New fuel for battered Bay Area economy

The building at King and Third streets here does not exactly project presence. For the moment, the most illustrious tenants of this modern, Lego-like block of red and beige are a Borders bookshop and the pizzeria around the corner. But to the nascent world of stem-cell research - and to a tech-busted city desperate to tap its potential - it might as well be the Taj Mahal.

On Friday, the stem-cell institute created by California voters last autumn chose this city and this building as its new headquarters, ending a months-long search that sometimes seemed like an Olympic bid for the lab-coat crowd.

By the most basic measure, the catch hardly appears to be worth the fuss: only 50 employees. Yet in these offices, somewhere above racks of Hemingway and Hello Kitty day planners, the California Institute for Regenerative Medicine will disburse $3 billion to universities and businesses seeking cutting-edge therapies to illnesses that have confounded modern medicine for decades.

At a time when the federal government has severely limited its funding, Friday's decision instantly establishes San Francisco as the national capital of stem-cell research. And for a city brash enough to call itself "The City," it hints at a renewed swagger - and a promising future - after the humiliation of the tech collapse.

"It is the seat of power," says Jeffrey Kahn, director of the Center for Bioethics at the University of Minnesota in Minneapolis. "The role of kingmaker will be played there."

It is a role that seems to suit San Francisco perfectly. To be sure, the other candidate cities had charms to recommend them. In all, 17 California cities entered the competition, throwing in inducements ranging from free hotel rooms and free offices to complimentary baseball tickets and lab space. Of the three finalists, San Diego promised office space in the heart of its thriving biotech cluster, overlooking the spectacular southern California coast. Sacramento promised easy access to California power brokers and housing prices that don't require a laugh track. But in the end, neither was able to overcome the fact that it wasn't San Francisco.

This is the region that pioneered modern genetic science in the 1970s, when researchers here discovered how to join DNA from different species. This is the hub of the most robust biotechnology cluster in the United States, home to more than 800 companies and 85,000 employees. And this is the place that, more than any other, supported Proposition 71, the successful ballot initiative that calls on California to float bonds so it can spend $300 million each year for 10 years on stem-cell research. Some 71 percent of San Francisco County voters backed the measure - the highest figure among any of California's 58 counties.

Beyond that, though, the California Institute for Regenerative Medicine also represents the pith of what San Francisco has become, both economically and culturally. Once an eclectic mix of white collar and blue collar, of Nob Hill debutantes and swarthy South Beach stevedores, San Francisco has become a sort of urban playground, where the young and brilliant come to flex their imagination and the rich and established settle to enjoy the spoils of success.

The stem-cell institute, then, is where the worlds of fresh-faced PhDs and esteemed biotech executives meet. "The institute is a metaphor of what is left," says Steven Levy of the Center for Continuing Study of the California Economy in Palo Alto. "This is our profile now."

Besides, no city could be a more appropriate for a venture that is, in essence, a rebuke of the Bush administration's conservative policies. "San Francisco prides itself on being progressive and cutting-edge and on taking risks, and the institute symbolizes that spirit," says Jesse Blout, the mayor's director of economic development. "In many ways, it's rebellious."

Make no mistake, though. The city is not out simply to make a political statement. It craves the prestige that will come when leading scientists from all over the world come to the institute. And it wants money. The dotcom implosion left this city in economic ruin. In two years, office vacancy rates went from 2 percent to 33 percent. Unemployment, which hovered just below 3 percent, jolted to 7.4 percent - the first time in two decades that it outpaced the statewide average. The future of the San Francisco economy seemed to have had collapsed, and the city was adrift.

"It lost its sense of itself as a leading place in the industry," says Jim Wunderman, president of the Bay Area Council here.

The institute, business leaders hope, is a sign that this is changing. Even before Friday's announcement, the University of California at San Francisco (UCSF) had planned to move its world-renown life-sciences program to a campus just down the street from the future stem-cell institute headquarters, and a biotech company called Sirna had agreed to move in next door. Now, San Francisco hopes the addition of the institute will be a further draw for stem-cell ventures across America.

"The region has been pounded and needs to get beyond old tech into new tech," says Mr. Levy. "It's important for people to remember that this is the heartland of tech innovation and venture capital in the United States."