With increased rent, a poorly maintained building, and the
likelihood that they will be displaced if the building is
renovated, already struggling Downtown Mall retailers relayed their
worries last week to the mayor and their landlord.
With increased rent, a poorly maintained building, and the likelihood that they will be displaced if the building is renovated, already struggling Downtown Mall retailers relayed their worries last week to the mayor and their landlord.
Steve Soult, owner and director of Gallery Morgan Hill, an anchor store at the Downtown Mall, enumerated a number of grievances he and other retailers have regarding the building they occupy. They complained their rent was increased by 50 percent in the spring, the building is so run-down that the place has become unattractive to customers, and they were uncertain about landlord Manou Mobedshani’s future plans for the building.
“The Gallery thrives on foot traffic. The challenge is to get people in the door. It helped when the Granada Theater was here, but without it, less people now come by,” said Soult.
“Cosmetic things need to be done to this building so people can see we are here. Fresh paint would really help the front of the building. Right now, you just don’t notice it (the mall). People think it’s closed,” said Lorna Saiki, marketing director for the Gallery Morgan Hill.
Retailers asked Mobedshani about his vision for the site, and why lease agreements cannot be extended for more than one year.
Mobedshani said raising rent was a fair move and even with the increase, retailers are not even paying the “market” rental rate. Retailers were paying 50 cents a square foot before Mobedshani raised the rent from 30 to 50 percent, which increased rent payments to around $1 per square foot.
He noted, he pays for the building’s electricity, garbage and utilities, and the low rental payments he receives are not enough to make major capital improvements on the building.
Mobedshani said he planned to construct 50 condominiums with retail space at the lower level, plus parking, but because of new zoning and density regulations, he could not get approval for the project from the city. He said he intends to re-apply for a permit by the October deadline. He is currently working on the architectural design of the project. If approval is granted by the city, Mobedshani said construction would start in two years. This could mean the whole building would have to be replaced and Downtown Mall retailers may have to relocate.
“It’s possible we will take it all down. Integrity-wise, it’s not too glamorous. The building doesn’t have historical significance. That’s the reality,” Mobedshani said.
“It’s important to learn the time frame because it’s important for us to plan. There are limited locations where we could move,” said Soult.
Mayor Dennis Kennedy told retailers that other developments will be sprouting up in the area, but many also have the same time frame. He said the retailers may be able to relocate to projects that may be done earlier, but warned them that rent in these new commercial developments would be more expensive.
“Ideally, if one project starts early, you can leap frog, but right now, all are pretty much on the same schedule, with perhaps just one development south of Dunne a year ahead of the others,” said Kennedy. “Another issue is going to be cost. This space is pretty economical. The rent will be higher in the new buildings because the owners have to recover costs.”
Kennedy estimated rent in a new building would cost between $2.50 to $3 per square foot.
“So it appears that two to two-and-a-half years from now, there’ll be a massive renovation of the downtown Morgan Hill,” said Soult.
Soult said he and other mall retailers are faced with the dilemma of relocating, and can barely get by paying the increased rent. Aside from artwork for sale – and sales have been slow because of less foot traffic – he said the gallery depends on small payments from artists who rent space to show their work at the store.
In a previous letter to Mayor Kennedy, Soult stated stores like the Seed Company, Continental Stitch and C.J. Myer’s Studio “were either forced to leave the Downtown Mall or simply went out of business. The loss of businesses such as these represents a severe blow to the City’s plan to increase retail presence within the heart of Morgan Hill’s Downtown District.”
Mobedshani suggested that perhaps retailers could seek funding from the Redevelopment Agency to help them with moving expenses. He also stated he is still in the process of finding new tenants to fill vacancies at the mall. Currently, the mall has eight spaces that are occupied and one and a half spaces vacant.
“I want to find a good tenant, but I am very careful. It’s gotta be a successful business that will move in,” Mobedshani explained.
Mobedshani questioned the business model of the gallery and that of other retailers. He cited the need for a good publicity campaign, wider and more frequent promotions and the need for the stores to stay open longer hours. He said cosmetics of the building won’t help sales if mall retailers don’t keep longer and more regular hours.
“You need to stay open lots of hours. As it is now, the place looks closed. A lot of people see this as a hobby mall. People have to want to do business. Somebody has to make the sacrifice and the customer is not going to be the one. You have to look at it as a long-term investment,” said Mobedshani.
Mobedshani and Kennedy also agreed that the key to downtown businesses being successful is to have residents living downtown.
“I’m convinced that until you get a critical mass of people living downtown, it’s going to be the same situation you see today. It’s a great quantum leap to make things viable; that’s at least two years away. You have to get residents here,” Mobedshani said.
He said San Jose’s move to establish residential units downtown has been successful.
“To have a vibrant city center, you need people to live here,” he said.
Both Kennedy and Mobedshani said upscale condos and town houses are the kind of residential units that are needed to make the downtown successful. Such projects are being proposed, but will take time to build.
“We have an abundance of affordable housing. We need to balance it out to make it upscale,” said Kennedy. He indicated this is the reason he wants for sale units built in the first phase of development in proposed projects.
In the meantime, Mobedshani said to kick in some money to paint the front of the building and asked retailers to present him with ideas on new signage. He also agreed to contribute some money to help finance a publicity campaign to promote the mall with special events. With the encouragement of the other retailers, he also agreed to consider opening the empty space beside the gallery and making it an antique store. He said he owns a lot of antiques and would be willing to sell them if the gallery would man the facility for him. He asked Soult to submit a proposal regarding this.
Everyone present in the meeting agreed types of businesses that would generate foot traffic to the gallery and other shops in the mall would include an antique store, a high-end restaurant or a wine and cheese store.
“I think our goals are correct. We’ll get there, but it will take time,” Kennedy said.
