The New Fillmore

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.

Across the street, King of Falafel, the Chronicle’s nine-time winner of the best falafel in San Francisco award, is living on borrowed time. The building housing the 44-year-old family-owned Palestinian eatery was quietly sold more than a year ago to San Francisco real estate investor and saloonlord Rick Howard, owner of Harry’s Bar on Fillmore Street and four other longstanding drinking and dining dens in the city.

King of Falafel will ride out its lease until January. Then Howard will give the building a seismic upgrade and renovation — and then, he says, either turn the 2,025 square foot downstairs space into a new barroom and restaurant of his own design or lease it out to a new tenant. In late March the space was listed on Loopnet.com, a sort of commercial real estate industry Craigslist, for $6 a square foot, or $12,000 a month rent — twice the increased rent on the space next door — suggesting he may not open his own bar there if a tenant is willing to pay his price.

On the southeast corner, Tortilla Heights owner Paul Owens is reportedly dancing with three potential buyers, despite signs trumpeting a new chef and colorful new promotional flags. One of those said to be eyeing the popular Cabo San Lucas-inspired cantina is Ezra Berman, co-owner of the funky but hip Corner Store restaurant and bar at Geary and Masonic.

On the northeast corner, building owners Moe and Sharon Tabar — also proprietors of the ground-floor Divisadero Florist for the past 32 years — are facing a city order to retrofit the building to withstand a major earthquake. The building also houses six flats upstairs and the always-jammed Godzila Sushi on the corner. Godzila’s head chef David Gong recently bought the three-decade-old sushi parlor — home of the Tinky Winky roll — and has designs on expanding.

RETAIL BROKERS AND INVESTORS say Divisadero Street is too folksy and perhaps a bit too seedy to woo the moneyed corporate labels that have turned upper Fillmore Street into a fashion mecca. For Divisadero, brokers are targeting neighborhood-serving tenants like the ones already there — Artistic Nails, Joe Freund’s State Farm Insurance office, Mr. and Mrs. Kim’s Sunshine Express Cleaners, the Lucky Seven Smoke Shop and small eateries including Ocean Taqueria and the Cheese Steak Shop, which just re-upped its lease.

Yet despite its small-time storefronts and a heavy concentration of medical offices surrounding UCSF Medical Center at Mt. Zion, the four blocks of Divisadero between Geary and California are beginning to cash in on the cachet that started on the stretch of the street south of Geary a decade ago when Laurence Jossel, former chef at Chez Nous on Fillmore, opened the celebrated Nopa restaurant and gave the neighborhood its name.

“The Divisadero corridor doesn’t have the pedestrian traffic Fillmore has, but it’s starting to grow,” says Charlie Castro, a residential real estate agent for Pacific Union who helped put together the partnership that developed the condo and commercial project known as The Heights on California Street near Divisadero.

Already on that block and generating buzz and foot traffic for the area is the highly praised B. Pattisserie, which took over the space occupied by breakfast spot Crepe and Coffee. On the high-profile corner of California and Divisadero, Wild Hare has proven even more popular than Solstice, which it replaced. A block south, newcomer Presidio Pizza Company, which took over the corner spot at Pine Street long occupied by Frankie’s Bohemian Cafe, has been packing in customers from opening to late-night closing.

RENTS ARE GOING UP, leading to concerns among some existing small businesses and the departure of a few longtime tenants. The fears were fanned by rumors that the Schmidt family from the Peninsula has drastically increased the rent on their building at 1807 Divisadero, next door to the King of Falafel, from $2,500 to $10,000. Longtime ground floor tenant Wee Scotty is currently having a moving sale, and the fate of DanceGround Keriac Dance Studio upstairs is in limbo.

