For 22 years, Meng Chen has rented space for his engineering firm in the South of Market area without feeling a need to buy the property.
But he was in for a shock when he received his new three-year lease: His rent had doubled.
Chen, one of many small-business owners feeling increasingly squeezed by high-end Internet tenants and live/work loft development in the area, knew he had to buy to survive.
“These Internet software people getting money from venture capitalists–they just have money to spend, which we don’t,” said Chen, principal of MHC Engineers.
Chen voiced the frustrations of a number of small-business owners as well as artists and renters of modest means who live or work in the rapidly changing industrial areas of San Francisco.
Pressure on rents from the expanding technology companies and loft development is forcing longtime small-business tenants–once the soul of this slice of San Francisco–to trade rising rents for hefty mortgages.
As a result, San Francisco is one of the hottest markets in the nation for U.S. Small Business Administration loans designed to help tenants buy property.
“For years, small businesses . . . have leased, very well and very comfortably. I think those days are over,” said Barbara Morrison, president of TMC Development, a San Francisco nonprofit organization that helps businesses like MHC Engineers get SBA loans to buy property.
“What you see are people buying the real estate because they see the volatility of the rental market. By owning your own property, you can fix at least the housing operations,” said Mark Quinn, director of the SBA’s San Francisco district office.
Under a typical commercial lending program, the buyer has to put down as much as 40 percent of the property’s selling price, but few small businesses have that kind of cash. Most business owners also have a tough time getting long-term financing with competitive rates.
The SBA lending program requires the business to put down 10 percent of the sales price, with 40 percent coming from the SBA and the remaining 50 percent from a bank. Interest rates are based on government lending rates, and the loans are for 20 years.
“It makes the bank very comfortable,” said Todd Hollander, who heads Wells Fargo Bank’s division for small-business lending in the Bay Area. “It’s good for the bank, and it’s good for the customer.”
But even with the loans, most of the business owners trying to buy property find themselves priced out of the area.
