & Construction Inc. led by Patrick’s father, Kwok Szeto, also known as Richard Szeto, with major commercial real estate holdings throughout the city, including 2000 Fillmore Street, home of the shoe store.

Another major player in the drama is Pamela Mendelsohn, a commercial real estate broker with the San Francisco office of Collier’s International. For years, she’s been the leasing queen of Fillmore Street, a confidante of landlords and tenants alike. Mendelsohn leased the Paolo Shoes space to Iantorno a decade ago. And in 2011, she brokered the sale of the entire classic 1928 Mediterranean Revival style building — which includes Paolo Shoes, the Grove restaurant next door, 15 apartments upstairs and parking downstairs — to Webco.

Among its other holdings, Webco also owns the six-acre, 300,000-square-foot parcel encompassing more than 200 commercial and residential units surrounding the Safeway store and bordered by Webster, Geary and Fillmore.

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A serene oasis for tea

Song Tea & Ceramics is now open at 2120 Sutter Street.

Song Tea and Ceramics is now open at 2120 Sutter Street.

PETER LUONG has created a serene oasis for those who step into his just-opened door at 2120 Sutter Street, the new home of Song Tea & Ceramics. Soft music plays. Comfortable chairs are arranged on cozy rugs near bookcases and neat white canisters line shelves along one wall, with labeled drums of teas in rows toward the back. Ceramic vases, pots and teaware are scattered strategically throughout the open space. Browsers and customers are offered water or tea while they wander about the shop.

“This is intended as a place to showcase a nice collection of tea and teaware,” says Luong, “a place where people can come in and feel comfortable to learn about different teas, to understand what’s special about them and to hear the story behind each one.”
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New limits on chain stores on Fillmore proposed

Graffiti at Fillmore and California, where fashion may replace Royal Ground coffee shop.

Graffiti at Fillmore and California, where fashion may replace a laundromat.

AS FILLMORE STREET continues to rapidly remake itself into a mecca for fashion labels from around the world, supplanting basic neighborhood services, legislation has been introduced at City Hall that would subject more businesses to the city’s limits on chain stores.

Under the existing “formula retail” ordinance — enacted by the voters in 2008 to limit the proliferation of chain stores in the city’s neighborhoods — businesses must obtain a conditional use permit to open on upper Fillmore if they have 11 or more stores in the U.S.

New legislation introduced by District 2 Supervisor Mark Farrell would amend the ordinance to include stores located not only in the U.S., but anywhere in the world. That would affect companies that have numerous stores in other countries, but are just beginning to establish a presence in the U.S.

“After hearing from both our merchants and neighbors in the Upper Fillmore about concerns that large retailers were pushing out our smaller and unique ‘mom and pop’ type of stores,” Farrell said, “I introduced legislation to expand the definition of formula retail.”

The legislation would also extend the law to include new businesses started by formula retail companies, whether or not they currently have 11 or more stores. This has been an approach favored by companies such as the Gap, which opened Athleta on Fillmore, and Starbucks, which opened Evolution Fresh.

Farrell’s proposal would apply only to the Upper Fillmore Neighborhood Commercial District, which extends from Bush to Jackson streets.

Similar efforts have been launched in other neighborhoods, including nearby Hayes Street. In response, the Planning Department has resisted neighborhood-specific legislation and instead proposed that the proposals be delayed while a study is conducted to develop uniform rules.

Farrell’s legislative assistant Catherine Stefani said her office would press forward with the legislation despite the Planning Department’s move for a citywide law.

“We have told Planning that we plan to proceed with the legislation despite the study because we felt that it was urgent to do so,” Stefani said.

Dental school gives way to housing

The dental school's surface parking lot may become home to 11 townhouses.

The dental school’s surface parking lot may become home to 11 townhouses.

BY THE TIME it moves downtown next year, the University of the Pacific’s dental school will have made room for a lot of attractive — and expensive — new housing in the neighborhood.

Trumark Urban has now bought the dental school’s longtime home at 2155 Webster Street, at the corner of Sacramento, and will convert it into 77 high-end condominium residences averaging 2,000 square feet. Two top-floor 4,000-square-foot penthouses will have views of the Golden Gate Bridge.

A COMMUNITY MEETING will be held on Wednesday, July 17, to discuss the plans for the dental school. Trumark is hosting a pre-application meeting required by the city’s Planning Department at 6:30 p.m. in Bart Hall at Congregation Sherith Israel, the synagogue located at 2266 California Street.

Already Prado Group has converted the school’s former dormitory building at 2130 Post Street into 71 deluxe rental apartments. Leasing began in early June, and more than half of the apartments have been leased in the first few weeks, said manager Meg Russell. Already 23 apartments are occupied. Of the apartments that remain available, monthly rentals range from $3,195 for a one-bedroom, one-bath unit up to $4,695 for a two-bedroom, two-bath unit.

Adaptation of the dental school’s home at Webster and Sacramento will require the developer to build larger units because of the unusually deep floor plan. About 80 percent of the units will be two-bedroom or larger.

In addition, Trumark plans to build 11 townhouses on the parking lot behind the building spanning from Sacramento to Clay Street.

Daniel Cressman, the broker who helped the university buy its new home on Fifth Street and sell its neighborhood buildings, called the dental school building a once-in-a-lifetime opportunity to “create a world-class condominium development in San Francisco’s most prestigious neighborhood, rivaling high-end condo projects in New York and London.”

Biz Times: Dental school netted more than expected