On-Demand: Evolving Urban Future of the Bay Area—and Beyond

Allie Stein: Good morning, everyone. My name is Allie Stein. I'm a director at Hines in San Francisco. I've been at Hines for about three years now, where I oversee the development and entitlement design and construction of several mixed use projects around the Bay Area, focusing primarily on a downtown site in San Francisco called Trans Bay Block four, which one day will be home to just about 700 units of housing, 45% of which will be below market rate. Before joining Hines, I worked at Bridge Housing, which is an affordable housing developer non-profit based in San Francisco with work up and down the west coast. And prior to that I got my master's in city planning at University of California Berkeley. I will pass it off to the next speaker.

Ling You:Great, thank you Allie. Neveo, if you could go next.

Neveo Mosser:Sure. Hi. Hi. Good morning everyone. Neveo Mosser. I'm CEO of Mosser Companies and the co-founder of Mosser Capital. Mosser Companies has been in existence for over five decades. Family owned business, vertically integrated with over 300 employees mostly based out of San Francisco. Looking forward to, I have been a longtime resident of the Bay Area, I lived here for 45, started off in high school here, and my kids actually went to public school here as well. So looking forward to participating in this webinar today.

Ling You:Thanks, Neveo. Ryan, if you can go next.

Ryan Keating:Sure. Yeah. Thank you, Ling. So my name's Ryan Keating. I'm a partner at EisnerAmper in the outsource services group. And just recently, actually my firm got acquired about nine months ago, and prior to that I've had a company here in the Bay Area for about 22 years working exclusively with venture back startups as CFOs, controllers, and HR professionals.

Ling You:Thank you, Ryan. Last but not the least, Matt.

Matt Regan:Thank you, Ling. Good morning everyone. Or good afternoon depending on your time zone. Matt Regan. I'm senior Vice President of policy at the Bay Area Council. We are a business employer sponsored public policy advocacy organization. We were refined in 1945, and we work on the major issues of concern to the region's economy and quality of life. And I'm speaking to you today from San Francisco's newest piece of floating real estate, the Klamath, our new offices. So we're betting big in the future of San Francisco.

Ling You:Great, thanks, Matt. So we have four sections in our webinar today, and we are going to move right into our first session, the economic and the policy overview. What is the current state of the Bay Area? What is working and what can be learned from other large measures? The first question to the panel is, as cities begin to reemerge after the height of the pandemic, how is the city of San Francisco stacking up when compared to other large metros, and what are some of the key factors at play? Matt, I would like to start that with you.

Matt Regan:Thanks, Ling. Yeah, obviously we're in a period of extreme flux and change, churn, if you will. San Francisco has seen a precipitous drop in jobs, in business activity, in tourism, in all of the things that have driven this cities and this region's economy for the better part of the past decade. In large part because we are for the most part a keyboard economy and surveys that we've done with our own members, about 300 of the region's largest employers, show that a large percentage higher than any other urban metro in the country of our workforce is remote work eligible. So when COVID hit, it really exposed the tech-heavy side of our economy. So when COVID hit and people had the opportunity to work remotely, they chose to do so.

And San Francisco's been a city and the Bay Area a metro that has attracted a lot of talent over the last number of decades, and they've come here for the restaurants, the nightlife, the culture, and then all of a sudden that was all turned off like a light switch when COVID hits, but the high costs didn't immediately disappear. So people decided they have the alternative to live elsewhere. So we did see some erosion of talent and workforce and we did see some companies leave as well.

But I think perspective is really important, and Ryan might touch on this because he has the experience in the VC world, but we still remain the epicenter of investment, the epicenter of innovation, the epicenter of tech and biotech nationally and globally. We've stopped using the term unicorn companies because it has become really a meaningless statistic. There are so many pre-IPO million billion dollar startups. So we've started using the term Penta corn companies. How many pre-IPO five billion companies are there? And if you look at the national numbers, I mean there are 45 Penta corn companies in the Bay Area. There are two in the whole of Texas. So we have, I think 56% of all unicorn companies in the United States are still here in the Bay Area. So we still remain a hotbed and a hive of investment and innovation and technology, but we are losing the preeminence that we had.

We are seeing a flattening and a dispersal of investment. We had up until very recently, 40% of all venture capital investment was here in the Bay Area. It's diagnosed to about 30%. But again, still when you judges by our population size, that's inordinate amount of money that's invested here. So to maybe put a finer point or to cap the answer, we are in a period of flux. We're in a period of great change. COVID exposed a lot of the weaknesses in our economy over dependence on tech. Any financial advisor will tell you don't have one stock in your retirement portfolio. We pretty much have, San Francisco in particular had one stock in its retirement portfolio and it decided to leave overnight. So the city is suffering the consequences of that as we speak. And we've seen obviously huge vacancy rates in office in return to work statistics not on a par with other metros.

