Downtown merchants pay some of the highest rents in the nation. For what?
When Nicki McKee decided to purchase Soap Opera, a downtown store specializing in gourmet bath products, she thought she was buying a well-established local business in a prime location.
The store's previous owner, Marlo Kennedy, opened Soap Opera in 1971 and remained happily nestled in the popular and highly trafficked Sena Plaza, off Palace Avenue. When Kennedy died in 2000, McKee, who had been her employee, decided to take the plunge.
A single mother with two children, McKee soon ran into problems in her lease negotiations with the shopping center's management, Southwest Asset Management. The
company also manages shopping centers like The Plaza Mercado and the newly opened Santa Fe Arcade, and is part of developer Gerald Peters' holdings.
McKee's lease only ran until 2002 and, she says, the company wouldn't allow an extension. Part of her lease stipulated that businesses in the center that made more than $200,000 annually were required to pay Southwest 7 percent of their earnings, and McKee believed the company wanted her to move so they could have a higher-income store in her spot. McKee persisted in trying to stay in Sena Plaza. "There was no way I was going to move a business I just took over.
It would have really hurt my chances of being successful," McKee says. While McKee was eventually allowed to stay an additional two years, that was it. Southwest's manager, Phillip Garcia, did, McKee says, try to convince her to move over to the Santa Fe Arcade but, she says, she didn't want to go. "I took one look at that place and said no way, they are all glass cells." McKee says.
Plus, while her rent in Sena Plaza was $1,500 monthly for 327 square-feet, moving to the Arcade, she says, would have meant a $1.000 jump for slightly less space.
She felt squeezed and eventually, in May, 2004, opted to share store space with another business where she
continues to struggle and worries about even staying open. "Location," she says, "was everything."
McKee's story, these days, is not uncommon. While the Plaza has long been considered prime commercial real estate, the vagaries from block to block, the fluctuations of the tourist market, the skyrocketing commercial rents, all have made doing business downtown an increasingly risky proposition. Southwest's newest downtown mall, the Arcade, represents
these realities well. Open since June, some tenants already are balking at its high rents and lack of exposure in a downtown crammed with shops-many of which are not geared to local shoppers.
"Basically, the downtown area is a specialty shopping center, with lots of small boutique type shops," says Wayne Nichols, a realtor who has been on the board of the Old Santa Fe Association for 30 years. "The fact that it shifted from a local shopping location is a fairly common evolution," he says. "With the Arcade, it's an intensification. Luckily it hasn't changed the streetscape. I don't think the Arcade is a bad thing, it adds a richness that wasn't there before."
Some tenants in The Arcade don't see their new digs as benignly. Several have signed a
petition to Southwest requesting changes in lease agreements. Garcia did not return several
phone calls for this story and did not respond specifically to a list of questions submitted in writing by SFR.
In the midst of a challenged downtown business community, City officials are starting the process for creating a downtown master plan to plot out its future. Although nascent, this plan, like most planning documents, seems destined to become embroiled in the increasingly competing interests of locals, developers and business owners.
"The potential problem is if the only people who are part of the process have a vested economic interest, then there won't be a city-wide input, from people living in the downtown to the southside," City Councilor Karen Heldmeyer says. But creating the master plan is important, she says, because "I worry that a lot of people have written off downtown as part of the City."
There are more than 700 businesses in the downtown area.
The
Plaza, historically considered the heart of downtown, over the years has evolved from a local shopping area with a lumberyard, outdoor store, movie theater and pharmacies, to what many see as a specialized tourist shopping area. Jewelry shops, gift stores and galleries dominate the facades of today's Plaza. There are, in fact, 77 jewelry stores within one mile of the Plaza. There are 200 galleries within a half-mile
of the Plaza. Intermixed are specialty gift shops and national clothing stores. Some downtown businesses are clearly targeted at tourists. Others-such as Collected Works Bookstore and Tia Sophia's-have the rare ability to draw both.
But as far as can be gauged from property owners and tenants alike, downtown businesses seem to share one commonality: high rents.
"The retail rental market in the downtown continues to be one of the strongest in the country," Mark Butcher says. He's the vice-president of operations for Greer Enterprises, a firm run by Alexis Girard that owns the Galeria, another mall on the Plaza, along with other downtown property. He says rental rates are some of the
highest in the US, ranging on the Plaza anywhere from $50 a square foot to $150 a square foot. "As long as tourists keep coming and as the City is committed to get people to keep coming, Santa Fe will continue to be a little oasis," Butcher says.
"This is the City Different," Plaza property owner Peter Komis adds. "It's not like the rest of the country. Prices always go up in Santa Fe. Rents have increased everywhere in the last 10 years, and there's still the demand."
