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Posted Jun 18, 2010, 3:48 PM
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The Man
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Join Date: Apr 2009
Location: Tempe, AZ
Posts: 1,536
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http://www.azcentral.com/community/t...t-tension.html
Quote:
[/b]Landlord-tenant tension builds up on Mill Avenue in Tempe[/b]
By Derek Quizon - Jun. 17, 2010
Nahom Herzel has little patience for underperforming tenants. The owner of four buildings near Sixth Street and Mill Avenue, Herzel's tenants include such downtown Tempe mainstays as Campus Corner, Mill Avenue Cue Club and Hippie Gypsy.
When tenants are not producing up to his standards, Herzel said, he applies "unspoken pressure." He becomes stricter about collecting rent on time and slaps penalties on business owners who don't comply.
"If you don't do well, I'll try to motivate you to leave," he said, noting that he was able to pressure Vietnamese restaurant Saigon Express to sell its business in 1998.
Herzel is one of the landlords of downtown Tempe, which is one of the most highly-sought places to do business in the Valley. The landlords have differing opinions and attitudes, but recent closures have some business owners and managers complaining about the way some landlords do business.
Karina Klingbiel, manager of the Campus Corner store near Sixth Street, said many landlords in the area are insensitive to how businesses, struggling because of the economy, may need rent relief in order to stay afloat. This, she said, is the cause of many closures along Mill Avenue.
"They'd rather empty their space than lower their rent," Klingbiel said.
Downtown Tempe Community officials estimate the average rent is $20 per square foot, although Mill Avenue landlord Vic Linoff puts it closer to $30 per square foot but said he charges "substantially under" that amount.
Herzel does not like to disclose his rent, but said he charges substantially higher than the average, which he estimates is between $30 and $40, because of his location in the heart of the district.
The recession has prompted many businesses, not only in Tempe but across the Valley, to ask landlords to lower rent or make other adjustments to help them stay afloat.
Rick Murphy, a real-estate specialist with CB Ellis, told The Arizona Republic last year that he estimated 80 percent of retail tenants in the Valley were asking landlords for some form of relief. It has been a particular problem in space-deprived downtown areas.
"During the recession, a lot of businesses have been asking for re-negotiated leases," said Casaundra Brown of Downtown Tempe Community. "But it's always an issue in a downtown."
The Library Bar and Grill may have been the latest victim of landlord-tenant tension in downtown Tempe. The bar closed last month after failure to re-negotiate the lease with landowners Cushman and Wakefield. General manager Jake Guzman did not want to talk much about the negotiations because he was considering re-entering a lease with Cushman and Wakefield for the same space.
He did recall negotiations with landowners over a lease renewal in McDuffy's, a defunct sports bar just off Mill Avenue he used to manage. It was not long after the Sept. 11 terrorist attacks, and sales were slumping. Guzman hoped the firm that owned the property would be sensitive to the fact that business was down and possibly lower his rent. Instead, he said, communications were stonewalled, a common tactic used by landlords in disagreement with tenants over rent.
"We didn't get a timely response from them," he said. "(Negotiations) came to a dead end."
But Dave Moschel, day manager at the Crave Café and Lounge, said lowering rents doesn't make financial sense for landowners, who know Mill Avenue is a prime location that will always attract interests from business owners. Why lower rent for a struggling business on Mill when other business owners will stand in line to take its place?
"You think they're going to keep (rent) that high if they're not assured not to have somebody leasing (the space)?" Moschel said. "The demand is still going to be high for that high-profile location."
Not all landlords have a sink-or-swim view of doing business in downtown Tempe. Vic Linoff has a unique perspective because he has been in both roles. Linoff owned a used bookstore along Mill, Those Were the Days, which closed in 2008. Now he owns the Goodwin building, which houses a clothing boutique called Diva's and an ice-cream shop called Cookiez.
Linoff said the majority of landlords in downtown Tempe try their best to work with tenants who are seeing declining sales. He acknowledged that some are not very understanding of struggling businesses.
"There are some landlords who really don't care. If you rent today and can't pay tomorrow, they'll just get somebody else in," he said.
Linoff said landlords need to take an interest in cooperating with struggling businesses because high turnover only hurts businesses in the area, which are connected by customers they attract.
"Responsible landlords and tenants have to communicate effectively, and landlords need to be more sensitive to the current market, and, if need be, offer some flexibility," he said.
Gil Schmitt, who manages the Thirsty Dog convenience store and owns land in Phoenix, said he has mixed feelings about the situation.
Failing shops and restaurants are often replaced with vibrant, new businesses that create excitement and bring customers to the area. For example, national retailers like Jimmy John's, Five Guys Burgers and Fries and Dunkin' Donuts recently opened in downtown Tempe.
But Schmitt said he believes some landlords are less than willing to re-negotiate leases with struggling businesses. Landlords keep rents high because they think downtown Tempe is an unlimited "gold mine," he said, allowing them to charge unreasonable rent, even during a recession.
"That's been proven year after year after year in turnover," he said. "Turnover is unbelievably high . . . and it's higher than it's ever been."
Herzel said he is practicing good business standards and notes that many of his businesses, including Mill Avenue Cue Club and Campus Corner, have been there since the '90s. He may charge high rent, he said, but he stays away from luring tenants in with the promise of low rent and jacking up fees midlease, which was a problem reported by some tenants at Tempe Marketplace last year when maintenance fees quadrupled.
The area is highly sought and has high foot traffic, making it one of the best areas in the state to do business, which is why Herzel said he has little sympathy for businesses that don't do well in the area, recession or not.
"You have to be able to weather the storm," he said. "If you can't make it on Sixth and Mill, you can't make it anywhere else."
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Helps explain a lot of the empty space on Mill.
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