From A to B, Again Avoiding C D and E
Leopold’s is moving out because of the high rents, but how, one wonders, can landlords continue to charge these prices when half of Main Street seems to be sitting vacant? Isn’t this a terrible business move as well as a drain on a potentially vibrant downtown?
This Ann Arbor Business Review forum on commercial real estate (linked to by Todd over at Mark Maynard’s place) may explain things a little better:
Why are these vacancies still on Main Street?
[MAV Development’s Rob] Aldrich: We don’t want a food use (in 350 S. Main). And we’re holding our rent. What a lot of people don’t understand is that when your market is at 85 percent, you’re 15 percent vacant — most people are still making money. Unless you’re substantially below that level of vacancy, there’s no reason to drop to what the market perceives to be the value of the space. So you wait — that’s what we’re doing. We’re not going to play the game with B tenants who want to look at A space.
[First Martin’s Chris] Grant: We’re doing the same thing that Ted’s doing in a way - we’re leasing 12,000-square-foot spaces where people are taking 9,000 for the first year. We’re willing to let them take 9,000 the first year because we think they’ll grow.
So the vacant buildings are part of a conscious strategy, one that isn’t primarily focused on making A2 a great place to live.
Does anyone understand why they don’t want a food use at 350 S. Main? that spot was nowhereville until Leopold Brothers and it looks to me as if it will promptly return to being nowheresville. I just don’t see that strip of S. Main growing …. especially without an appealing anchor tenant like Leopold Brothers. How does this make sense?
posted by Fred Zimmerman on February 12th, 2008 at 9:53 amDifferent address. Leopold Bros is at 529 S Main. 350 S. Main is the building at the NW corner of Main and William.
posted by tom brandt on February 12th, 2008 at 10:01 amok, that makes sense re 350 S. Main.
but I guess I still don’t understand how the owners of 529 S. Main think they are going to find a tenant who will pay through the nose for that spot. it just is not a comfortable destination.
the Detroit Edison building is a huge road block to development in that direction. let’s start picking on them!
posted by Fred Zimmerman on February 12th, 2008 at 10:12 amFred, I don’t understand what the owners of 529 S. Main are thinking either. Parking is an issue - there are two small lots on either side of the building. There is a larger lot across the street, but it is difficult to cross Main since there is no crosswalk there. If the number of patrons needs to be greater than those served by Leopold Bros to justify the higher rent, I don’t know where their cars are going to go. At least downtown, there is adequate parking in the structures and surface lots.
As for the stretch between William and Madison, you have both the DTE building and that apartment building all presenting blank walls to the street. It’s a real dead zone.
posted by tom brandt on February 12th, 2008 at 10:24 amRich people suck. End of story. landlords should burn in hell.
posted by Anonymous on February 12th, 2008 at 1:26 pmYeah, my favorite is Neal Warling’s most-watched economic indicator… “my bank balance.” You can overhear his conversations at the West End Grill. “It’s official! We’re in a recession. There’s been a decline in my bank balance for the past two consecutive quarters.”
posted by . on February 12th, 2008 at 2:24 pmSpeaking of vacant buildings… There are two small building projects along Plymouth Road (one at Upland and one at Green) that show no signs of completion. Doesn’t the City have a responsibility in getting the builders to finish these projects (although I’d prefer they tear them both down because they are both so dang ugly!).
posted by MjC on February 12th, 2008 at 2:30 pmThere’s also that ginormous vacant office building to the west of the US-23 exit at Plymouth Rd. What’s up with that?!
posted by Monica on February 12th, 2008 at 2:59 pmHeh, I meant EAST. To the east of US-23 exit at Plymouth.
posted by Monica on February 12th, 2008 at 3:00 pmLast word I heard on the one at plymouth and upland green was this:
http://arborupdate.com/article/1573/whats-up-with-upland-green
I don’t think I’ve noticed much activity since then, though.
posted by Bruce Fields on February 12th, 2008 at 3:55 pmI’m guessing the owners of Leopold’s building thought one of three things: 1) we have a tenant who isn’t about to move so we can jack up the price, 2) if we lose this tenant, we can easily get a franchise in here at our asking rate because this location is “near the University of Michigan campus,” or 3) they bought it as a tear-down and are planning to put up a bigger office and/or apartment building. I’ve heard a lot of rumors about a new apartment building going in near Fingerles. I assumed it was in the Madison/5th area, but this could be the location. If Leopolds is in the floodway, they couldn’t put apartments there, but they could do offices. From a development/retail point of view, it would make sense to build up all the way down Main to South Main Market especially since that area is already part of the DDA. As was pointed out, you have the eight-story Ashley Mews building and the five-story apartments already in that stretch. Building up the current surface lot/DTW building at William/Main/Packard with mixed retail/office/residential/parking would extend Main Street another block and Leopolds is only one block from there.