While that may be good news for property owners, for tenants it means a high price for staying in business. "I pay here what I would pay in Soho, New York," Dorothee Filbinger-Maier, the manager at Charlotte, an upscale jewelry store with a storefront on the Plaza, says. "It's really outrageous."
Rising rents on the Plaza have pushed some businesses into other areas of town, where costs also continue to go up. Kent Little, owner of Sangre de Cristo Mountain Works on Montezuma and Guadalupe, says when he first started looking for retail space in the Guadalupe area 10 years ago, people paid $14 to $15 per square foot. These days he says he's heard of owners now paying in the $30 to $35 range.
By most accounts,
Cerrillos Road is the new bargain, with retail space in the $13 to $15 range. This makes it a
better buy for many types of business.
Little says there are few types of retail stores that can pay the rents in the Plaza area. "Unless you're a jeweler or a gallery or sell pottery with super-high mark-up, it's going to be hard to survive those rates," he says. "Once you get into the commodity market, like outdoors equipment, you can't buy a jacket at $100 and sell it at $400. Walk around the Plaza and look at what businesses are there."
The walls of ECz Studio are adorned by paintings of Native Americans.
Edward Czajkowski, the gallery's owner and the painter behind the work, says he used to sell a painting every five or six days. "I've been going 15 or 16 days at a time without selling anything," Czajkowski says.
Czajkowski is located on the lower level of The Arcade.
The new downtown shopping center-it opened in June-has more than 28,000 square feet of retail space and three levels, although the top level is almost empty.
Each retail space has doors that slide open; several downtown business owners have compared the small spaces to jail cells.
Indeed, numerous tenants interviewed by SFR appear to feel trapped by their leases in The Arcade and intimidated by the management at Southwest Asset Management. Five refused to talk on the record, citing fear of retribution. According
to one tenant, approximately 24 of the 35 or so businesses signed a petition in January requesting a rent reduction and other accommodations, but it was denied.
At least four stores have left the mall in the last month. One, The Eddie Griffith Gallery, is being sued by Southwest for $300,000-the rent it would have collected over the next three years. Both Griffith and his son, Ryan Griffith, a manager for the gallery, declined comment. According to the suit, the gallery had signed two threeyear leases-each would have been for about $150,000 over the next three years. Southwest is suing for the entire threeyear rent total. A Jan. 27 handwritten statement in the court file from Eddie Griffith says he was not able to have a successful business in the Arcade, and that verbal promises he received were not kept.
Also last month, Pictures of Lily, a Chinese photography and clothing store, left the mall. The store's owner, Brad Kelly, had spoken with SFR previously about problems at the mall, but his cell phone has since been disconnected. Tenants next door to Kelly say he moved his merchandize out during the night; by the morning of Jan. 31 he was gone.
Aside from noting the high rents, tenants say they expected a restaurant to anchor the mall, better signage and more advertising. "When people walk by and see the Arcade sign, they think the building is full of kid's games," Greg Barker, owner of Nature Glow Candles,
says. His shop is located on the lower level of the Arcade. "I can see that Peters wanted to be sophisticated and stylish, but if people don't know we're in here, it hurts. It's like calling a casino a shopping center."
Tenants say in response to their concerns Garcia put out small, plexiglass signs on both entrances to the Arcade; one on the Plaza and the other on Water Street. "We've had those plexiglass signs outside for two out of the eight months the Arcade has been open," Barker says.
"With the proper signage, we could all be successful," Barker says. "Everyone here wants to be successful, but we didn't have enough traffic in here during the summer and fall; that is only magnified in the winter."
SFR attempted to contact Garcia for response to tenants' issues several times. A faxed list of questions was not responded to specifically, but Garcia did send the following written response:
"Southwest Asset Management is very pleased to have added the Santa Fe Arcade to its leasing and management portfolio. The Arcade offers both an outstanding design and location (location, location, location) on the downtown Plaza. With March (Spring Break) around the corner, and leading into the summer season, we hope that retail activity will pick up substantially. We are currently firming up lease negotiations with a restaurant and several other new retail tenants. Southwest Asset Management is always in the market for retail tenants to complement the current tenant mix in the Arcade, as we are constantly looking for new ideas, both in marketing and retailing. We value our tenants and look forward to continuing successful business relationships in the future."
Some Arcade business owners are happy in their new location.
Joan and Lucian Niemeyer's photography gallery, located on the ground floor, is getting along and Joan Niemeyer says they feel lucky to be right off the Plaza. Even so, her
husband, Lucian, says things still are
slow. "Santa Fe has lost more galleries in the last two years than in the past," he says. "It has been a tough month so far. It is sorting out the weaker businesses."
