The San Francisco Beat
By Josh Quittner/Editor

(Business 2.0) – The tech recession hit all over the country, but nowhere more profoundly than in Business 2.0's hometown, San Francisco. Vacancy rates in the startup-heavy South of Market neighborhood soared to 50 percent. You only had to stroll a few blocks from our offices to see the empty desks gathering dust.

The old-timers who'd lived through similar downturns said it was just a cycle. And it looks like they may be right: Commercial rents are back to where they were in 1995. Startups are setting up shop again. That makes sense, because San Francisco sits at the headwaters of innovation. Entrepreneurs like to live here. When business picks up, it tends to happen here first.

So will San Francisco really rise again? Senior writer Paul Kaihla answers that question this month in our cover story, "The Next Boom Towns" (page 94). He set out to find the U.S. cities that are expected to get the lion's share of "creative class" jobs in the years to come. According to his exhaustive number crunching, Raleigh-Durham, San Jose, and Washington are the three boomiest places in the nation. And I'm happy to say that yes, indeed, San Francisco is also on the list.

In good times or bad, the best place to look for stories is in your own backyard. Around the corner from us is the headquarters of Bechtel Group, a storied San Francisco institution that has so far won $2.8 billion in government contracts to rebuild Iraq. The privately held company has handled some of the world's most massive engineering projects, from Hoover Dam to the Chunnel. Given the grandeur of its work--as well as its close ties to many a presidential administration--the intensely secretive company has long been an object of fascination for the public and the press.

Senior writer Ralph King, helped by features editor Charlie McCoy, spent the past three months interviewing more than 100 sources, including current and former employees and officials of Bechtel, to get a better understanding of how the company fared during the past four years, when so many other businesses were under siege. The surprising story they brought back, "Bechtel's Power Outage" (page 80), shows that even brick-and-mortar empire builders were hurt by the excesses of the dotcom era. As King and McCoy discovered, Bechtel didn't stand apart from the speculative frenzy of the late 1990s; instead, it invested in dotcoms, power plants, and telecom projects--with disastrous financial consequences. "It turns out that Bechtel is brilliant at all sorts of engineering," King says, "except the financial kind."

San Francisco's coming boom will have to happen without Bechtel: The company is moving hundreds of jobs to the suburbs of Boom Town No. 3, Washington. But that doesn't worry me. From the conference room where we debate story ideas, I can look out the window and see heavy machinery working on the new Mission Bay campus of the University of California at San Francisco, which will house thousands of biotech researchers and scientists. Across San Francisco Bay are Gracenote, our startup of the month, whose compact disc database lies at the heart of the digital-music revolution (In Front, page 40), and Idetic, a company developing TV for cell phones, which we recognize in "Hits & Misses" (page 138). And, of course, a few dozen miles to our south sits Boom Town No. 2, at the heart of Silicon Valley, ready to stage a comeback. The stories we find for you in our own backyard are only going to get better as business gets back to business.

JOSH QUITTNER, EDITOR jquittner@business2.com