And that's again, back to my earlier point, a result of the very high percentage of our workers that are remote work eligible. So what does the next chapter hold that has to be written? I think we're going to get into that a little bit later, but I will close with this. Anybody who's ever bet against San Francisco long-term bet has lost. So we're definitely bullish on the future of the city that it will reinvent itself and the region for that matter. It's still a wonderful, amazing place to work and live. So we're definitely optimistic that we'll get through this temporary blip and that the region and city will recover.

Ling You:Thank you. Thank you. Very insightful information. Ryan, as you work alongside the VCs and tech companies, what are you seeing in this space and how are these industries impacting the city?

Ryan Keating:Yeah, thank you. I like Matt's term that San Francisco is a keyboard economy. I've never heard that, but we definitely see that with our startups and with our venture backed companies. And to his point, when the pandemic hit, people with those jobs could and did leave the city in pretty mass numbers. And you hear the news every day about large tech companies in San Francisco and how they're adjusting their return to work policies, whether that's you never have to come back in or we need you two days a week or something in between. But companies are not rushing back in. And what we see from the VC side is we generally focus on very early stage companies, so not your 2000 person tech company that's going to take out a massive lease in San Francisco, but your 20 or 30 people tech company that are going to look for subleases or four years ago would flock to companies like Rocket Space or WeWork.

And we're just not seeing that. There's such a trend now that these folks can and do want to be employed in remote settings that the tech companies here oftentimes don't even have a headquarters anymore. They don't even have an office to go to, everybody's remote. So that's been a really big shift that we've seen during the pandemic. That being said, we even see for example, trends where Matt had a good stat that you're still seeing 30% of investing take place out of the Bay Area and it's still here. I mean, the venture funds are here, but the venture funds that are located here are so much more active in investing in companies that are not here. 10, 15 years ago, if you wanted to start a startup, you had to come to the Bay Area. That's where the talent was, that's where the money was for the most part.

And now you're seeing that those boundaries have really disappeared. So while the funds may be here because the venture capital firms are established here, they don't really have restrictions on where they're putting their money to work. And it used to be that they wouldn't even look at companies outside of, they wanted to go in person to be in a board meeting that was really important to them. Everything shifted. Now you're even making investments from a VC perspective entirely over Zoom. So a really big shift where the people have had to keep up. So I think probably the biggest impact to your question is we're just not seeing as many early stage startup companies rush to look for leases or subleases or co-working space or taking out a lot of real estate in San Francisco.

Ling You:So true. I guess from our perspective, we definitely see that it's hard to get people back to the office and what you observed on the VC side, I would definitely witness that every day. Thank you, Ryan. Now that's moving into our next topic, which is looking at this from a regional perspective. What is the city's strategies around the workforce and affordable housing, including substantial commercial real estate developments, job and industry growth, policies and allocation of funds, workforce and affordable housing, including substantial commercial real estate developments are top of mind for SF? Allie, with Hines having such a strong presence in San Francisco, I'm wondering if you could weigh in from both a commercial real estate perspective as a well as comment on these from affordable housing view regarding what strategies are and aren't working.

Allie Stein:Yeah, absolutely. So just taking a step back. So Hines is a privately owned global real estate investment development and management firm. We were founded in 1957, and at this point we have a presence in over 28 countries around the world, 314 cities, so a massive company. We have a longstanding history of work in San Francisco, beginning with our project at 101 California Street in 1982 where our office is currently located. And at present we're working on three major projects in downtown San Francisco that will bring over a thousand units of housing and over two million square feet of office to market in the next decade. So to say that we're invested in San Francisco is probably an understatement. Talking about housing for a second, there are several dynamics at play that are making it harder to develop any housing in the Bay Area, whether it's affordable or market rate.

We're facing the same macroeconomic headwinds that are making development difficult to pencil rising costs of financing with the Fed raising interest rates, continuing construction costs escalation, and escalating city fees, and along approvals and permitting process. And some of these conditions are even more acute and unique in San Francisco. I can speak anecdotally that it's understood in San Francisco that designing and titling any large scale development takes several years. I think I read recently that the average timeframe is over a thousand days. So there are several things that are within the city's control in that multi-year process, including looking at how long it takes to entitle and improve and permit a project in San Francisco. Streamlining those processes, shortening timeframes, removing discretionary approvals, hearings are all things that are within the city's control on the affordable housing side. That's a sector of development that's tremendously dependent on public subsidies, whether it's on a local level, state level or on a federal level.

