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December 10, 2023

Morgan Hill sales tax revenues rebound

Dining, retail, downtown revive from pandemic downturn

Morgan Hill’s shopping and dining scene is well on its way to financial recovery following the pandemic, according to the city’s recent sales tax revenue reports.

The city’s downtown is particularly hailed by city officials as a “success story,” with sales tax revenues increasing by nearly 45% in the third quarter (July-September) of 2021 compared to a year earlier, says a report from HdL Companies, which contracts with the city for financial services.

In the third quarter of 2021, a total of 116 businesses collectively generated $123,003 in sales tax revenues for Morgan Hill. That’s up from $84,876 in the third quarter of 2020, when the Covid-19 pandemic, shelter-in-place orders and public gathering restrictions were decimating small businesses.

And downtown Morgan Hill is about to add even more sales tax generating businesses, with at least three more restaurants preparing to open their doors in the coming months. One of those is proposed by Frank Leal, who recently applied for permits for a restaurant space at the Sunsweet development. Leal has also purchased two more downtown properties that he eventually plans to transform with more retail options.

Leal’s plans for the Granada Hotel are still on track, even if they’ve been delayed by the economics of the pandemic. But even the hotel construction site on Monterey Road at First Street has enjoyed increasing sales as Leal pivoted the two-story concrete shell into the Mohi Social outdoor restaurant shortly after the pandemic started.

“(While) the community has responded well to the restaurant, my main goal is to finish the hotel,” Leal said. “I am entertaining meetings with potential investors. My goal is to deliver the hotel experience I promised the community and I am looking for a partner that can join me in my vision to turn Morgan Hill into an attractive overnight-stay leisure destination.”

Also coming to downtown Morgan Hill this year are Giorgio’s Italian Grill and Sushi Confidential.

City officials said in a press release that historically, the downtown district has never been able to compete with surrounding shopping centers in sales tax generation—especially those with a large anchor tenant like Walmart or Safeway. The recent HdL sales tax report shows “downtown Morgan Hill is not only growing but surpassing pre-pandemic numbers.”

For all four quarters of 2019, downtown never reached the city’s top five geographic districts in terms of sales tax generation. While the pandemic in 2020 reduced sales and even closed some small businesses, by the second quarter of 2021, the downtown had generated more sales taxes than it ever had previously, city staff said.

Forty-nine percent of the downtown’s businesses are restaurants and retail shops.

City officials attribute the downtown’s recovery largely to City Hall’s “ability to respond immediately to the pandemic, by providing opportunities for businesses to function outdoors through the Al Fresco Program,” says the press release. These actions helped retain existing businesses, and helped attract new restaurants including Chacho’s, Mo’s, Alara Cellars and Palmerino’s.

Geographic breakdown

Other geographic shopping areas in Morgan Hill also fared well in the third quarter of 2021, nearly a year and a half after the pandemic began. Vineyard Town Center’s 44 tenants generated $74,848 in sales tax—up 12% from the third quarter of 2020, according to the HdL report. Tennant Station’s collective sales tax revenues went up by 42% in the 2021 third quarter. Revenues from Madrone Village retail and dining establishments went up 23%, to $13,182 in the same one-year period.

The Laurel Oaks shopping center—which includes Home Depot and Safeway on Dunne Avenue—has generated the most sales tax revenues of all the districts, with just over $172,000 in the third quarters of both 2020 and 2021.

Collectively, the city’s 13 geographic shopping areas generated 11% more sales tax revenues ($1,134,512) for the city in the third quarter of 2021 than the same period of 2020, the HdL report says.

Citywide sales tax revenues for all 1,576 businesses went up by nearly 17% in 2021. Total sales tax revenues for Morgan Hill for the third quarter of 2021 were $2,416,202.

Sales tax is a key source of revenue for the city’s general fund, providing 23% of the total budget for public safety, infrastructure, parks and other basic expenses for public services. Property taxes generate 32% of general fund needs, and hotel taxes bring in 4%, according to city staff.

The city’s total general fund budget for the 2021-22 fiscal year is about $48.9 million, and anticipates about $11.1 million in total sales tax revenues.

Developer has more plans

Leal—who acquired and developed the Granada Theater and hotel properties next door through the city’s redevelopment dissolution process in 2015—recently purchased two more properties in downtown Morgan Hill.

These are the Old Republic building on the 17400 block of Monterey Road, and the shopping center at Second Street and Del Monte Avenue.

Leal said he plans to renovate the Old Republic building into the headquarters for his hospitality company, Live+Love+Leal. “I want to consolidate my services and operations in Morgan Hill,” Leal said by email. “I also hope to bring some life to this building with retail and uses that will support the boutique hotel across the street.”

He added that the hotel, when finished, will be a five-star establishment.

The Second Street property sits in a flood zone, and thus its development potential is currently limited, Leal said. Some time after Valley Water completes the Llagas Creek flood control project, he wants to turn the site into an outdoor market with locally sourced products.

An architect’s rendering created by KTGY Architects show what an outdoor market could look like at a property owned by Frank Leal at Second Street and Del Monte Avenue. Contributed photo

In the immediate future, the property will serve as a staging area for the Second Street Gallery proposed where the city’s pop-up park is now, Leal said.

And Leal recently submitted plans for building permits for a restaurant space at the corner of Third and Depot streets, in the new Sunsweet development. He hopes to open the “farm-to-table restaurant” by this summer.

“The restaurant will play off the farmers market and promote a healthy living style,” Leal said. “We’ll work with the vendors at the farmers market and use their produce and products to build our menu. Our goal is to give the Sunsweet residents and the community healthy food choices in an open-air venue.”

Michael Moore
Michael Moore
Michael Moore is an award-winning journalist who has worked as a reporter and editor for the Morgan Hill Times, Hollister Free Lance and Gilroy Dispatch since 2008. During that time, he has covered crime, breaking news, local government, education, entertainment and more.

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