The problem is, new construction is always more expensive than existing buildings. So if it is a new building, you won’t see a funky, locally owned business there anytime soon. It is the down side of having lots of new buildings and the very thing that people argue about. There are wins and losses when you talk about “20 new 20-story buildings in 20 years.” New construction is always more expensive, and as the new buildings charge more, older places see they can charge more and you see what we are seeing now. Long-term, having lots more retail eventually cause prices to go down, but we aren’t there yet as the Business Review article points out.
Personally, I would love to see a Bell’s Beer restaurant/pub go in the Leopolds location or see the Produce Station move here to escape the Stadium Bridges project, but I’m guessing it will be torn down and something bigger and more lucrative built in its place.
posted by Juliew on February 12th, 2008 at 5:54 pm“as the new buildings charge more, older places see they can charge more”
So they could always have charged more before, they just needed the suggestion?
The rest of it I follow, but that’s a little hand-wavy.
posted by Bruce Fields on February 12th, 2008 at 7:48 pm“So they could always have charged more before, they just needed the suggestion?”
Yup, exactly. If you look at the McKinley building downtown, once it got out they were charging (and getting) $35/square foot, prices went up throughout the Liberty/State Street area. I know some rents on Maynard doubled as did some on State Street (for example, Kaleidoscope’s rent increased exponentially which is why they moved down on 4th by the Co-op) (see these listings: http://mckinley.catylist.com/jsp/listings/listing_overview.jsp?listingID=1405938, http://mckinley.catylist.com/jsp/listings/listing_overview.jsp?listingID=1513001). In addition, several buildings immediately went up for sale like almost this entire block on Liberty: http://mckinley.catylist.com/jsp/listings/listing_overview.jsp?listingID=1359753.
posted by Juliew on February 12th, 2008 at 9:48 pmSure, but there’s lots of possible explanations:
1. Maybe rents were going to go up anyway for other reasons, and the timing was coincidence.
2. Maybe whatever it is that’s driving up those rents is also the same thing that’s made it feasible to build a new building there–so the timing isn’t a coincidence, but it also isn’t the case that it was the new building that caused the neighboring rents to go up (rather, both were caused separately by a third thing).
3. Maybe the existence of the new building provides some new business opportunity that wasn’t there before. (E.g., it draws new customers that might spill over to the neighbors.)
4. Maybe the old space competed for tenants with its neighbors, but the new building (serving a different kind of market) doesn’t, decreasing the supply of the older type of space.
5. Or, OK, maybe the neighbors really could have raised the rents before, didn’t realize it, and just needed the new building to get the idea.
Or some combination of the all of the above. Beats me–I’m clearly no expert. But naively I’d've thought #5 was the least likely explanation.
posted by Bruce Fields on February 12th, 2008 at 10:50 pmMaybe Ann Arbor landlords are assholes. Maybe Ann Arbor is full of poop. Maybe rich people in Ann Arbor want to ensure that only their social class can shop and eat down on Main St.
posted by Anonymous on February 13th, 2008 at 4:45 pmBruce - Thanks for the link! Looks like that building at Upland will just sit there until it falls down. Sheesh. Doesn’t the city have in building contracts a clause that states if the building doesn’t complete a job, the building must be brought down? Seeing all these empty buildings on Plymouth Road frustrates me to no end. The Northeast side of Ann Arbor used to be beautiful. What’s happening is just awful. These buildings are ugly. And Monica, you’re correct - there’s that other huge empty building just off Plymouth Road at 23. What is up with that? Not to mention the gigantic campus of Pfizer. What a mess.
