At noon on a recent Tuesday at the 7th Street Produce Market in downtown Los Angeles, wholesalers who have been hawking mangoes, spinach, and tomatillos since 2 a.m. are ready to head home.
Yet some of the 70-odd vendors are concerned their businesses might die on the vine as the market’s new landlord, New York real estate investment management firm Atlas Capital Group, raises rents.
Pedro Astorga, president of Listo Produce Inc., said he had a five-year lease for his 2,200-square-foot unit under the previous owner. In February, he was offered and signed a yearlong contract that raised his rent by almost 24 percent to $6,000 a month. Others are seeing their rents raised by 20 percent to 25 percent and are being put on 12-month leases as well.
“There’s warehouses outside you can lease for a better rate,” said Astorga, 40, who has worked at the market since he was a teen, but might move if rent is raised substantially next year. “The downside (of moving out) is the market is where people come and buy and you have the flow of traffic.”
The wholesalers source fruits and vegetables from farmers statewide, and from Mexico during the winter. They peddle their produce to local grocery stores, restaurant owners, street vendors, and middlemen distributors.
Mohammad Ahmadzadeh said that he’d been a tenant for a decade when a significant rent increase forced him out last year. He moved his business, Fresh Pic Inc., to another warehouse nearby rather than pay Atlas the $14,000 a month it wanted for a 2,000-square-foot space he had until then been leasing for $9,700 a month.
“I said, ‘The way the economy (is) these days, there’s no way I can afford to pay you guys that kind of rent,’” Ahmadzadeh said.
Atlas bought the 30-acre plot on which the market sits in downtown’s Warehouse District in 2014 in partnership with New York’s Square Mile Capital Management and San Antonio-based USAA Real Estate Co. as part of a $357 million deal for Evoq Properties Inc.
The majority of the 7th Street Produce Market site, which includes the produce market and a handful of other warehouses, is being redeveloped as Row DTLA, a small village of shops, restaurants, and creative office space adorned with edgy murals and flanked by a 5,000-car parking garage. Also on its way is the popular Brooklyn-based Smorgasburg food and design market, which is slated to begin operating next month in the market’s courtyard on Sundays.
The 7th Street Produce Market operates in a parking and distribution yard on the edge of the plot and is surrounded by two-story buildings totaling more than 421,000 square feet, according to Atlas’ website.
Atlas representatives were not available for interviews, but Chris Modrzejewski, a spokesman for Row DTLA, insisted the developer is not seeking to drive vendors out.
“Nothing could be further from the truth,” he wrote in an email. “We are committed to a vibrant operating produce market. It is an integral part of our overall vision of Row DTLA.”
Los Angeles City Councilman Jose Huizar’s office said it has received a commitment from the developer that it wants tenants to stick around.
“Atlas assured us the produce wholesalers on their property are very much part of their future plans, which our office supports,” Rick Coca, a spokesman for the councilman, wrote in an email.
Astorga, however, said the company has not effectively communicated its vision or plans to tenants.
“A lot of (tenants are) so misinformed right now,” he said. “We didn’t even know the farmers market’s coming,” Astorga said of Smorgasburg. “Management, they haven’t told us.”
Pascual Castrellon, president of the Los Angeles Produce Market Association, which represents about 20 produce suppliers in the area, said the market tenants deserve to be kept in the loop about the landlord’s plans, especially if the owner eventually decides to remove them.
“It would be nice if they could tell them it’ll be two to three years, one year, whatever,” he said. “Then we could look for something else. But we don’t know what’s going to happen or when.”
Getting sufficient notice would be critical as it could be challenging to relocate that many businesses to a similar market setup, said Chris Tilly, a professor of urban planning at UCLA’s Luskin School of Public Affairs.
“The reality is you can’t just move everything around like pieces on the chessboard,” Tilly said. “There’s not necessarily another natural location.”
Seeds of change
Fresh Pic, the wholesaler that moved out last year, has suffered financially since moving, according to Blanca Mendoza, its accountant.
“We had a lot of cash business on a daily basis, a lot of restaurants, street vendors, stores purchasing anywhere from one box to one pallet,” said Mendoza. “If we sold $5,000 cash per day, it went down to maybe $1,000 a day or less in the new place.”
Castrellon said the 7th Street Produce Market sees $10 million in sales daily. It handles 1 percent of the produce that winds up on American tables, according to previous estimates.
Javier Ibarra, 54-year-old co-owner of Ibarra and Son Produce, said he’s on a three-year lease that he signed right before the new co-owners bought the property. But he doesn’t know what he’ll do if his rent goes up.
“Right now we’re struggling,” said Ibarra, who noted he’s been at the market since 1994. “The rent is high.”
Rents for smaller industrial spaces in the area run from about $1 a square foot to $1.50 a square foot, said Lorena Tomb, a vice president of Jones Lang LaSalle in downtown.
Tomb said she’s heard that Row DTLA is aiming to lease office space for about $3.50 a square foot, net of taxes, insurance, and maintenance. If the produce businesses end up having to move, they may need to look east of the river or south of the 10 freeway.
Robert Bridges, a professor of clinical finance and business economics at USC’s Marshall School of Business, said it would be difficult for the wholesalers to stay put unless they get creative.
“I don’t know if it’s possible to try and find a way to make additional revenue and bring in a new customer base,” Bridges said.
While alternative locations exist, it might be challenging to re-create 7th Street Produce Market’s dynamic, said UCLA’s Tilly.
“There are huge advantages to doing business in a place where people know about your existence and you’ve got a critical mass of businesses and an established market,” he said. “It’s hard to re-establish that.”