Longtime merchants in the city-owned Telegraph Channing parking garage mall have been locked in a dispute with the city for several months over what the merchants say are unfair rents and poor conditions exacerbated by years of neglect.
The merchants have been asking for rent reductions, and have told the city they do not believe a private management company should be hired to oversee mall operations. (The city began the process to investigate whether to hire a private manager last summer.)
In a report written by city staff in December, the city shifts the burden back onto merchants, noting the “declining market” for several businesses in the mall. While the report indicates a willingness to work with merchants who want to help themselves, there is also resistance to the need for broad changes for all: “There would be little value for the Telegraph area market or the City to renegotiate rents with businesses that are likely to fail because the market for their product is declining and they have no plan to reverse their situation.”
Over the summer, there was the additional issue of the assessment of a property tax fee that had been included in leases but had not previously been collected; merchants said the new bill took them by surprise and asked the city to reconsider requiring them to pay it.
The issue of the city-owned mall and its tenants came before the council in September, shortly after merchants had received the surprise bill. About a dozen merchants from the mall turned out to make their case before local officials about how they were struggling and why the city should help.
They noted that some of their leases include a 4% annual rent increase, which they said is way out of scale with the norm. Since then, the city has agreed to change the language in those leases to tie the increase to 3%, or the Consumer Price Index (CPI), whichever is less.
Over the past decade, the CPI has fluctuated between .7% and 3.3%, according to data collected by ice cream and candy shop owner Charles Lee, who has rented space in the mall for the past 15 years. For the past 10 years, according to Lee’s calculations, he’s paid nearly $19,000 more than he would have paid due to the 4% escalator. That’s more than a year of rent, he said.
Lee also said longtime merchants are frustrated because they pay much more per square foot than newer tenants. Lee said he pays $3.33 per square foot, and noted that a more recent tenant is paying just $1 per square foot. He said a flower shop next door to him, which has been in the mall for 25 years, is in a similar situation to his own.
“Longtime tenants should be treated better or at least equal to new tenants,” said Lee. “We feel like we are penalized.”
The city looked at the issue of fair market rates for the area in a Dec. 5 report by Michael Caplan, economic development manager for the city. According to the report, which used Sather Lane Shops as a comparison, merchants at Telegraph Channing pay on average much less than those at Sather Lane, which is located just north of Durant Avenue from Telegraph Channing: $1.77 per square foot versus $3.72.
“Everybody was pretty upset by that report,” said Gary Miller, a volunteer at mall tenant Revolution Books.
And Reiko Redmonde, another volunteer at Revolution Books, said the report suffers from “what can most kindly be described as faulty methodology.”
“They are comparing apples to oranges,” she said. “They’re comparing mall space closest to campus with the one that we occupy. And they’re very different in terms of foot traffic, in terms of the amount of light and what they look like.”
Redmonde said the Telegraph Channing average was also artificially low because, from what she could tell, the city included in its calculations the 47 cents per square foot paid by the Friends of the Berkeley Public Library, as well as a new business, yet to move in, that’s set to pay $1.50 per square foot.
“They seem to be saying in the report that it’s not even worth it for the city to negotiate with these businesses unless they can prove they’re going to turn their business around,” she said, “instead of investigating whether the rents have been too high for years. It’s sort of cold to say that about businesses that have stuck it out there, some for 30 years.”
Added Samir Juha, whose family owns Cheese ‘N’ Stuff deli, the message to tenants has felt like “Thank you for your service, now get out,” he told council members during a public comment period during the Dec. 17 council meeting.
The city and merchants have been meeting since September, in groups and individually, to try to work out some of the problems. According to a Dec. 17 report by deputy city manager William Rogers, which was presented to the Berkeley City Council as an information item that night, the city did agree to fix the issue with the annual rent adjustments (as noted above). The city also agreed to cover the property tax assessment bills from August, a total of $32,000, for current tenants. When it’s time to negotiate new leases, however, the city said payment of that tax by merchants will be part of the new agreements.
After speaking with merchants, the city also created a list of maintenance needs at the mall, from painting to better lighting and a ramp to improve accessibility. The city estimates those projects will cost about $24,000. In the short term, the city plans to spend about $4,800 repairing an ADA lift and doing some interior spot painting.
The issue of property management remains a point of contention. The city says it needs to hire a professional agent to oversee Telegraph Channing, “to include marketing vacancies; evaluating prospective tenants and making written recommendations to the City on tenant selection; monitoring and updating leases; collecting rents; paying expenses within an approved agreement; maintaining on-going tenant relations and addressing tenant needs; and handling unpredictable issues that arise; and coordinating routine maintenance with the City’s Facilities Management unit.”
According to Rogers’ report, it would be the most effective and efficient path forward.
Merchant Charles Lee said he and other tenants are concerned that a private manager won’t care much about the fate of local businesses, and instead would focus on squeezing as much money as possible out of tenants. He noted the high turnover at Sather Lane Shops, which has a private manager.
“The landlord doesn’t care about the wellbeing of their tenants,” he said. “They just go after money.”
Lee said he’s also worried about the replacement of municipal jobs, with good benefits, by a position overseen by a private management firm, which might not treat its employees as generously.
He acknowledged that the city has made some concessions to improve conditions at the mall, but said it hasn’t gone far enough to correct the issue of unfairly high rents over the years, especially considering the tough economic times overall.
“We feel the market condition is declining year after year,” Lee said. “We feel it directly with our skin. We feel how the economy is bad. But they just don’t seem to care about people who are trying to survive here.”
The issue is expected to be heard during the Jan. 21 Berkeley City Council meeting action calendar.
Improving Telegraph Ave. on new UC official’s ‘to-do’ list (12.07.13)
City parking garage fees up downtown, down on Telegraph (10.30.13)
Telegraph Channing Mall merchants ask city for relief (09.18.13)
Wooing larger stores may be key to Telegraph’s success (05.24.13)
Tackling Telegraph Avenue: Is this time different? (03.01.13)