Costs are going up for downtown businesses, and that has some worried
Peter Horylev has successfully run the Brooklyn Bridge Bagel Works for about eight years. The bagel and sandwich shop’s New York City motif and café-style sidewalk seating are familiar to passersby along downtown’s Second Street. With a front door opening right into the heart of daytime foot traffic, Horylev and partner Scott Schulman regarded it as a good business with a key location.
Next fall is a different story, though, unless Horylev and Schulman can figure out a way to deal with a huge jump in rent, soon to be added to an already through-the-roof electricity bill and a generally limp business economy. To Horylev, as well as other business owners in the area, downtown business is not as cute as downtown makes it look.
“Yeah, it looks nice, but it’s really a beat-your-head-against-the-wall kind of place,” he said.
With the installment of a new lease come October, Horylev and Schulman’s rent could shoot up by about $700, almost a 40 percent increase from what they are paying now. Next door to them is Grilla Bites sandwich shop, whose owner, Fred Marken, just started a brand-new lease of his own that features a higher rent rate than past businesses in the same building.
Just around the corner is The Rainforest, which came out of a holiday season that did not produce enough income to carry it through sharply rising business costs and has announced it is closing.
Rising costs, especially rent, have put some downtown business owners face to face with an ugly decision: Deal with it, move elsewhere or close down.
The result is a business climate that is more and more hostile toward locally owned downtown businesses, Horylev charged. He has watched small-time stores open, flounder for a few months and close down, to be replaced by other small-time stores facing the same scenario and the same uneven playing field, he said.
“If you want to run a small business here, you’re not going to make it because no one has deep pockets,” he said.
He cites Mind Games, the ill-fated video gaming center once located on the southeast corner of Second and Main streets. It lasted a matter of months before its less-than-expected income failed to keep it afloat. Its block-letter signage still hangs above the empty storefront.
“There’s just no way his numbers were going to meet that [expectation],” Horylev said. “Most people who get into small businesses, they don’t have a clue what they’re up against.”
Eventually, he says, the holes left by failed businesses will be filled by well-capitalized corporations such as Subway (locally franchised) and Peet’s Coffee and Tea, both of which sit across from the empty husk of Mind Games.
“The only [businesses] that seem able to succeed are those franchises,” he said.
Part of the cost increase comes from a new type of lease becoming more popular with business landlords. Historically, landlords offered leases under which they were responsible for paying such expenses such as taxes, insurance and maintenance costs. If a window broke or the roof leaked, the landlord would cover it.
More and more frequently, though, landlords are offering leases that place these expenses on the business owner. These leases, called triple-net leases, can add drastically to the cost of running a business. Horylev’s new lease will be triple-net, and Marken’s already is.
Horylev said he thinks landlords adopt these leases because they do not share the same concerns as the business owner.
“I’m sure [landlords] don’t stand outside the door and count the people coming in,” he said. “The only way a landlord could understand it is if they actually have a business in the building they own.” Horylev’s landlord declined to comment for this story.
But Mike Hart, who owns property around Second Street, says landlords watch a different market. Rent prices go up every year, and landlords have to match each other’s prices to stay competitive in the marketplace.
Offering triple-net leases, he said, is just one more step that is being taken by landlords who mean to stay on top of the competition. Landlords who stop monitoring the market sometimes look back and see that the competition has gotten ahead of them, he said.
“They’ve realized that they’re below market; they haven’t been paying attention for a long time,” he said. “They’re just correcting for the current market.”
What Hart is saying, of course, is that landlords seek to get as much income as the market will allow. It’s just business. In his case, he said, he has not raised his rent beyond the standard 3 percent annual increase outlined in his rent contract. His lessees pay around $1.25 per square foot, a mid-range price for downtown Chico.
Another factor in the equation is the finite amount of money flowing through downtown, Horylev said. He sees the downtown business climate as sort of a pie: You can slice it thinner by putting in more businesses, but the size of the pie is not going to increase.
One of the problems is a lack of parking, he said, making downtown a place some people avoid if they have to drive there. Taking measures to increase parking, such as building another parking structure, would be a big improvement, he said.
But Grilla Bites’ Marken said parking is not the issue.
“We still are dealing with a good area down here,” he said. “If you’re doing a good job, people are going to come here.”
Horylev is not as optimistic about their situation.
“How does someone who lives on the north end of town know [Marken] has a quality product?” he said. “People who never see an ad will walk by and never know we’re here.”
But Marken said he plans on doing what he can to keep his business going, even if it means raising his prices to compete with an always-growing market. Such is dealing with business in a modern economy, he said.
“Get over it, boys and girls,” he said. “Rents are going to go up, buildings are going to go vacant. That’s what happens.”
That is exactly what happened to The Rainforest, located near Second and Main. According to fliers posted in the store’s windows, The Rainforest, which has been in business since 1998, will be closed as of March 31 due to “large increases in expenses such as the minimum wage, workers compensation and power,” as well as lower sales than expected through the holiday season.
There is a possibility that the store could move to a smaller location downtown, under a different owner and possibly a different name, but even that is “by no means certain,” the flier reads. Neither The Rainforest’s owner nor its landlord could be reached before press time.
While Horylev and Schulman are not in danger of closing, their new lease is sneaking up on them, and the future of the Bagel Works’ location is not clear.
“We’re either going to get a lease we can live with, or we’re going to contemplate moving,” Horylev said. A new site would likely be on the north end of town, where parking lots abound and people could come and go unhindered by the need to feed their parking meters, he said.
Horylev and Schulman say they are still negotiating the new lease with their landlord, so the familiar café dining setup will line Second Street a while longer.