When Dotcoms Move In

By Chris Taylor/San Francisco

Even the most stonehearted landlord might have shed a tear or two when Bayan Jamay somberly led her final dance class last Tuesday night. Jamay had been a teacher at the Dancers' Group studio in San Francisco's Mission District for 22 years, long enough to watch her pupils raise children of their own. "This is like a family," said Jamay, dressed in black and weeping with a student on the stairwell. "I never dreamed I would have to stop teaching here."

Dancers' Group lost its lease because it couldn't afford to pay the minimum rent increase: a whopping 400%, to $15,500 a month. And that was only half the space's market value. The studio is the latest victim of rocketing rents--six other dance studios in the area will have hung up their shoes by this November, and 2,000 musicians, including Chris Isaak and Faith No More, just got evicted when the city's largest rehearsal space was sold. But it's not just artists who are feeling the squeeze. Residential real estate is nothing short of insane: $465,400 is the median San Francisco house price, up nearly 30% from a year ago.

Who can afford to keep up? The hundreds of protesters gathered for a rally outside Dancers' Group on its final night knew the culprit all too well: those well-funded, profit-challenged dotcoms. "They come here for the freak culture, but they don't realize they're destroying it," thundered a speaker to rapturous applause.

Dotcom-related price spurts in real estate aren't confined to the tech-heavy Bay Area. The cities with the highest rates of growth when it comes to technology companies--places like Phoenix, Ariz.; Denver; Boston; Portland, Ore.; Fort Worth and Austin, Texas--also happen to be the cities with the fastest-rising house prices. "This is no coincidence," says Ross DeVol, an economist at the Milken Institute in Los Angeles, a nonprofit think tank. "The indirect effect of [dotcoms'] being there is that landlords jack up the rates on everyone else. It's out of control."

The result: "Not in my backyard" is no longer limited to nuclear-power stations. In Austin, where office rents have shot up 70% and it's tough to find a square foot of commercial space for less than $40 a month, house prices shot up nearly 40% in 1999, to a median $154,900. For years, neighbors in South Austin battled against an adult-movie theater on South Congress Avenue, a street that divides the funky district from downtown. But when an Internet company called Future Protocol Inc. took its place this year, the groans of disappointment were every bit as loud. "They could be gone in a year," says resident Cory Walton, 45, "and we're left with a trail of terror--high rents, high real estate."

Antigentrification anger is a hallowed tradition in the San Francisco Mission, an area that has fought for years to preserve its Latino identity. But now violent calls to arms are plastered on lampposts across the city: one unattributed sign reads simply, F___ YOU AND THE DOTCOM YOU RODE IN ON. Marci Riseman, one of the owners of the Dancers' Group space, says she has started to receive threatening e-mails: "Some were saying, 'I know where you live, and I'm watching you.'"

Dotcom-driven rents have become a hot-button election issue. Two propositions headed for the November ballot in San Francisco attack the way tech firms have wiggled around strict zoning restrictions on office space by defining their space as anything but an office. The radical Prop L would force live-work lofts to be used as affordable housing and ban dotcom development in areas like the Mission. The much milder Prop K, backed by Mayor Willie Brown and an assortment of business interests, would limit dotcoms in only a couple of neighborhoods--and compensate with a hefty raise in the amount of office space allowed downtown. This, says Brown, "has always been the city that handles and absorbs newcomers."

With so many dotcom bankruptcies hitting the business pages, it may seem as if the stock market has already sorted out this rent problem. Not true, says DeVol. "If the dotcom market slows down, there's still going to be some high-valued part of the technology industry to take the space. Venture capital has to go somewhere. This is a long-term problem."

--With reporting by Hilary Hylton/Austin and Daniel Terdiman/San Francisco

With reporting by Hilary Hylton/Austin and Daniel Terdiman/San Francisco