Watching the city of Los Angeles try to manage a business is kind of like watching Tom DeLay dance. Man, it sure hurts the eyes.
The latest evidence is the city’s handling of the retail tenants on Olvera Street. It’s painful to see.
Olvera Street, where Los Angeles was born, was a little state historic park that was turned over to the city of Los Angeles 20 years ago. The few score of retail tenants have been there for years, many for decades, serving as kind of an anchor for the touristy street between downtown and Chinatown. Many of the businesses sell Mexican tchotchkes, enchiladas and stuff, and they claim they don’t make much money. But they don’t pay much rent, either.
Until now. The city has decided that it’s time to double the average rent and boost the common-area maintenance fees. As reported in last week’s issue of the Los Angeles Business Journal, merchants that have fallen behind in their rents are being kicked out, such as a glass-blowing shop that had been there for three decades.
The city’s rationale: The businesses have been paying well below market rates for years, and the amount they pay doesn’t offset the city’s costs of building maintenance, security and administrative salaries. In short, city taxpayers are subsidizing Olvera Street merchants. And given the city’s budget deficit, it’s time the merchants pay their own way. So deadbeats, hit the road.
This is painful to watch. I mean, how many ways is this wrong?
First, the timing is atrocious. I mean, really: There’s a recession going on; it’s been in all the papers. Merchants around the globe are suffering and landlords are showing leniency. Extreme leniency, as in, “Gimme a buck and stay another month. Please.” This is absolutely the worst time for any landlord to get tough.
Second (and closely related to the first), no landlord should seek ways to kick out tenants now.
“The last thing that any landlord can have at any of their centers is dark space, especially right now,” said Dave Leib of Retail Edge in Malibu. “Shoppers get very apprehensive when it comes to spending in that type of environment.”
Third, this breaks a longstanding deal, if only an implied one. That deal: The merchants sell low-priced Mexican stuff, which helps the city with its mission to maintain Olvera as a tourist stop and historic spot. In return, the merchants pay low rent, which allows them to make a living.
Fourth (and closely related to the third), if the city dramatically raises rents, it’ll price out the mom-and-pops and invite in the chains, which can afford steeper rents. Question: Do we want shops that sell nationally branded jeans on Olvera Street?
Fifth, the motivation is all wrong. This is coming from a bureaucrat who (correctly) is motivated to plug the city’s budget hole. It’s not coming from a marketer who’s focused on helping his business partners thrive.
We could go on. Instead, let’s look at a few things the city could do.
It could lower base rents and maybe even eliminate static rents in favor of a percentage-of-sales payments. That way, merchants that are thriving pay more. Who knows? Maybe the city would come out ahead financially.
What’s more, the city could call on the merchants to have a business improvement district take responsibility for most of the maintenance, beautification and security there. That way, the city would offload much of its overhead costs of running Olvera Street.
Finally, Mathew May of May Realty Advisors in Sherman Oaks had a good suggestion: Ask one of the business schools in Los Angeles to come up with a low-cost marketing and business plan that would make Olvera hip and attractive. Make it a fun district. Tap into all those urban professionals who live downtown.
There are good reasons why we separate the public sector from the private. It’s painful to watch one trying to be the other.