Indeed, while location, location, location is important, the shifting economic dynamics since 9.11, and the subsequent impact on Santa Fe's tourist industry, also comes into play.
Kathleen Savage, who owns Santa Fe Hemp on Water Street, moved from a Galeria location to her current spot eight years ago. Her store draws more locals than tourists but, she says, "I can see the tourism season shrinking, it lasts fewer months now."
This is partially reflected in downtown hotel occupancy rates, which have
been steadily dropping for the last 10 years, from 78.5 percent in 1993 to 66.5 percent last year, leading some to speculate that the downtown room cost has been unable to compete with less expensive rooms on Cerrillos Road. Fewer visitors downtown and higher rents for store owners add up to an unstable economic environment for the downtown area.
Casey Mickelson, owner of Meridian Espresso on Alameda and Old Santa Fe Trail, wonders why his numbers are lower than the year before, yet at the same time rental rates in the area stay the same or increase. "Real estate here is clearly over-speculated," Mickelson says. "It's common that rental rates lag behind the economy,
but if landlords don't get in touch with the fallout, more and more spaces will become empty." The shocker, he says, is when the Gap folded. "When the big chains sink, the rates don't make sense."
Yet other business owners say
fluctuations are part and parcel of doing business. "This time of year is particularly slow," Guadalupe Goler says. She owns the popular Goler shoes, a 27- year-old business which expanded its Sena Plaza location into the space formerly occupied by Soap Opera. "Business varies by industry. Our hardest years were in the late 1980s when the outlet malls opened up. They had lots of shoe stores and it hurt our business," she says. "You can't panic when things get slow, it's the time to prepare for summer. Our business here has improved every year."
The changing face of downtown over the last few decades has led some to push for the City to take charge of its future.
The Santa Fe City Council first proposed a downtown master plan in 2002, but only now is that process starting to move.
The City plans to hire a consulting firm to look at the downtown and develop a master plan. Anne McLaughlin, City planning and land use director, says she hopes to start advertising for firms in the next couple of weeks. The firm will be required to work in phases to determine vacancy rates and the breakdown of square footage by use: whether it's residential, commercial, retail or office. "Further in the process maybe the firm will recommend that new development should include more small restaurant space or more gallery space," Senior Planner for the City
Richard Macpherson says. "It wouldn't require these things, but it would help influence City Council decisions on appropriate infill, so the city keeps its same charm."
Later phases will include solicitation of public comment, as well as a review of areas that are likely to be redeveloped, such as parking lots.
Realtor Karen Walker, who already has announced a mayoral bid for 2006, is a big proponent of the City putting on paper its
vision for downtown. "The single biggest reason I see for a downtown master plan is that, for Santa Fe, it's crunch time," Walker says. Also the president of the vocal Old Santa Fe Association-a group founded over preservation issues-Walker is one of many who believe that tourism is the lifeblood of the city and that only way to ensure tourists keep coming is by having a stated vision for the next 25 years. "We need to make sure these large projects are harmonious with the downtown's fabric, the buildings need to speak to each other," she says.
But it's not just preservationists who believe it's time to move on a downtown master plan. "There's a lot of different ways it could go, but it's also risky to develop in a piecemeal fashion," City Councilor David Coss says.
"We don't want to become too crowded, too dense, too over-built. I think this is the time to do it."
Others say downtown should be allowed to develop naturally.
Peter Komis owns Plaza property, including the building where the Gap used to be. He feels it was shops like the recently closed Gap that brought locals back to downtown. "Downtown Santa
Fe is going to happen the way it's going to happen," Komis says. "I mean I don't know how appropriate Peters' Arcade is, but he's a successful businessman and he should be able to do what he wants. I don't understand this 'save the city from ourselves' idea. Give me a break."
Most downtown business owners, however, seem more concerned about whether or not a new convention center will be built.
"Why has it taken the City so long to act?" Czajkowski asks. "We lose groups to Albuquerque all the time."
Mark Butcher of Greer Enterprises also hopes the conference center is built soon. "It would be a commitment from the City to keep tourists coming in. The city relies on tourists, and it would be a major improvement downtown."
Nicki McKee's tiny Soap Opera is jammed full of goodies.
The
aroma in her store is sweet; she's not sure her prospects are. "We do one-third of the business compared to what we did in Sena Plaza," she says. "The next couple of months will determine whether we stay in business. I have to work another job just to keep things going."
McKee's second job is working in the clothing store she rents from and shares space with. They are located on Washington Avenue-downtown.
