Nonprofits Can't Afford San Francisco

Office rents have doubled since 2009 as startups crowd in

In one form or another, Lutheran Social Services of Northern California has been helping San Francisco’s poor, homeless, and disabled for more than 130 years. Among other things, the group now advises more than 2,000 formerly homeless people on money management. Last year the owner of the building where the agency’s office was located—in a gentrifying neighborhood near Twitter’s headquarters on Market Street—told Deputy Director Nancy Nielsen that he wouldn’t renew Lutheran Social Services’ lease. A tech company had moved in upstairs, and the owner, structural engineering company Nishkian Menninger, wanted to make room for another tenant that could pay twice the $113,000 annual rent the social workers were paying. “She said they can’t afford it,” says Levon Nishkian, the president of Nishkian Menninger, “and so it was time to move on.”

Photograph by Noel Spirandelli for Bloomberg Businessweek

Left scrambling, Nielsen found a rental office in the Tenderloin, one of the city’s seediest neighborhoods. The building, vacant for two years, required $600,000 in renovations to repair fire damage and a deteriorating staircase. “Money we would have raised for more services is going to the construction,” says Nielsen, who has been a social worker for almost 50 years. While she remains upbeat, Lutheran Social Services owes $400,000 on a bank loan for the renovations. Most of its 29 social workers make less than $40,000 a year.

San Francisco is a boomtown with an unemployment rate among the lowest in the country, as Google, Uber, Airbnb, and a seemingly endless array of startups snap up massive amounts of office space. But just as an influx of programmers with six-figure salaries has pushed residential rents higher than many of the city’s longtime citizens can afford, skyrocketing commercial leases threaten the groups providing the social safety net that thousands rely on. A city report from October of last year showed that close to 2,000 nonprofits in San Francisco, almost one-quarter of the total, had to move out of town or shut down from 2011 through 2013. Those forced to find cheaper digs include not only organizations offering services such as alcohol counseling and in-home care, but also those focused on affordable housing, environmental preservation, and discrimination. “We’re all being displaced,” Nielsen says.

The cost of San Francisco office space has more than doubled since 2009 and by next year will eclipse Manhattan as the highest in the country, according to commercial real estate brokerage CBRE Group. The area around Market Street where Lutheran Social Services was uprooted has been a flash point; once packed with city-funded social-services organizations, it’s now home to many tech companies that have received tax breaks and other incentives to move in. “The basic concepts are in conflict,” says Sarah Gort, the head of operations for CompassPoint Nonprofit Services, a group that provides training and support for social-services organizations. CompassPoint moved to Oakland last year. “You have nonprofits operating in a completely capitalized environment that is on steroids right now,” says Gort.

Photograph by Noel Spirandelli for Bloomberg Businessweek

The Center on Race, Poverty & the Environment, a legal-services nonprofit, moved across the bay to Oakland in May after its rent rose 50 percent, to $9,000 a month. Transgender Law Center, which provides legal aid in discrimination cases, did the same after its rent doubled. Bridge Housing, a nonprofit that manages affordable-housing projects, had to move elsewhere in San Francisco after Google bought its building. In-Home Supportive Services Consortium, which provides care for the poor and elderly, now operates out of a remodeled basement because a clause in its old lease let its building’s new owner evict tenants upon taking over. “They told us the clause was one of the most attractive aspects for buying the property,” says Mark Burns, the organization’s deputy director. The building’s new owner, Essex Property Trust, declined to comment.

In May, San Francisco’s Board of Supervisors voted to create a $4.5 million fund to help displaced nonprofits cover moving costs. Nonprofit workers say that isn’t enough. A group of them shut down a Board of Supervisors meeting in July after the city decided that its nonprofit contractors could live on a 1.5 percent cost-of-living increase. (For-profit contractors, such as construction crews, got a 3 percent bump.) Jane Kim, the city supervisor who wrote legislation giving tech companies tax breaks for moving to certain neighborhoods, criticizes the companies for not offering to help more. “There’s a lot more that I’d like to see from this community,” says Kim, adding that the city is considering buying buildings to dedicate for nonprofit use.

Photograph by Noel Spirandelli for Bloomberg Businessweek

Fay Zenoff asked tech companies directly for help. A former financial adviser at Morgan Stanley, she’s executive director of the National Council on Alcoholism and Other Drug Addictions, a counseling service that’s operated in San Francisco for 30 years. When her group was evicted last year to make way for tech tenants, she requested that several of them help defray the $100,000 it cost to move into the local Art Institute of California building. “We asked for funding and were offered possible employee volunteer hours,” she says. “In essence, nothing we could utilize to offset the increasing cost of rent and the need to move.”

Landlord Nishkian says he’s sympathetic to nonprofits but couldn’t ignore the real estate boom. He lost money when the market imploded after the dot-com bust, and now he has a chance to recoup. Lutheran Social Services couldn’t match market rates. “They work on a pretty thin line, and dollars spent for rent are dollars not going to clients,” he says. Lutheran Social Services’ Nielsen says she understands his position and appreciates that she got a year’s notice to clear out. Still, she’s not sure how her group will be able to pay off its $400,000 construction loan or what the tech wizards taking over the city are doing to help people living on the street. “This is important work,” she says. “Who’s going to come up with the killer app for that?”

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