For years the mercados between Second and Eighth streets have been known as a primary Hispanic shopping destination. Particularly on weekends, they bustle with thousands of shoppers, who buy jewelry, food, T-shirts and knick-knacks. Business is so good, in fact, that merchants there pay rents as high as $10 per square foot per month – about the same as rents along the famous Third Street Promenade in Santa Monica.

But as the long-underused space above the mercados is being adapted into higher-end residential, the same landlords feel pressure to bring in national coffee shops, book stores and the like to cater to the professional class that’s moving in.

Problem is, the national chains are not willing to pay those high prices because their sales per square foot are not as high as the mercados. Also, the chains aren’t sure that the downtown renaissance is mature enough for their arrival.

“The difference between what we get from the mercados versus what we will get from a national chain will be hard to take,” said Greg Martin, the U.S. representative of a triad of real estate companies called Begonia Development, Mideb, and 5th Street Funding, owned by Australian interests. “But if the right tenant comes along – Borders, Starbucks, Trader Joe’s – we would certainly rent them space.”

The Australian firms have held property along Broadway for more than 20 years and now manage more than 500,000 square feet in the area. They expect to open their first round of apartments within the next four months in a historic building, the interior units of which overlook an arcade that has long been an indoor mercado mall.

The 143 upscale apartments are expected to rent for $2 to $2.50 per square foot per month, comparable to other upscale areas around Los Angeles.

Residents – who will most likely be similar to the average renter downtown, 25 to 35 years old and about half making more than $150,000 a year – can either get to their apartment by walking through the bustling mall or by using a separate door.

When the apartments open, the merchants below will be required to move their merchandise into their stores and out of a central hallway. In the place of the merchandise, Martin will put kiosks down the center hallway that will serve both the residents and the shops and shoppers.

Some seem resigned to the lower rents they’ll get from the retail space.

Developer Fred Afari, for example is advertising lower retail rents on the first floor of his building under construction at Broadway and Eighth. The idea is to attract recognizable name brands.

“The retail rents are high along Broadway because of the high Hispanic traffic that moves through,” said Afari. “We feel we have to give some kind of lower rents to get national tenants. We are looking to accommodate the people on the upper floors and to promote the whole neighborhood.”

He signed a contract with Bakersfield-based Kelly’s Coffee and Fudge Factory, a chain with about 35 locations around Southern California, to open a shop on the ground floor of his building when it’s completed at the end of the year. And he’s looking for more tenants. A dry cleaner, market, and small restaurant are some of his top priorities.