Bay Area Cities Try to Stem Dot-Com Tide

As high-tech businesses desperate for office space push the boundaries of Silicon Valley north toward San Francisco, cities caught in the advancing wave are beginning to rebel.

Confronted with insane housing prices and worsening traffic, worried that local shopping districts will be taken over by Internet companies, many communities on the San Francisco Peninsula are throwing up barriers in the golden path of the dot-coms.

Cities are passing ordinances restricting the location of technology firms, slashing office-space densities and, in some cases, turning down projects that could house dot-com companies.

“What I think you’re hearing is, ‘We’re losing the small-city feel. There’s too much traffic, too much activity.’ I understand that,” said San Carlos developer John Baer. “But the reality is, you’ve got a peninsula that, bless its soul, is on fire right now.”

The concerns are striking because they focus on the home-grown industry, the one that started just down the highway and rained riches and recognition on the area.

From the old-fashioned downtown of San Mateo to the new corporate parks of Redwood City and the leafy streets of Palo Alto’s commercial core, there is growing anxiety over the effect of the dot-com explosion, which has driven office vacancy rates below 1% in many cities.

“We need to pay attention to what is occurring,” said Susan Arpan, a Palo Alto official and leader of a regional economic development coalition examining the issue.

Joan Bartlett of Foster City knows exactly whom to blame when she talks about how bad the traffic got on U.S. 101 during the two years she regularly drove to Mountain View to visit her mother in a nursing home.

“By the time Mother died [last spring] it was horrendous,” said Bartlett, who works part time in a downtown San Mateo bookstore and has lived in the area for 25 years. “That’s all due to dot-comers driving with cell phones glued to their ears.”

Reminded of the wealth they’ve brought to the Bay Area, Bartlett replied tartly: “They haven’t brought it to everybody. They’ve brought it to themselves.”

One street over from the bookshop is @themoment, a start-up software company that is leasing and renovating an elegant old corner building formerly home to a women’s clothing store, and before that, a department store.

The company’s arrival about two months ago contributed to quite a stir in this tidy city of 95,000 halfway down the peninsula.

Locals looked at the corner space and then down the block at a former bank building now occupied by an Internet travel agency that closes its blinds to the street.

They didn’t like what they saw.

“When this hit, it was a red flag waving,” said Bob Nutini, who owns a men’s clothing store next to the travel firm and sits on the board of a downtown business association.

Last month the San Mateo City Council passed a moratorium on conversion of core downtown retail space to office use. It later expanded the moratorium to another shopping district, and city officials this week extended for six months both bans while considering permanent zoning restrictions.

Officials in San Mateo and other peninsula cities say it’s not that they don’t want dot-com offices in their communities. They just don’t want them everywhere, squeezing out locally owned stores, taking up parking and gobbling up land that could be used for badly needed housing.

They also worry that if the dot-com industry takes a serious nose dive, they will be burdened with empty buildings.

Merchants Fear Being Pushed Out

San Mateo is particularly protective of its downtown, which has managed to avoid the fate of so many other small urban centers.

It is neither a yuppified, outdoor mall nor a scrawny has-been. It is a healthy commercial core of small independent shops, restaurants and a few chain stores, a place where residents can get their hair cut and buy a pair of shoes or a bicycle.

Store owners are terrified they will be displaced by dot-com firms happy to pay more than the shopkeepers could ever afford.

“Probably in the next five or six years a lot of [merchants] will be leaving here,” said Serop Samurkashian, whose wife runs a downtown shoe repair shop that is struggling after a recent $16,000-a-year rent hike.

Shopkeepers aren’t the only uneasy ones.

As Toni Montgomery tended to a late afternoon rush of customers at her family’s second-generation dry cleaning business, a smartly dressed woman grimaced at a rumor that a big dot-com firm was moving into another downtown store space.

“Two hundred people, I heard. Where are they supposed to park?” she asked.

Peter Pau’s San Mateo firm develops and leases commercial space. He is the one who rented 18,000 square feet to @themoment.