posted by MjC on February 13th, 2008 at 7:12 pmAt the rate rent is increasing in an area dieing it is ridiculous. I think what Leopoled Bros is doing will be followed by others. As the rest of Michigan Dies with our crappy government, people inside Ann Arbor think this city will be the only light left on in the state. The landlords are expecting an increase in demand for property in Ann Arbor, but I don’t see it happening. If you had to change cities, you’re better off leaving the state than coming here were people are against expansion. One day the people here will see it. This is all just part of the recession storm we are in.
posted by Jimbo on February 13th, 2008 at 9:44 pmAn “A” tenant would be one backed with tremendous resources — like a national chain.
posted by Larry Kestenbaum on February 14th, 2008 at 5:53 amAnn Arbor will continue to thrive and prosper, perhaps some renewal of the current thought on business conduct is in order. However, slinging mud seems a bit desperate if you ask me. Lets come up with real solutions rather than complaining about “the man”.
posted by side swept on February 14th, 2008 at 9:43 amSolutions are hard to come by when you have no control, thus producing anger and resentment. I agree with “side swept”, slinging mud is not going to help our beloved town. I have to think that land lords want our community to thrive as they have a big investment is seeing that happen. Lets make sure we shop & eat locally and help all the establishments to do as well as possible, then perhaps they can buy the buildings they occupy.
posted by not so bitter buddie on February 14th, 2008 at 10:04 amThese guys have to be making quite a bit, if they can keep part of their inventory idle for a while. They must anticipate that they can continue to keep getting those prices, but if things stay empty, that’s some Chinese money lost. It is kind of like people keeping their house on the market, thinking somebody is going to come buy their nice house, even with the increased inventory all about them.
posted by juliem on February 14th, 2008 at 2:20 pm“It is kind of like people keeping their house on the market”
Or you could say it’s like a theater continuing to sell tickets for full price even when there are empty seats. You don’t necessarily sell tickets to performances at a price at which every seat in the house will sell — it’s generally better to accept some fraction of empty seats than cut prices drastically. Not only may cutting prices fail to fill the empty seats, but then the people who did pay full price will feel like they’re getting ripped off and demand lower prices next time.
posted by mw on February 14th, 2008 at 4:04 pmYou don’t necessarily sell tickets to performances at a price at which every seat in the house will sell
Which is the opposite of the airline model, who constantly adjust prices to sell every seat on the aircraft, even though their pricing model pisses everyone off.
posted by tom brandt on February 14th, 2008 at 4:50 pmCommercial leases tend to run for multiple years, so that holding out for a year or two before dropping rates could make sense, rather than locking in a low rate, especially if the current slowdown is anticipated to last less than that time.
posted by JCP2 on February 14th, 2008 at 5:44 pm“As the rest of Michigan Dies with our crappy government …”
This stuff drives me nuts! The rest of Michigan isn’t dying. This is way simplifying, but basically there are 2 economies operating in Michigan right now … the old 20th century industrial economy (which is dying, or at least becoming a shell of its former self), and a new knowledge-based economy which is just getting a foothold.
I do agree that our gov’t in Lansing is crappy. The ideologues would rather fight for their own short term self-interest than find pragmatic common ground to move the state forward. But despite them, a new Michigan is starting to grow. It’s slow, it’s late entering the game, it’s got challenges like too adults with college degrees, but it is happening. We are in a time of transition.
posted by Bo Knew on February 14th, 2008 at 7:33 pmThe difference between a theater and an airline trying to sell tickets is that it doesn’t matter to the theater-goers and passengers whether the seats are filled or empty (maybe except for performances of Cats). However, it’s worse for the customers and other commercial tenants when much of main street goes vacant.
Here in DC, lots of buildings went vacant because of (ironically) the real estate boom– the rise in value of the properties each year far exceeded the income one could get from renting the space out. Plus, if one could assume a large rise in property values, then it made no sense to lock yourself into a multi-year lease with a tenant whose rent would only be considered “below market” a year or two later.
To ameliorate these problems, the DC government attempts to implement laws that provide huge disincentives to keeping properties vacant. For example, the property taxes on vacant properties are supposed to be much higher than on properties that are rented out, which are themselves higher than on properties which are owner-occupied.
posted by Constantine on February 15th, 2008 at 1:24 pm“This stuff drives me nuts! The rest of Michigan isn’t dying. This is way simplifying, but basically there are 2 economies operating in Michigan right now … the old 20th century industrial economy (which is dying, or at least becoming a shell of its former self), and a new knowledge-based economy which is just getting a foothold.”
