It appears to be a regular art show – but look closer. The pictures are moving.

Walking by a flat screen of what looks like rippling pools of mercury, a Webcam picks up and replays human movement in the silvery waves.

On another wall, digital artist Aaron Koblin uses a laser to scan visitors and rotate their projected 3-D images on a screen, using the same plotting technology he created for Radiohead’s “House of Cards” video.

The futuristic displays draw a Saturday-night crowd to a renovated porn palace in the Tenderloin, where since last year, a group of people in their 20s and 30s has been exploring the intersection of programming, politics and art with their new digital Bauhaus: Gray Area Foundation for the Arts.

Blending two of the Bay Area’s biggest strengths – information technology and artistic creativity – Gray Area has pushed San Francisco to the front of the digital art movement, showcasing new ways to visualize the enormous amount of data now available on the Internet.

San Francisco arts officials have Silicon Valley dreams for Gray Area, hoping it can turn a downtrodden section of the Tenderloin near the Warfield and Golden Gate Theatre into a world-class technological arts district.

“We don’t think of ourselves as artists,” said 27-year-old founder Josette Melchor, who opened the space in October. “We are technologists, researchers, designers, coders and hackers. We exist in that gray area between art and information.”

Yes, their innovative coding and electronic data mapping make pretty pictures – showing, for instance, time-lapsed flight patterns at SFO bursting like multicolored fireworks – but their work also asks civic questions.

Why is there a disproportionate amount of crime in the Tenderloin? How have the 409 historic landmark buildings in the Tenderloin been used over time? Where are all the cabs?

“Data as a medium has never been accepted before as part of the artistic mind-set, and we want to be a space for experimenting with this new model,” Melchor said.

It took about $800,000 to renovate the 4,600-square-foot space on Taylor Street into a sleek studio/art hub/think tank, most of that coming from the building’s owner, who was eager to bring Generation 2.0 into a neighborhood crowded with SROs, liquor stores and all-night massage parlors.

Melchor, who takes a minimal salary, and 15 volunteers have been working hard to get Gray Area off the ground.

Their annual $240,000 budget is supported by private donations; 600 memberships, which range from $50 to $10,000; and class fees. The syllabus includes coding as well as soft circuitry sewing – a combination of fashion design and electronics where students learn such skills as sewing LED lights into backpacks and programming them to flash when their cell phones ring.

Gray Area is fundraising for an additional $1 million to open a sound media lab in a former bar and pawnshop next door, in partnership with San Francisco’s Recombinant Media Labs. A Gray Area cafe will replace the liquor store on the corner.

Later this month, Melchor plans to open Archetype boutique on Market Street to sell Gray Area books, prints and “programmable wearables.”

Gray Area opened at about the same time that socially conscious coding was making its debut. In 2008, the New York Museum of Modern Art premiered “Design in the Elastic Mind,” which delighted visitors and critics for its look at the momentous social, scientific and technological changes ushered in by the Information Age.

The show included “Cabspotting,” a program created for the Exploratorium by Stamen Design in San Francisco, which uses GPS data and yellow dots to trace Yellow Cabs moving across San Francisco. A version of it is on display at Gray Area.

Meanwhile, the Radiohead video, which Koblin launched on Google code as an open-source project, was a big hit. He persuaded his employer, Google, to open the data so anyone could build on his technique and share their creations through social networks.

“Digital art is really coming into its own right now, and you can finally find art schools teaching code,” said Robert Hodgin, whose studies of magnetism are part of the current “Transpose” installation at Gray Area.

One of his pieces demonstrates the exploding computerized nebulas that he and a collaborator made for iTunes’ latest visualizer.

“They just get it here,” Hodgin said. “Digital artists need a new type of gallery, one with enough outlets, projectors and people who know how to deal with computers crashing.”

Digital creators, who spend so much time alone behind computer screens, also need a place to collaborate face-to-face, Melchor said.

Gray Area is hosting six entrepreneurs from Palomar5 – a six-week innovation camp in Berlin that drew 28 young thinkers from around the world to devise new working environments for the digital generation.

On a recent weekday at Gray Area, the group was thinking about ways to blend old and new media.

Ideas included scanning and electronically sharing notes that readers write in the margins of their books, and creating information screens at newspaper stands that collate Internet data for those who don’t have digital access.

“Not only is art something you hang on the wall and enjoy,” Melchor said, “it’s a tool of social change.”

Meredith May, Chronicle Staff Writer