But Ken Brownell, a leasing broker with TRI Commercial who represents the Schmidt family, says there’s nothing sinister about a rent increase for a storefront that has been below market for years. He says the patriarch passed away and his children felt the rent should be raised from under $1 a square foot, which their dad had levied for years, to $3.33 a foot — or just under $8,000 a month. Brownell expects the space will lease to a “neighborhood serving” merchant and says interest in the storefront is strong.

Still, a low-profile lender to many real estate investors sees plenty of signs that Divisadero isn’t about to reinvent itself entirely. “The street is staying mom and pop,” he says. “You’ve only got one, maybe two, national credit tenants — a Starbucks and an H&R Block. You could have had a national chain tenant move into the space at California and Divisadero when Solstice left, but it didn’t happen — and that’s a very prominent corner.”

It’s no surprise that some Divisadero merchants don’t want to see the street too spiffed up.

“Everyone thought we were the armpit of the neighborhood because we’re at Bush and not on Filllmore or Sacramento,” says Sharon Chan, co-owner of Divisadero Florist. “But we’ve been here 30 years and handle the flowers for much of Pacific Heights — residents, society events, even celebrities. We did flowers for Ted Danson when he was dating Whoopi Goldberg. We’re just a secret here and we like it that way.”

A BOOM IN CONDOS HELPS SPARK UPPER DIVISADERO

ANOTHER SWEEPING CHANGE on upper Divisadero is the addition of more residential housing.

One condo project, The Heights, has already sold out. Its 13 contemporary condominiums are blended into the block of shops and eateries on California Street and then wrapped around so that they also face Divisadero. Last year, sales of the two and three bedroom homes with 1,300 to 2,000 square feet ranged from $1.25 million to $1.8 million.

But what makes this a standout example of mixing modern urban housing in with a strip of Victorian buildings and non-descript storefronts is its genesis: A San Francisco real estate broker, not a deep-pocketed developer, dreamed it up, designed it, fought for it, built it and sold it.

What’s more, Charlie Castro, who sells homes for Pacific Union and who cobbled together the partnership that developed The Heights, had the foresight to include three commercial condominiums — allowed under the zoning laws — in the project.

As a result, the proprietors of a new vegan restaurant opening on Divisadero later this year paid The Heights $300,000 to buy their 800 square foot space and will not have to worry about a landlord jacking up the rent or selling the building. With their own skin in the game, they can amass equity and benefit from property appreciation — if the neighborhood’s popularity continues to grow.

Castro sold the commercial condo on the California Street side of the project to nearby neighbor Tataki Sushi, a hotspot that always has a line outside its door. For $850,000, Tataki got a 2,300 square foot space that will allow the restaurant and sushi bar to quadruple in size when it moves a few doors down the block later this year.

STRONG DEMAND FOR CONDOS — sales were up nearly 22 percent in the neighborhood last year — has to be good news for KB Home’s venture at 2655 Bush on the corner of Divisadero.

In August 2012, Mill Valley-based Thompson/Dorfman Partners, which describes itself as “urban residential development” specialists, picked up the financially distressed property for a bargain $14.5 million.

“There are several major employers in the area. This includes UCSF and Kaiser Permanente. The walkability of this location would be off the charts,” Bruce Dorfman, a principal in the firm, recently told The Registry, a real estate news website.

But when a real estate broker told Dorfman and his partners they could make nearly a 250 percent profit on the corner in 18 months by selling out to major international player KB Home — the old Kaufman & Broad — they leaped at the deal.

KB Home has a cost of $469,000 per condo, but representatives will not discuss details of the living units. Several developers and brokers say condos at the low end are fetching $1,000 a square foot today, which could lead to a $1 million price tag — at least.

Although mum on details of the condos, the developer is actively hunting for a tenant for its 3,800 square foot ground floor retail space.

“We’re in discussions with multiple financial institutions as well as restaurants and we’re open to proposals from any interested parties regarding neighborhood-serving retail,” says Chris Homs, associate vice president of Terranomics Retail Services.

— CHRIS BARNETT

Filed under: Neighborhood History, Retail Report