And in California, many of those subsidies have become competitive that were not historically competitive. So thinking about statewide bonds for affordable housing, that means that now more than ever, coming together in public private partnerships is going to be critical to make those projects pencil, and the city can again look at some of the fees that their processes are exacting on development projects that are making those even more challenging to put together. So all in all, I think the key going forward is going to be, like I said, these public private partnerships, or at the very least the city working hand in hand with developers and owners to create a pathway for development rather than creating barriers to construction and development in the long-term.

Ling You:Well said, well said. We all know how long it takes. I hear stories from clients all the time on the frustration with the long timeframe to get the project moving. So Neveo, would you like to expand in terms of the role that you see affordable housing play in the revitalization of San Francisco moving forward?

Neveo Mosser:Yeah, thank you. Thank you, Allie as well. I thought that was very well said and I couldn't agree with you more. I think we're looking at affordable housing play in a revitalization of San Francisco or even in the Bay Area as a whole, is that we've had an affordable housing issue here in our quality affordable housing issue in the Bay Area as a whole for as long as I've been around, which is about 59 years. I think that it's time for some of our local governments to kind of really rethink the role that they play within providing housing or affordable housing. Whether that's in looking at reducing and the risk of the entitlement process. Projects can be killed very easily here by referendum, projects that make sense. Cities evolve. New York City is very, very dense, but San Francisco yet has this population that hovers around 800,000.

But looking at how we up zone certain areas where there are wide boulevards, there's no reason why Gary Boulevard is one of the wine boulevards in San Francisco has a 30 or 40 foot height limit. We have to go ahead and also look at the need of the, I guess the missing middle. And no one really focuses on that. It's either class A builds or very, very low-income subsidized housing that is built, but it's the individuals and families that are earning between 60 to 120% of area of meeting income. And these are what's considered middle income or moderate income. They need quality choices in San Francisco too. We need to be able to deliver housing or rental housing units to this missing middle. And these are the people that you need to have within your communities that are of course to go outside San Francisco. Your nurses, your teachers, your civil servants, your police officers, that can't find traditional affordable housing within an upscale market.

Looking at new bills, which take quite a bit of time at great risk versus converting existing housing stock. People have seen over the last, I guess week or the last couple months where there's some talk, oh, there's 21,000 empty apartments in San Francisco where there's, I saw a remember of 61,000 earlier last week, who knows where those numbers lie, but there's a reason why people are not renting their units here.

It is very difficult to look at, well, hey, how do you go ahead and take some of this existing housing stock and prove it maybe with both some public assistance and/or public and private coordination of providing tax relief so that you can make these things permanently affordable housing. With this I think you have to really, really rethink where we want this city to go. Cities evolve. And then also with housing is it's a jobs issue as well too. So we have to go ahead and look at how are we going to transition to a sustainable economy here for San Francisco instead of being mostly geared as a keyboard economy. California's an expensive place to live. San Francisco can be a very expensive place to live, but it's a city that has an unlimited demand for people that want to go ahead and move here.

And I think what we've seen, even during the pandemic when you had quotes of the mass exodus of San Francisco and you've had some areas where you had 25 to 30% vacancy, we saw what happens when there's enough supply. People were able to go ahead and move and from one neighborhood to the other, prices went down dramatically. And if there're any reasons to go local officials to realize what happens when you build enough, there's enough housing, it keeps the prices low.

Ling You:Well said, I can't agree more. I think what makes the Silicon Valley, the Bay Area would the fundamentals, the innovations, the affordable housing that attracts the young talent. Without these, I think it's very hard to have a sustainable growth. Thank you Neveo. Matt, I have heard you say before that it can be a chicken or ag situation of getting people back to work. Why do you say this and what do you see as one of the biggest challenges for workers to return to SF?