This is exactly what I was saying a hundred years ago about that stupid old 19th century agricultural economy. Thank god we jettisoned that. Farming…pfft.
posted by Dale on February 15th, 2008 at 3:30 pmOkay, there’s a start of the knowledge based economy, but really, calling it a whole second economy is a little strong. That industry is but a leg of the Ann Arbor economy and does not seem to be a powerhouse in the southeast Michigan area.
posted by juliem on February 15th, 2008 at 7:11 pmI still think that if these commercial guys are not ready to break lease to fill a vacancy, the best you can say is the market is flat, and likely less than that, because wouldn’t it be worth getting a business in that is likely to stay?
Michigan may not be “dying” but it certainly seems ailing.
juliem, I have to disagree, the knowledge economy is growing here in many ways. Even the auto industry is now split between the old and new economies. All the R&D headquarters here, the thousands of engineers, etc. Even the ‘new’ engine plant down in Dundee is a sign of the changing times … all employees on the manufacturing line have to have at least 2 years of post-high school education. The growth in health care and education fields has been pretty impressive in the state over the last decade … they’re not all ‘knowledge’ jobs, but there is much more progress than people have realized, because all the headlines focus on the negative doom and gloom of factories shutting down.
The state gov’t has made things even worse by creating fiscal crises in communities all over the state by continuing to cut taxes over and over so they’ve had to slash school funding and revenue sharing to local governments. Michigan was virtually alone in the nation in terms of the massive ongoing state tax cuts even when the state budget was already in trouble. If we hadn’t slashed so hard for so long the crisis mentality here wouldn’t have been quite so bad. (FWIW, I still think there are reforms that should be made that could lead to cost savings … pensions and health care benefits for public employees should be brought in line with the private sector, prison spending is out-of-whack, etc.). But the tax cuts have fed into the self-image that Michigan is going down the toilet. It’s not. The economic transition will continue to be jarring and difficult, but the lights aren’t going to go out.
posted by Bo Knew on February 15th, 2008 at 8:12 pmjuliem - sorry if I’ve come across harsh here - you’re right, Michigan is ailing.
I am just trying to raise a voice of optimism in what has become a sea of negativity in the state. The bad news has been overwhelming, for years now, but if we care to look there is also plenty of good news all around us, and not just in Ann Arbor. (And yes, maybe the good news in A2 is a bit overrated.)
posted by Bo Knew on February 15th, 2008 at 8:17 pmBo, People have been staying optimistic for twenty-five years in Michigan, yet the state’s progress has lagged many other states for as long as I can remember. It’s fine to be optimistic, but a healthy dose of realism would have saved Michigan years of fighting to keep the ‘old economy’ jobs and focused people on preparing for the new economy (e.g., people under the age of 45 who went into auto factory jobs believing that they would have a job for life). The short term pain of facing reality would have been much better than letting Michigan move in slow-mo train wreck mode for all these years.
posted by Anna on February 15th, 2008 at 8:57 pmBo, this is all a big deal. I don’t take offense. But, I think things overall in Michigan are not good. I was appalled when I heard about the 74000 workers GM wants to buyout!!!!
posted by juliem on February 16th, 2008 at 7:24 amThe health care industry growth was likely predicated on tapping into the autos generous retirement packages. I doubt Medicare, and certainly Medicaid will not be as generous.
The University Health System alone, while seemingly doing well, does not encompass the regions health system. Look at what happened in Detroit, all those hospitals closed and the remaining systems established clinics and satellites in the burbs, chasing that auto money. Now what?
Ann Arbor is a relative oasis, and personally, this household is a beneficiary of the tech sector, but Michigan needs to really keep trying to find and to bring in companies. I guess there’s a Chinese word for both crisis and opportunity, and I think that is a fitting description.
