Broadway

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A walk down Broadway downtown is a sensory experience, with large crowds of bargain hunters shopping amid blaring salsa music and merchants hawking their wares in Spanish.

Below some of the beautiful but largely abandoned office buildings are small retail shops that sell their goods cheap bins filled with shirts priced three for a dollar, $10 gold chains and $15 shoes.

But when it comes to retail rents, Broadway is more like Rodeo Drive East than Tijuana del Norte.

While large, established Broadway businesses pay somewhere around $2 a square foot per month, some of the small retail businesses are paying three times that with little in the way of maintenance or security in exchange and in an area that often seems like a ghost town after dark.

The four merchants on the street level of the Palace Theatre pay $6 per square foot, according to developer Tom Gilmore, whose Gilmore Associates is in the process of acquiring the storied movie house. Those rents are fairly comparable with what retailers pay in tony shopping districts like the Third Street Promenade in Santa Monica or Old Pasadena.

“It’s a pretty exploitative real estate game,” said Gilmore. “No building on the Westside could get away with providing so little service for such high rents. The contradiction is that (rental rates) are driven by landlords, who invest no money in their buildings.”

Indeed, rents are so high at many of the shops along Broadway that business failures are constant, and turnover extreme.

Such rents are partially the result of speculative acquisitions in the ’80s many by foreign investors who had only recently arrived in this country. Seeing an opportunity in the beautiful but abandoned downtown buildings, many of these investors paid cash, hoping that the Southern California real estate boom would eventually include Broadway, Spring Street and other historic but depressed streets.

While the recession sent rents down, the constant influx of Central and South American immigrants seeking to set up new businesses on Broadway has kept rates relatively steady. For every business that fails, another starry-eyed immigrant entrepreneur is ready to take its place.

A major difference between now and a decade ago is the proliferation of street stalls, with prospective merchants taking less space for more money, hoping to sell enough to make ends meet.

Many of the jewelry stores, wedding shops and electronic stores remain, but there are far more stalls selling inexpensive clothing and sundries than before. Building owners lease their space often on month-to-month contracts, caring little if credit-worthiness is suspect because another prospect is often waiting in the wings.

David Louie, a broker at CB Richard Ellis, says rents are so high because the spaces are so small. Landlords can’t possibly get away with charging so much for larger spaces on a per-square-foot basis, but because the shops along Broadway are tiny, the rents still don’t add up to much.

“It’s similar to the boardwalk in Venice, because of the easy entry into business,” said developer Ira Yellin, who has had trouble finding upscale retail clients for his Bradbury Building but refuses to lease to swap-meet operators.

“Anyone who can pull it together, set up some kind of relationship with a supplier and go into business can try to develop a livelihood,” he said. “From the building owner’s standpoint, it is simply a device to pump out revenue and pocket it. Nothing goes back into the building infrastructure or for the environment.”

Of course, rents are always higher for smaller amounts of space, be it in Broadway or Brentwood. And Broadway landlords insist that they aren’t making boatloads of money from their retail operations, saying that business still suffers from the recession earlier in the decade.

“Back in the late ’80s, Broadway was a robust area, but the riots and the earthquakes reduced rents,” said Mark Arkin, vice president with Fifth Street Funding Inc., which owns eight properties on Broadway and two on Spring. “Rents aren’t going up. They have been stable the last two years, and by that I mean that they haven’t gone up or down.”

He declined to provide rental rates for his buildings, and says he has little choice but to lease to small retailers who often can’t keep up. “I’m not saying the tenant base is the best, but it brings in the bread,” he said.

Arkin insists that some money has been reinvested toward improving Fifth Street’s buildings, but he would not provide specifics.

Yellin expresses sympathy for the building owners, given that there is no other use for the space and the prospect for refurbishing them is remote. And he agrees with Arkin’s assertion that without the city encouraging large private investment, Broadway’s revival is unlikely.

But he and others maintain that for redevelopment to happen, building owners must step forward and improve their properties, if only at the retail level.

“At some point you have to say (to the landlords), ‘You have the swap meets and you have damn good rents, and now you have to do something for the community,’ ” Yellin said.

Neither he nor Gilmore believe the swap meets have to move out for Broadway to come back. But merchants on the boulevard say that constant turnover isn’t good for business.

Oscar Naranjo, manager of the International House of Music on Broadway between Fourth and Third streets, says a storefront across the street has put up a “For Lease” sign more than half a dozen times in the past year, as one business after another comes in and leaves.

“It’s travel agencies and small supply stores; one day they’re here, the next they’re not,” he said. “Landlords are leasing only to people with temporary businesses.”

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