How Much Does it Cost to Rent a Coffeeshop on Valencia? $32,300

We've already posted about this story twice this week, so we're going to keep this short.  But after being contacted by an “East Bay cafe owner looking to expand into San Francisco,” commercial realtor Tracy Chiao spilled the beans that 780 Valencia Street (formerly occupied by The Summit) is most definitely for rent, and at a price far beyond what any local business could ever possibly afford:

Subject: 780 Valencia

Attached is the flyer for the building. We are looking at $30k / month NNN in rent plus $2,300 / month in estimated NNN expenses. Please let me know if you have any questions!

Best,
Tracy C Chiao
Retail Leasing Specialist

And here's the building flyer:

Since our last post on the La Boulange story, a spokesman for the La Boulange told us the only reason they didn't move into 780 Valencia was because “the space was too big.”  We have since learned that SoCal burger chain Umami Burger is eying the location for their continued NorCal expansion.

We're still waiting to i/o Ventures to return to our phone calls, but it appears what they've been saying to the press thus far has been completely dishonest.

Comments (29)

So Chicken John was right after all.

32,000/month just to open the door? Damn that’s expensive…

I Owe Ventures

Sorry, couldn’t resist.

Soon the only difference between The Mission and The Marina will be that one is cleaner.

and the other will have BART access.

And the first one has amazing access to one of the most beautiful waterfronts in the world…

Unfortunately, it is chock full of douchebags and betties, which pretty much cancels out any credit implied by waterfront location.

Like The Mission isn’t?

The mission jumped the shark with $14 sandwiches on gang turf at 24 and shotwell

Curious how much Ritual and the former Summit gross each month.

Ritual has several locations plus a wholesale business. Doesn’t seem like a fair comparison.

Let’s look at the numbers. They bought the building for $1,414,500 in the summer of 2008. Property records show renovations totalling about $300,000, give or take. Let’s assume a total expense of $1,700,000 (real estate + renovations.)

Based on that figure, if we assume a 30 year mortgage with 5% interest, the monthly payment would be about $9,100 – less than ⅓ of the price for rent of the cafe alone! Seems like a crappy deal.

On the other hand, one full-time employee at $10/hour is going to cost you $20,800. Since you’ll need several employees, labor is still going to be far more expensive than rent.

Edit: disregard that last part, I was confusing years with months. The yearly rent on this cafe is about $360,000, which is far more than the labor would ever cost for an operation of this size.

It’s not that simple.

What about permitting and fees for construction. Property and business tax, and a plethora of other expenses.

Stick to programming.

None of those expenses would top 6 significant figures, and therefore do not come into play when divided into the monthly cost.

Like I said…stick to programming.

That price seems wildly out of line with comps in the city generally and on Valencia specifically. Isn’t the old Z-Barn down the street (btw 16th and 17th) more than twice as big and renting for one-third the price?

I suppose it can’t hurt to try.

Maybe I/O is banking on a newly-minted Facebook millionaire to pursue the indie coffee shop dream.

Looks like the former Z-Barn space is on the market for $3 million.

Please, no more burger places.

Agreed. I like burgers, but we already have a gazillion of them around here.

Yes, I was right. But really, why is it ‘bad’ that they try? To me, it’s only when they subvert the process that ‘wrong’ happens. If La Boulenge wants to try to get the permit, go for it. We’ll oppose you and that’s why we have hearings. IO Ventures doesn’t actually have to tell us every details of their personal business. They can be vauge or misleading if they want to. No crime there. There is a process that we have, and as long as we all work inside that process, things are cool. It’s when people go outside that process that it becomes a shitshow.

As for % on mortgages, Mr. Eric Gregory I hate to be the one to have to explain to you what a “Jumbo Loan” is. It’s anything over $500,000. And the interest on their loan is probably closer to 8 or 9%. Straight up. It changes things quite a bit…

I’m going to introduce you to a really, really great tool. Trust me. Spend 10 minutes with this thing. It will help you get a grip on mortgage interest like you’ve never had before:

http://www.drcalculator.com/mortgage/

Red is interest, blue is principle. Slide the sliders around… watch the nubers fly off the charts…

SF is one of like 15 places in the USA (including Manhattan, Kennybunkport or Dana Point) that you can’t rent the thing out for the mortgage. And it’s been like this since the boom of
 98.

As for my fiance’, Eileen Hassi and her 4 Ritual coffee bars and 1 roastery… that has nothing to do with my railing against privatization, corperate stores impeding on the Valencia Corridor or anything else that this topic is on about. This would all be exactly the same if the Summit was a shoe store or a High Colonic Thearpy Salon.

She has no plans to open any more coffee bars at this time, nor will Ritual ever have enough stores to be classified by Prop G to be formula retail.

Good reporting here, Kevin.

kisses, chicken

Your numbers might be right for residential space (though you seem to be assuming that it’s still boom times, before the Fed cut the discount rate to what, 0%?), but not commercial. For purchasers of commercial space, Small Business Administration loans can cover a substantial amount of the purchase. 5% sounds about right.

I’ll bet you $500 their interest rate is over 8%. But yes, you are correct in terms of an SBA loan. 4%, even. But in the commerical market, the rates are higher then residential and the terms are heavier. Mr. Eric did the research, and if that is correct, they bought in 2008. The year of the least favorable loan terms.

But I’m not a realator, I’m just speculating. We’ll likely never know.

regards, chicken

Even if you double my calculation, that’s still ~$18k/month. Besides, that’s for the entire building; the cafe is only a portion of the building.

But we should consider that it’s unlikely i/o Ventures would have taken out a loan for the full amount. After all, they’re investors and presumably investors have cash lying around.

To be clear, when I called the realtor posing as a prospective tenant the information I got was it was $30,000 a month NNN $2,300 for the entire building. They are trying to rent out the entire building for this amount.

And for what it’s worth, a bank will only lend 70% on commercial property. So if it sold for 1.5 million, that means that they would have needed to put down $450,000 in cash, at the least.

I would like to add that if they bought and upgraded and it’s now assessed at 1.7, that’s $1,700 A MONTH in property tax they have to pay.

So using Carls Calculator, a 30 year mortgage at 9% for $950,00 ($450,000 down) the payment is
$7,650 a month.

plus $1,700 a month.

plus someone put $750,000 down at some point.

Insurance, maintenance and stuff is probably another $600 a month.

$9,950 total a month and you’ve got $750,000 in opportunity cost…

It’s going to take until 2019 till they are paying $1,000 of principal on the loan (and in 2020 you havn’t quite paid off $50,000 yet)…

If you wanted that $750,000 to pay you 10% annually, it’s $6,250 a month.

$16,200 a month to cover the nut and everything else BEFORE anything goes wrong and BEFORE anyone paid any outrageous fees to the city, any taxes and any realtor fees or brokers.

Or before anyone paid for an office, a phone, any help or any of that crap.

So $16,200 a month… $30K doesn’t sound so absurd… it only sounds like about $10,000 too high.

The problem here is that IO Ventures is competing with people who bought their building on Valencia street 40 years ago, pay $700 a year in property tax and own their buildings outright.

For better or worse…

Interesting! But wait a sec… the entire building? This part of the story was never mentioned previously.

Does that mean i/o Ventures is throwing in the towel? Or moving away?

it appears that I/O Ventures is keeping it’s options open.

All this talk about money makes me want a coffee.

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