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July 06, 2017

SFMade zeroes in on tenants for its first affordable maker space in San Francisco

San Francisco Business Times

Alejandra Reyes-Velarde

When San Francisco's first affordable maker space opens next year, it will house screen printers, an apparel company and medical device makers.

Those are just some of the businesses that intend to rent space at 150 Hooper Ave., where PlaceMade, a nonprofit developer of affordable manufacturing space, is under construction on a 56,000-square-foot maker hub. So far 10 businesses have signed letters of intent to rent different portions of the space.

The project won a crucial boost last week, when San Francisco granted it $23.4 million in new market tax credits, a financing mechanism that can be used to fund nonprofits and businesses in low-income neighborhoods. The tax credits translates to about $5.3 million in cash.

"The city investment is going to let this project ... be permanently owned by a nonprofit, thus permanently secured for affordable industrial (prices) in a city where we have the most unaffordable industrial space in the country," said Kate Sofis, the executive director of SFMade, a manufacturing advocacy group that created PlaceMade.

The tax credits will allow PlaceMade to set rental rates from $15 to $22 per square foot. Rental rates for comparable new space in San Francisco are between $30 and $50 per square foot annually, according to Sofis. Brokerage Kidder Mathews says in a first quarter report that the average rate for industrial space in the city is $17.92 per square foot.

One of the project's primary goals is to foster more diversity in San Francisco. Of about 5,000 manufacturing employees in the city, 70 percent are adults from low-income families and half of the companies are women-owned, said Sofis. Manufacturing businesses create more than 10 percent of new jobs yearly, and 30 percent of those jobs are accessible to people without a college education, she said.

Dave Hirschkop, CEO of Dave's Gourmet Inc., said he thinks the SFMade manufacturing space is a good deal if it will have shared facilities, equipment and office space. Hirschkop manufactured his products in the city's Bayview neighborhood for 10 years before a new landlord bought his warehouse and increased his rent by 30 percent.

Looking for something more affordable and stable for the long-term, he moved his manufacturing to the Central Valley last year.

"It seems like industrial space is getting eaten up, but (new supply) is certainly not increasing," he said.

The SFMade project has been years in the making, after the city passed legislation in 2013 that allows developers to build office spaces in sites zoned for light industrial uses, as long as one third of the project is dedicated to manufacturing space. In this case, SFMade is working with developer Kilroy Realty Corp., which is building a $270 million project next door with about 86,000 square feet of light industrial space, which will rent at market-rates, and 314,000 square feet of office space that is fully leased to Adobe.

Kilroy declined to disclose the asking price for the manufacturing space at 100 Hooper Ave. Kilroy donated some of its land to PlaceMade for its manufacturing project at 150 Hooper.

Sofis said one major challenge is how few financing tools exist to fund nonprofit industrial development. Even though SFMade was given the land for free, it would not have been able to build the complex and guarantee long-term affordable rents without the new market tax credits

Sofis said she cannot disclose the names of businesses that have signed letters of intent, but said the companies have between 2 and 20 employees and have requested between 800 and 3,200 square feet of space.

The building, which is under construction by DPR Construction and was designed by FORGE and Pfau Long Architecture, has room for between 10 and 30 businesses, depending on how much space each takes.

To qualify to lease the space, businesses need to make physical products and they must have a commitment to hiring employees who live in San Francisco.

Tenants will share a common plaza, kitchen and conference room with Adobe employees.

Kilroy had to convince Adobe that the mix would be a good fit before they leased the 100 Hooper office space, Rob Paratte, Kilroy's head of leasing and business development, told The Business Times in March. Paratte said that mixing office and light industrial tenants in one project is not common.

"We went after them to get them to understand the value proposition here," he said in March. "It paid off."

Sofis said that the mix of manufacturing companies located close to tech giant Adobe will nurture a creative campus. "All kinds of interesting collaborations may naturally happen just by being close to each other," Sofis said.

Sofis said the partnership shows the city's commitment to manufacturing businesses.

"Folks in so many communities are really struggling with the question of 'How does this city benefit everybody?'" she said "And sometimes it feels to many people that the only industry we have is technology. Having this visible, four story manufacturing space ... is a testament that San Francisco is really serious about keeping our makers here as well."

Sofis is referring not only to the visibility of the physical space, but also the community collaborations that will take place in the space. For instance, she said high school students will be able to tour the site and participate in summer internships. SFMade will also have a small space in the building to bring services to the manufacturers, such as educational workshops and technical assistance.

The building is scheduled to open in mid-2018.

For the full story, go to San Francisco Business Times.

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