Matt Regan:Ling, I think that's directed at me. You broke up a little bit there, but yeah, happy to take that one. Obviously, as I mentioned earlier, we have a very high percentage of our workforce that's remote work eligible and is choosing to work remotely. We're starting to see companies institute return to work policies two, three days a week and back in the office. And then obviously you have the dynamic of other companies are just particularly in the tech sector but not exclusively that are allowing their workforce to work remotely a hundred percent of the time. So we're going into a brave new world of what is the work environment going to look like and what does that mean for San Francisco. So there are two things that the city really needs to do and the region needs to do to get as many of those workers who want to go back to work or have to go back to work to get them back in the office.And San Francisco desperately needs people back downtime, it needs people back in the restaurants and in the stores, it is pretty quiet. And so there's definitely an impetus to get people back into the office. So if you look at regional transportation data statistics, the Bay Bridge, which is the main artery between San Francisco and our suburbs to the east, the Bay bridge traffic is back to pre-pandemic levels. The number of people crossing that bridge every day is back to pre-pandemic levels. So people are choosing to drive over transit and that's for a couple of reasons. We do regular polls of our regions workforce and it's for two principal reasons. A, people feel safer in their cars because there's still a lingering concern over COVID, so there's not a great deal of desire to get back on a crowded train and then people feel safer for crying reasons.

Bart has had issues. Bart which is our regional light rail system, that's the workhorse transit system that carries people around the region, has had some pretty high profile crime issues that they need to resolve. People need to feel safe getting back on transit before they will come back to the office. That's the first part. Bart's still running at about 55% of pre-COVID levels. Our ferry systems doing much better. It's about two thirds of pre-COVID transit ridership. But Bart's really the problem and muni to a lesser degree in San Francisco, the municipal bus system. So we need to get people back, feel safe back on transit. That's the first piece. And then the second piece, they need to feel safe when they get to San Francisco, and that's a city problem. San Francisco's short 500 cops right now, so we need to get the police department fully staffed.

We actually did have some progress recently where we now have a district attorney that believes that criminals should be prosecuted. That's kind of a good thing. And so we're going to hopefully see a downturn in of the petty issues that have played San Francisco for a number of years and that will, I hope then encourage more people to come back downtown to come back to the office. It's no great secret that there's 25 million plus vacant square feet right now in San Francisco. And that's not the whole story of the office space that is currently leased. We're seeing pretty high vacancy rates. People who are, the space is leased by an employer, but the employees are not actually occupying the workspaces. We've got card swipe data that shows that I think something like 70% of lease spaces currently empty cell phone data.

We track cell phone pings in downtown San Francisco as well. The number of we can compare at the peer, it was San Francisco's, again, an extreme outlier in terms of cell phone activity in the downtime core compared to peer metros. So there, there's a lot of work to be done, but we need to do two principle things, make sure transit is clean and safe and make sure the city is clean and safe and only then will you start to get people who want to come back to work back into the office and got to solve both those problems.

Ling You:Right on. I think safety is definitely top of mind in terms of the coming to work. I think that also play a very important rogue when it comes to tourism and the hospitality industry.

Matt Regan:Yes. Ling, if you experienced living in the Bay Area, tech jobs have pretty much all recovered, the bulk of our lost jobs that we have pre-COVID lost employment is in leisure tourism and hospitality that's been, those jobs are still down 29%. So that's something that needs to be addressed and those are the people that tend to be lower in the income scale. So it's created a severe equity problem so that's absolutely something we need to solve for.

Ling You:Yes. Okay. In light of the time, we are going to move on to the third segment of our discussion today, which is we're going to look from an investors' perspective, what is the impact of capital on affordable housing, including venture funds? Allie, what's the app title? Investors in general when it comes to SF?

Allie Stein:So it's important when talking about San Francisco and some of the challenges that we've all highlighted to compare and contrast the long-term fundamentals of the city versus the challenges that we're facing in the near-term. So as I think many of the speakers have pointed to, San Francisco is one of a kind city in terms of location, climate, access to nature, quality of life, proximity to world-class educational institutions and dynamic employment market. And none of that has changed. No matter what the headlines may lead you to believe. At Hines, our internal proprietary research group still thinks that San Francisco is in the top one to two markets in the country for long term rent and value appreciation. Now on the other hand, we have to be realistic about what we're facing in the near term and we're facing massive amounts of uncertainty, as I mentioned in construction costs, cost of financing and attitudes towards return to work, which Matt spoke about and others have spoken about.

While this is true across the United States, it's certainly exacerbated in the Bay Area with the way our economy is structured and our dependency on tech. Particularly in the work from home category, uncertainty is higher because of San Francisco and that saturation of tech. So investors are challenged pricing through any one of these conditions and we're talking about four or five really challenging macroeconomic environmental conditions that are making it more difficult for investors to see an immediate opportunity in San Francisco. At some point there will be stability to interest rates and cost of capital. At some point construction costs and the supply chain will stabilize. But right now it is transparently a very challenging time. I think speaking from my personal perspective at Hines, what's what's compelling about a company like us is that we're well capitalized and long term oriented and we've been through this before.