Anna & juliem, agreed, we should have been pushing the realism much sooner that the high paying factory jobs that required no higher education were going away. We’re finally facing that realism now. My optimism is that Michigan will eventually succeed in this transition and we’ll become a leading force again in the new economy. That will take a very long time unfortunately, and we should’ve started that push long ago. My beef is with the overwhelming focus (primarily in the media) on the negative news. I think it harms our move forward. That’s not to say the bad news is fake … there is real and huge suffering going on. But there is also significant progress. The media has focused on the former because it makes headlines that grab attention and sell papers. So I don’t advocate ignoring the bad news … its real and needs to dealt with. I just want there to be more balance by also focusing on the progress (and what we need to do to move forward even faster).
And as much as I slam the gov’t in Lansing, they are doing some things right … the no worker left behind funding to provide free tuition for displaced workers get retrained at community colleges is exactly the right thing to do (well, one of the right things to do). Now, they need to go full out to make Michigan the Education State. We should amend our state motto: “If you seek an educated peninsula, look about you.”
posted by Bo Knew on February 16th, 2008 at 11:08 amleapoldo ….where’s your brother.
posted by antwan on February 19th, 2008 at 1:02 pmHey everyone - my store, Mezzanine, was located at 306 S. Main until 2005, around the time the Main Street retail thing started losing a significant amount of its retail. Many of you will know the store as “the store across from Jules,” if you were around then. Modern design stuff.
This whole argument about rates on Main Street is really interesting to me, because I used to discuss it with other retail friends in the Main St. area.
Main Street is expensive, there’s no way around it. But the big issue isn’t really that rental rates are high, its that the demographic of visitors to Main Street is very specific.
Once upon a time (like until 2003 or so) Main Street was patronized by Ann Arborites, or people who thought like them. That means valuing independent business, as well as appreciating a mix of retail and restaurant. It wasn’t necessarily cheap to operate a retail venture, but it was possible to be niche without completely struggling.
Well, the demographic changed, in my opinion, and became way more bridge-and-tunnel. Brighton, Plymouth, Chelsea, Dexter, Novi, blah blah blah. Nothing wrong with that empirically, but these are people in for the restaurant experience, and retail stores are simply a place to kill time until their table is ready. Additionally, these are people who much more strongly value a chain store experience, and tend not to trust independents. I like to call them the “mall shopper.” It’s a compliment.
Anyway, as a small business owner I cannot discount the fact that many building owners are ALSO small business owners. And why wouldn’t you want to make the most you can from your business? It’s not a charity, and it’s not a public service. We need to respect that the free market has many pros and cons, no matter how socialist we’d all like to be.
If I can be quite honest, the reason Main Street has gone in the direction it has is because Ann Arborites have stayed away. They bitch about parking, they bitch about the tourists, they bitch about Michigan … whatever! If you don’t use it you lose it, and that is why you have lost Leopold Brothers, Mezzanine, Jules, Afterwords, Voila, the original owners of Liberty Street Video, and who knows who else! Looking at that list, it seems pretty hardcore A2 Main Street over the past ten years. These owners were all hardcore Ann Arbor promoters.
Don’t blame building owners for raising rents. In my experience, the landlord was the least of my problems. As a matter of fact, I would like to state for the record that Ed Shaffran was an amazing landlord. Instead, remember that the businesses you love aren’t supported by other people, they are supported by you, and your friends, and your colleagues.
Maybe Ann Arbor is just going through growing pains, but I have moved to downtown Detroit and it was a great move. The market here is bigger, and it’s easier to be a destination. And you can actually get the media to cover the things that you do. (Back in the day I could have had a trunk show featuring designs by Jesus and the Ann Arbor News wouldn’t have covered it.) And maybe Detroit is a little more authentic a venue at this point.
But don’t blame landlords as greedy. If I had any say at all in A2 I would say let Main Street go its way, but spend some time and money promoting the other really great and viable corridors near Main Street. Mezzanine opened in 1998 on Fourth Ave and I thought that strip would pick up. Why not now? What about Ashley Street? With some decent signage and promotion both those streets could be the retail equivalent of a restaurant Main Street.
I love having my store in Detroit now, but I will never feel bitter about Ann Arbor. The fact is, Ann Arbor is NOT overrated. It may not be the socialist utopia many people seem to want, but it is still an amazing place to live in Michigan.
posted by Mezzanine on February 25th, 2008 at 12:54 am