Store moves highlight pressures on independent shops

Roger Hewitt has been working on State Street long enough to know that in five years, it won't have the same stores it has now.

But when change happens, the owner of Red Hawk and Zanzibar restaurants hopes at least a few of the stores and eateries are owned by independent business people with eclectic wares.

News that two retail stores on East Liberty Street near its intersection with State are leaving their spots to head to Main Street because of rising rents has left some business people wondering what will become of that downtown Ann Arbor area.

"The national fast-food chains moving in have driven up the rents to the level that's making it difficult for a number of independent business people to stay in the area," Hewitt said.

He said national chains are willing to pay above-market rates to move into a spot quickly. Once they sign a lease above market, it pushes up rates for everyone else.

Property managers who set the lease rates for many downtown businesses say rising rents are the natural progression of a healthy business district.

Jim Chaconas, president of McKinley Brokerage Service, said State Street rental rates still are lower than other college town main drags or even Birmingham in Oakland County. Rents along Liberty and State had ranged between $26 and $30 a square foot. Some recent leases on State Street have been signed for $38 to $39 a square foot.

Recent anxiety among business owners was set off by the announcement that Kioti and Suwanee Springs Leather will be moving into a consolidated location on Main Street along with another store, Seychelle, which is already located on Main. Paul (Wally) Myers, who owns all three, said the Liberty rents had gone up too high for him to have the business work there.

The building in the 600 block of East Liberty, just west of Starbucks coffee shop, already has a boarded up storefront that once was home to Mast Shoes, which consolidated its operations to Westgate Shopping Center on Jackson Road last summer.

Local retailers are curious about what businesses will go there. Rent has been advertised at $35 a square foot. The landlord said there is a tentative agreement with a tenant whose name hasn't been disclosed.

Jeff Hauptman, president of the Oxford Co., the landlord for the former Mast Shoes store and Myers' stores, said he likes and shops at mom-and-pop stores in Ann Arbor and tries to accommodate them. But he also can't stay in business by charging rents that are below the market rate.

He said he would like to see a diverse mix of retail and restaurants in the State Street area, and plans to lease the new spaces to tenants that are similar to those that left.

"I think it's our intent (to have) soft goods, preferably clothing, something that has a townie and student appeal," Hauptman said.

Karl Pohrt, owner of Shaman Drum Book Shop, said he understands the reasons for the rental rate hikes, but doesn't want to see a repeat of what happened on South University, where rates went up, local stores were pushed out in favor of fast food joints and then those restaurants went out of business.

"You have interesting businesses in a business district that make the district valuable," Pohrt said. "The rents are jacked up and those people are forced out. The only people who can afford the rents are fast food places, then no one has a reason to come into the neighborhood, and the fast food places go out of business."

Pohrt said the Liberty Street departures - as well as other changes on State Street - have the merchants pondering whether any locally owned retailers will survive there.

"Everybody shares the same anxieties. We are as one about this," he said.

In April 2003, Decker Drugs closed on State. It was replaced by national chain The Noodle Co. this fall - exchanging a community service retailer for a limited-service restaurant. When Decker Drugs closed, the rent for the new space was advertised at the time at $36 a square foot per month. By comparison, a few blocks west of State Street on Liberty, rents are closer to $15 and $20 a square foot.

Noodle Co. joined other eateries and coffee shops - some local, some national chains - along a two block stretch. They include Cosi, Amer's Deli, Einstein Brothers, Stucchi's, Ben & Jerry's, Starbucks, Potbelly's, Ashley's, Jimmy Johns and Espresso Royale. Recently, Buffalo Wild Wings, a nationally franchised sports bar, opened on the first floor of the Corner House Apartments at the corner of State and Washington streets.

Among them still are retailers, but the diversity of businesses has been diluted, according to local business owners.

Hewitt and Pohrt haven't given up hope, but both men are convinced that increased residential density near the shopping district is the only way to ensure its survival.

Over the past year, Ann Arbor city officials have pledged to bring more high-density housing downtown. In the past, it has been difficult to win approval for such projects. Land costs are so high that developers say tall buildings are the only economically viable way to create residential density. But they often meet resistance from existing residents.

"The way you diversify and stabilize a business district is to have customers living in the district," Pohrt said. "I think the only way we can have a vibrant and healthy downtown is to have more density downtown."

Hewitt agreed.

A recent example of high-density housing is in the works in the form of a University of Michigan dormitory planned near the corner of State and Washington streets. Those students could become customers and add to the foot traffic on State Street and Liberty.

Hewitt said those who would block high-rise apartments in an effort to keep things the same won't be pleased with the outcome.

"If you say 'if you don't let development in, it won't change' you will get what you deserve," Hewitt said. "If you don't do anything, you probably will end with something you don't like."

Mike Ramsey can be reached at mramsey@annarbornews.com or (734) 994-6864.