We have a history of making major investments in San Francisco, even during major down turns. For example, the Salesforce tower was an ambitious project that now we are able to point to, but that came to being during the great financial crisis. So we understand, and I think many developers understand that in a city like San Francisco you have to take the long view. As Matt said, anyone who's bet against San Francisco in the long term has lost. But that doesn't mean that we aren't due for a bit of a bumpy ride over the near term as we go through these macroeconomic hiccups and look to hopefully a smoothening out of the situation in the next two to three years.

Ling You:Great, great. Thank you, Allie. I think that's very encouraging to hear about the optimism that Hines have for San Francisco. I know some of the audience, including myself, sometimes doubt with the current environment, inflation, interest hike, where is San Francisco heading? So very encouraging to hear that. Ryan, the news about this funding seems to be up and die at times. What are you seeing in terms of VC investments specific in SF, and what are you anticipating for the near future?

Ryan Keating:Yeah, thank you. I think just what Allie said, I think end of the day, there's optimism. I mean this is San Francisco, this is the Bay Area, this is Silicon Valley, this is where innovation happens, this is where venture funds come to fund the next companies. This is where companies come to. I mean, this is still where it all takes place. It's been challenged, but the challenge for VC funding has not been specific to the Bay Area. It's been across all VC funding. It's much, much more of a macro situation where the NASDAQ, which is very tech heavy, is down about 30% this year. Which means that the traditional path or the path that startups have followed for a long time to raise capital or to exit, those public markets have been shut off. The companies that would normally acquire startup companies have seen their market value decrease by almost a third.

So it's not just a San Francisco thing right now, it's a cost of capital thing. There's so many issues that are happening in the VC market that it's not about the Bay Area. The Bay Area probably gets the most press in the news because the Bay Area is Silicon Valley. It's where it all happens. But the reality is that there has really, I mean as far back as I can remember and all the research I've done, there has never been this much what we call dry powder or available funds for venture funds to invest than there has been, than is today. There the last few years has been a record for how much VC funds have been able to raise. I mean it used to be 10 years ago you would never hear of a billion dollar fund. Now that's all you hear, two billion, three billion funds being raised.

There is so much money that's sitting on the sidelines, if you will, to put into innovation. And one thing we learned, even going through 2008, we've gone through these cycles before in the mortgage crisis, innovation is going to win. Companies are going to constantly need to innovate to stay relevant. VCs are always going to invest in innovation. So we're seeing no doubt, a big amount of pressure on just fundraising, taking longer valuations, being pressed down, the amount of money being taken less than it was a year ago. But we see this more in later stage companies right now, which are the ones that are impacting, I think the housing or the employment in San Francisco, your larger tech companies with thousands of employees, it's harder for them to support their valuations today than it was because the marketer, they're looking at different metrics, they're looking at profitability, which two years ago it's like, okay, well, we'll give you a flyer on profitability because you have momentum.

But the earlier stage companies that are really trying to get an idea off the ground, there's still money for them. There really is. The VCs, the venture capital community, the private equity community, they're not going to stop investing in innovation. So we're seeing that it's harder, it takes a little longer. You might not get the same terms, but it's still out there. And specifically for San Francisco, one of the trends that we've seen is while a lot of the venture capital money is still in San Francisco, like we talked about earlier, the venture capital funds are much more apt to invest in companies that are outside of the Bay Area. And this obviously has an impact on San Francisco where that just means that this money is being spent on employees in other states or other countries even to just, so where it used to be, again, they'd get funding and they'd set up shop in San Francisco.

That's really what I've seen as the big impact that's changed where these companies are setting up shop all over the world. Remote employees that, I mean, we'll work with companies now that'll be a company of 20 employees and they'll be in 10, 12, 15 different states with employees where it used to be 90% of those folks would be in California that are working for that startup. And now it's just completely dispersed. But another thing that we're seeing because the cost of capital is so high, is that even like another ax or a path to capital, which is venture debt that even got cut in half the amount of venture debt taken from Q2 to Q3 just because how much more expensive it is to borrow that. So really the outcome that we're seeing in the short term is that companies are trying to make, startup companies are trying to stretch their dollar, make it last longer, avoid as much as they can going to raise right now because even if they can raise, it's more expensive.

