San Francisco's Transit Center Plans to Adapt to COVID-Era Market to Keep Retail Tenants

San Francisco's Salesforce Transit Center, faced with plummeting foot traffic and an uncertain outlook of when nearby workers will return, is joining other landlords across the country in a scramble to ensure not only their tenant's survival, but their own.

The pandemic is the latest pitfall for the $2.2 billion transit center, which has been lauded as the Grand Central Station of the West but a site of delays and blown budgets since its initial opening two years ago. Current and soon-to-open tenants leasing parts of the nearly 100,000 square feet of retail space at the transit center, located at 425 Mission St. directly adjacent to the Salesforce Tower office skyscraper, are asking for help.

The Transbay Joint Powers Authority, which oversees the design, construction, operation and maintenance of the Salesforce Transit Center in San Francisco, is embarking on a new leasing strategy that would make it possible to renegotiate terms, dole out rent abatements or deferrals, and allow tenants to maximize their use of nearby outdoor space. The asset management team, which includes real estate firm Lincoln Property Group and brokerage Colliers, would need to get approval before finalizing any lease revisions, but TJPA Facility Director Jon Updike said the new strategy was crucial to adapting to the current retail environment.

"We've had one-on-one discussions with each tenant about concerns and future challenges to opening or reopening," Updike said. "We've discussed with our leasing team the need to be flexible in these challenging times, and anticipate changing market dynamics. We'll need to be open to new considerations."

The move reflects efforts of landlords across the country that are cobbling together deals with tenants in an effort to help keep them in business and avoid potential vacancies at a point when few retailers are signing new leases, and many are closing for good.
Retail tenants in and around transit centers across the country have been hard hit by the pandemic as the commuters and dense foot traffic has shrunk as customers stay home and may not return soon. More than a dozen retail tenants in New York City's iconic Grand Central Terminal went on a rent strike shortly after the pandemic began, joining others around the world who are struggling to pay rent as the coronavirus pandemic wiped out in-person shopping, especially for nonessential goods.

Only four of the 18 tenants that have signed leases at the Salesforce Transit Center had opened prior to the city's stay-at-home order that was issued in mid March. All four were immediately forced to close, and except for Onsite Dental, the two Philz Coffee locations and a 34,508-square-foot Fitness SF gym remain so.

The four-block-long transit center, which took about two decades to materialize, was designed to be a central nexus for local transportation in a way similar to New York City's Grand Central Station. Tech giant Salesforce paid $110 million for a 25-year sponsorship on the property in 2017.

Since the Salesforce Transit Center's opening in 2018, the station's two forced closures have pushed retail leasing and finish-out progress further and further into the future. Just a few months after opening, a cracked steel beam quickly shut the center down for roughly a year. The second closing came with the city's March emergency stay-at-home order.

With leasing efforts underway for roughly three years, the center is\ about 80% leased, according to CoStar data. A majority of tenants are local food operators, providing another set of challenges for the center dealing with a rapidly changing environment.

To help, Updike said partial or full abatements would be considered for tenants that prove financial hardship and have few other resources to ensure their survival. For restaurant and cafe users, the facility director is also figuring out how to best use the center's outdoor space to mitigate any impact from reduced capacity restrictions.

For example, Fitness SF is requesting space for outdoor classes or to potentially bring some equipment onto the second-floor mezzanine. Eddie Rickenbackers, a restaurant that hasn't been able to start its finish out yet but has a mobile option, is asking to roll it out adjacent to the future space.

With the board's recent approval, the leasing team is now in the process of negotiating and developing what Updike calls "appropriate lease amendments," which are expected to be returned back to the TJPA board for final approval next month.

"There's a great concern about the return of the market here," Updike said of downtown San Francisco, in particular. "It will be a big challenge for all of these businesses to return, and it's why we're seeing major closures everywhere else. They still believe in this location and they will find a way through this while business can ramp up, but what could be many months."