“People are being affected and rents are high and a lot of people don’t like it,” he said. But he hastened to point out that the former clothing store had been empty for more than a year. Pau said he looked for a good retail tenant but couldn’t find one.

“It’s supply [and] demand,” he said. “If retailers want to be here they can come here. It’s not like they’re being shut out.”

Moreover, he thinks many people unfamiliar with the dot-com world harbor an unjustified disdain for it.

“They just don’t like them. They’re different. They wear T-shirts to work,” Pau said. “I see a lot of these companies with young people. There’s nothing wrong with them. Why should we discriminate against them?”

Certainly, there’s nothing threatening about @themoment’s CEO. He’s a conservatively dressed, middle-aged man who could easily pass for a Wall Street investment banker.

Lawrence Frye chooses his words carefully, gently suggesting that his 60 employees are an asset to downtown.

“We are infusing a high degree of energy and enthusiasm and commerce in the community,” he said. Given the hours of a start-up venture, many of his workers are eating breakfast, lunch and dinner downtown six days a week, he added.

He says they have not encountered any hostility, and doubts that San Mateo’s core is about to be overrun by Internet firms. “As I walk around, there aren’t that many spaces unleased or of sufficient scale.”

Frye moved his 1-year-old firm--which develops electronic-commerce software for companies--from two other locations, one in San Mateo and one in San Bruno.

The downtown address appealed to him because it is near a commuter train stop and cost him about a quarter of what premium business park space in some Silicon Valley cities would.

And it goes without saying that he wanted to stay in the Bay Area because of what he called its chemistry. This is where Internet firms find the talent, the investment capital and the entrepreneurship that fuels them.

But the disadvantages of the region’s popularity and prosperity are becoming more and more apparent to local officials.

“We’re just one city caught up in a whole trend,” said Kris Schenk, Menlo Park’s director of community development. “Prices are going up so high that it threatens a lot of things--the traditional community values.”

San Mateo Mayor Jan Epstein said longtime residents of her city are cashing out and leaving. The pace of daily life has become too fast for them.

“There’s a tension over the amount of change and a question in people’s minds about degrading quality of life,” she said.

‘Nobody Expected This Explosion’

Nearby, in Redwood City, growth has been so frenetic that officials are having second thoughts after approving 3.5 million square feet of new office space in the last two years, much of it in business parks east of the 101.

Silicon Valley office demand has “just marched up the peninsula toward San Francisco and we sit right in the middle,” said Redwood City Vice Mayor Richard S. Claire. Ed Everett, the town’s city manager, said: “Nobody expected this explosion. People who bought land have become millionaires in the past three years.”

On the one hand Redwood City officials are delighted that their long moribund community has finally joined the dot-com boom.

But traffic on the nearby U.S. 280 has slowed to a crawl. The price for an average single-family home starts at half a million dollars, an impossible sum for those who provide the backbone of civic services.

“We can’t find teachers. We can’t get police officers to live in this area,” said Claire, a college instructor who has students starting at computer programming jobs for more than he makes.

Redwood City’s City Council passed an ordinance last month to slow office growth by increasing parking requirements and reducing densities for new developments.

“What we did was stop the free-for-all in Redwood City, and the developers are all very upset,” Community Development Director Deborah Nelson said.

A bit to the south, Menlo Park reached its projected 2010 build-out for office space in the late 1990s. It now wants to attract non-dot-com businesses, said community development director Schenk.

Recently, he added, the City Council rejected a proposal for a new office complex, despite the developer’s willingness to throw in all sorts of expensive extras to sweeten the deal.

San Carlos also just tightened its zoning to ensure offices do not replace ground-floor retail in its downtown core. Baer, a partner in JMS Development, argues that zoning changes here and there are not going to contain the powerful market forces shaping the entire region.

“It’s very unlikely you’re going to roll this back. So then the question is, ‘How do you manage it?’ ” he said.

It’s a question even dot-com companies may soon be asking.

Frye says his well-paid employees can barely afford to buy a home in the San Mateo area. “Many of the newer people are frankly priced out of the market.”