It's more dilutive because the valuations are pressured, but it will come back. It has come back every time. I mean, there's so much money on the sidelines, there's so much money sitting in these VC funds and that's the whole purpose of a VC fund is to invest in startups to show results and to raise your next fund. So the VCs are not going to let that money sit idle for too long. Yes, they're a little bit more careful about what they do. Yes, they realize that they can get in at a lower valuation, but at the end of the day that money's still going to be put to work. And as we've talked about, even though San Francisco and the Bay Area has come down in terms of how much they're driving investment and how much startups are here, it's still almost a third, which is, even if we started at half and we're still at a third, we're still the largest. So it is going to come back and it is going to happen, but we are seeing pressures in the near-term.

Ling You:Great. Great. Thank you. Very insightful. Matt, what is your prediction for the long-term?

Matt Regan:Again, fine. We have problems that we need to solve. We have things we need to work through. Allie mentioned housing and Neveo too. That's being the achilles heel of the region's economy. If we could get a grip on housing costs, then the exodus of tech talent may not have happened. We may not have seen the number of people leave as soon as they were given freedom to do so by COVID. We may not have seen that level of departure, but there is hope on the horizon there. I mean, Allie mentioned that sometimes it's 10 years to get a project through the process in San Francisco. San Francisco planning department is now currently under an effective consent decree by the state of California to get its act together and to start issuing permits in a timely manner. The state is really starting to crack down on scoff law cities that have been dragging their feet on issuing housing permits.

The Attorney General has sued a couple of cities in California for deliberate intransigence in terms of permitting new homes. And now we're in the middle of our, we're coming to the end here in the Bay Area of our housing element process where cities have to produce their long-term plans for where they're going to locate new homes. And if they don't produce a plan that the states deems viable, then there's a new remedy available to developers called the Builder's Remedy, where if they meet health and safety codes, they can go build. And we're seeing that in Southern California already. They're a couple of years ahead of us and they're planning cycle and there are 18 builders remedy projects ongoing right now in the city of Santa Monica. We're in the cusp. The Bay Area cities have to have their housing elements submitted by the end of January and we're already seeing a very, very high percentage of the early submitters come back as not compliant with state standards.

So we're going to see an awful lot of new opportunity arrive for developers of housing where they can just completely bypass local discretion and build what they need to build. Now obviously that's an extreme solution, but it's one that we've arrived at because of the intransigence of cities. And it does a bit of a tragedy though that we've unlocked the bureaucratic quagmire, if you will, the Gordian knot of regional bureaucracy as interest rates and supply chain and all of the macro economic factors that Ali mentioned are probably trending in the wrong direction while we're unleashing the bureaucratic or problems or rather reigning in the bureaucratic problems. But long term, we're going to solve the housing. It's never going to be affordable here. It's never going to be the most affordable place, but we will build a lot more housing in the Bay Area in the years to come and we're going to build it.

We've seen conversations about the conversion of all the millions of square feet of unused office space. I'm not optimistic we can convert these large floor plate buildings to homes, but there will be new uses for them, biotech and other uses. But we will reinvent ourselves as a reason. We will figure out how to build more housing. We will diversify our economy. It's not that long ago that San Francisco was the banking capital of the West coast and then we reinvented ourselves as the tech capital of the West coast and now all of the Pacific Rim and the next iteration might be the biotech hub of the Pacific Rim. Who knows? But we will reinvent ourselves and keep going. As Ryan said, just this place is a very, very special place and it's going to continue to succeed.

Ling You:Great. Great. Thank you, Matt. That brings us to the last section of the webinar, what's the business solutions? The last question I'm going to ask our panelists here is, how are companies are navigating the current landscape and how the Bay Area can position itself to compete with other regions? Matt, would you like to go first again on this question?

Matt Regan:Sure. What has become a very dirty word in modern parlance, I remain a capitalist and I'm truly convinced that, and I tell this to anyone, I work with a lot of government officials in the state capital and other places in San Francisco City Hall and around the region. And when we're trying to solve the problems that we experience and that we endure on a day-to-day basis, the easiest and most logical way and the most proven way to solve a problem is figure out a way to make that solution profitable and unleash the private market, unleash the entrepreneurs. They will solve that problem way faster than government to make that solution profitable. We haven't done that in housing. We've made housing really, really expensive. It's impossible to make a profit in housing these days, and that's primarily driven by government regulations. So if government can get out of the way something profitable, private sector will solve the problem.

So I'm a firm believer that the private sector here in the Bay Area where we have way more than our fair share of really smart people of entrepreneurs and of solve problem solvers and solution creators, that the long-term solutions to our problems don't lie in government, they lie in the private sector. Our job as an advocacy organization at the Bay Area Council, that intermediary between the private sector and government, is to try and convince government that quite often the best and most productive role that they can play is to step aside and to let you know the Allie's and the Ryan's of the world and then Neveo's of the world do what they do best. And that will solve our problems way faster than they ever can. So yeah, so I think long term, I think our regions business leaders and our regions companies will be the source, the font of the solutions to our problems.

Ling You:Great. Ryan, what adjustment do you see companies are making?

Ryan Keating:Well, I think that the main thing that we're seeing is that these, again, companies are setting up shop elsewhere. They're realizing that the talent pool is accessible all across the country, even in other countries. I mean, you can even see this in some of the trends that the VCs or the venture capital community, the investment community is making. They're making investments in a lot of companies that support the remote workspace. I mean, we see clients that have solutions getting funding where they're helping optimize, bringing in your group two days a week, making sure your team's in the office, making sure that you can actually collaborate. So it's literally organizations of dealing with company or employees returning a day or two a week and how to optimize that. I mean, we're seeing companies get funded that are doing global payroll because it's not even just about a remote I mean, people are hiring all over the US, all over the country, all over the globe. So we're seeing a lot of investment following those trends, but really how companies are making adjustments is as of right now, they're just not picking up office space. They are embracing this remote workforce mentality. And even the ones that have office space, even like Ling you had mentioned earlier, and we're worth both with EisnerAmper, we're even trying to figure out what our return to work policy is, and we actually have clients that come to us and ask us like, geez, I don't want to force people back because they're going to leave. People especially in this keyboard economy, which Matt, I'm going to use that term forever now, thank you, they can work wherever they have a keyboard and companies are starting to realize that and it's okay. I personally think there's a lot that's lost when people aren't in the office, I really do.

I want people to come back in for all of our clients. I want there to be that collaboration, especially in early stage startups and that's where so much happens. So much innovation happens, so much collaboration happens. But really at the end of the day, we're seeing that companies are following this trend where their workforce is not geographically centered. Their workforce is wherever they can find talent and that talent has made a decision that they're going to live where they want to live. And if companies want to keep up, especially in technology, they're having to hire these folks wherever they are. And it's not even five years ago where if that was your strategy, that meant that you could get people cheaper, you could get that same person in St. Louis for 50,000 less than they would be in the Bay Area. It's not even like that anymore. That's just the minimum stakes is that you have to be open to having a workforce that lives wherever they want to live. And that's really the adjustment that we've seen companies make.

Ling You:That's so true. I think in terms of the workforce where they live, I think one of the elements that pushed the people out of the Bay Area, obvious it's the affordable housing. I think the Bay Area actually, if you look from many aspects, we have a lot of attractions. We have ocean, you can go hiking, it's a very maintenance area. We have the winery here, we have Lake Tahoe just three hours away. So we have a lot of traction. If the housing is more affordable, we have great weather, obviously. I think a lot of people would choose to stay or choose to come to the Bay Area, but I really think it is the housing is pushing many people away or scare people away from relocating to the Bay Area.

Ryan Keating:Yeah, I mean especially now when we're seeing that you can make the same salary living in the Bay Area as you can living in other places in the country, it's amazing how much further that dollar will stretch. And these folks, they know that, it's not lost on them, so it's becoming quite a thing for us to deal with.

Ling You:Yes, it's disposable income. It's so much higher in other regions of the country. Great. Allie, what other city can be doing to encourage investment from your experience?

Allie Stein:Yeah, yeah. As Matt mentioned, we're going through this process in California right now where cities and jurisdictions are examining on the housing side their housing elements and identifying barriers to construction and development as part of that process. And I think one area of policy that is particularly impactful in a down cycle is, as I've said, fees, taxes, permitting and review processes and other barriers to development that cities generally have control over. So oftentimes in the boom times it's tempting and in cities tend to enact more taxes, for example, more fees to support public goods and services. For example, increasing payroll taxes and acting things like a CEO tax. Those are all great when the economy is thriving and when you're at the top of your game. But as we're looking towards a potential down cycle, there is opportunity to reexamine some of those fees and consider the benefit of those versus the feasibility of development.

So, for example, during and after the great financial crisis, speaking specifically about San Francisco, I took a good hard look at impact fees and affordable housing and low fees and not just removing fees entirely, which of course would be great, but would have all alternative ripple effects that may be negative, but simply delaying fees for developers, the name of the game is the time value of money. And so simply taking an impact fee and making it due upon occupancy rather than pulling permits, that can have a huge impact to your bottom line and your ability to make a project pencil. So I think it's critical for the city to reconsider what their goals are and whether those fees and taxes can be deferred for the time being to facilitate development that's already on the razor's edge.

And then finally, I'll just say that public private partnerships are a great tool in all times, but particularly right now, having the ability to work hand in hand with the jurisdiction, whether it's on the commercial side or on the affordable housing side, is really critical to getting projects done, particularly in down cycles. So I think creativity in how we're approaching things, like I said, reexamining fees and just considering different ways to encourage development and make things work right now is going to be critical going forward.

Ling You:Great. Great. Neveo, I know Mosser is one of the biggest player in the Bay Area when it comes to affordable and workforce housing. Do you mind to share some perspective here?

Neveo Mosser:Sure. It's not rocket scientist, it's just almost a lot of common sense, which sometimes is lacking with some of our bureaucracy here in the Bay Area, particularly definitely in the Bay Area. I think looking on the go forward, it's not only do we have to go ahead and create housing opportunities across all spectrums, I've always felt that the best form of rent control is actually home ownership and what cities and state can do to help provide opportunities for that. We're seeing that we've lost tourism and hospitality's always been, hospitality has always been a large segment of the workforce and the San Francisco and unfortunately these people are still suffering during the post pandemic period that we're in. There needs to be not only more funds set aside for affordable, quality, affordable housing, but also for housing assistance.

For those that are already in place whose industries have not returned to work or might be somewhat depressed for some period of time, is this is an amazing gateway city and it's been here for I think almost working for about almost four decades. I've seen many, many cycles and I'm not sure if I've ever seen a cycle last more than two years, but the city will go ahead and rise. But this is the great opportunity right now to actually have to maybe take a lot of the political thinking out and do for people to go ahead and start doing what's actually right for the city itself and putting aside personal political agendas.

Ling You:Great. Two years. Let's see if this will host you again for this cycle.

Neveo Mosser:Yes.

Ling You:So we have just about six minutes left, and we are going to have a QA session just for the audience. If you have any questions, feel free to submit and they will try to address it. So far I see one question that says San Francisco is only 10% of Bay Area is a 7.7 million population. It will be great to hear this discussion to go beyond city limits. I think we actually did go beyond just San Francisco, the city. We talked about Bay Area in general. I think like the VC funding, I think you would definitely speak more just in the whole Bay Area in general. And I know some of the policies that Matt covered, it's also not just the city. But if any of the panelists are here to add to that piece, feel free to jump in.

Matt Regan:Yeah, hi, Ling. Yeah, the problems that are blagging, the down town San Francisco area are also afflicting the two other major urban cores, San Jose and Oakland. There has not been the same level of return to work in either of those cities as we've seen in other metros around the country. And again, driven by the same macro dynamics of housing costs and the prevalence of the keyboard economy. But Silicon Valley as a whole, if you look at job recovery in tech, Santa Clara County, the Peninsula has is at 99.5% of the jobs that have had pre-COVID. So job losses that occurred during COVID have been fully recovered in the tech economy. And as Neveo mentioned, the principle lag in job recovery isn't leisure, hospitality and retail. We have not recovered there as a region in those particular job sectors, but tech is doing well. It's not all here. I mean these are companies that are headquartered here, but as Ryan has said, are the workers still here? Not as many of them are still here, but the tech companies are still doing just fine in terms of job recovery.

Ling You:Okay, great. Thanks, Matt. Another question just came in, what is the trend in rent control and the effect on housing? Neveo, maybe that's a question you can answer.

Neveo Mosser:Well, I guess I would say, well, we don't really necessarily have rent control in San Francisco or we have actually rent stabilization, which is, it does work with some warts. And I think the ability when you have a city like San Francisco where you have a pretty transient tenant base, it makes somewhat more sense. I think the days of looking at vacancy control, as we had the two recent ballot measures across the state, we saw what happened to Berkeley when it had vacancy control. We saw the quality of housing or what was being built in Santa Monica when it had vacancy control. You're seeing right now in, I believe it's Minneapolis, where there's no housing permit applications at all assets. They've enacted vacancy control. So it's there as long as there's an ability to go ahead and to go to market upon turn, it provides a good, it provides a very necessary service and it's intent.

Ling You:Great. Thank you. Okay, I think we're coming close to time. Thank you all the panelists for such an engaging discussion. That's all the time we have for questions and again, I thank audience for joining us. We hope you enjoyed today's discussion. I will now hand this back over to Astrid to close to this session.

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