630 State Street
The Fight for State Street
Why Santa Barbara’s Main Drag Is Suffering and How to Fix It
Thursday, July 26, 2018
To the casual eye, State Street is a sunny, lively avenue of restaurants and shops nestled under red-tile roofs gently sloping toward the Pacific. But look just a little closer at our carefully manicured commercial corridor, and you’ll find real trouble lurking there.
From small family ventures to major retail chains, businesses are folding at an alarming rate. The number of empty State Street storefronts, steadily increasing since 2015, has just reached a record high of 38. Even during the recession, things weren’t this bad.
State Street’s problems are hardly unique. Across the country, brick-and-mortar business districts are feeling the squeeze of e-commerce competition, evolving consumer trends, and the general decline of shopping malls. Downtowns are trying to cope with homeless populations and functional obsolescence, as well as higher overhead from minimum-wage hikes and health-care mandates. But while other communities are adapting to this brave new retail world, Santa Barbara is struggling to keep up. Why?
By Paul Wellman
Closed shops on the 600 block of State Street
This report will attempt to answer that question and highlight efforts to save and ultimately reimagine downtown Santa Barbara. It will also draw on the advice from experts in other communities that have successfully revived their main street.
Driving the urgency to solve this dilemma is the understanding that as State Street goes, so does the rest of the city. Sales tax revenues fund schools, parks, and police, among other essential services, and continued bleeding from our primary commercial artery would mean serious financial pain all over. As Plum Goods owner Amy Cooper recently put it: “The fight for State Street is the fight for Santa Barbara.”
Read: Top 10 Tips for Fixing State Street By Matt Kettmann | We asked leaders from thriving downtowns in Boulder, Burlington, San Luis Obispo, and Ventura what Santa Barbara should do. Here’s what they said.
Michael Martz, a founding partner at Hayes Commercial Group, has watched State Street’s vacancy rate ebb and flow for nearly two decades. “There’s always a fair amount of turnover,” he said. But Martz admitted the recent data, which shows a climbing rate despite an expanding economy and improving consumer confidence, “is cause for concern.”
By Erika Carlos
State Street Vacancy Rate | Criteria: Surveyed area is 00 to 1300 blocks of State Street (Cabrillo Blvd to Sola St) and includes all retail spaces with a State Street address and entrance. Surveyed retail spaces include restaurants, bars, cinemas, banks, and stores. It does not include hotels/hospitality. Source: Hayes Commercial Group
Back in retail’s go-go days, Martz would get 10 offers on a space as soon as it became available. “Retailers wanted to be in Santa Barbara even if it didn’t make financial sense for them because we’re such a small market,” he explained. “It was a branding move. Santa Barbara has cachet in the world.” All that changed when the economy crashed and companies slowly started closing their vanity stores. So went Borders and Macy’s; shortly after that, Peet’s and Chipotle; and soon to follow, Saks and Staples.
It’s a shame, Martz said, because those downtown vanity stores were the kinds of places that drew a broad range of demographics. They were hubs for all ages and wallet sizes. The types of big chains that replaced them, like Marshalls, “are not nearly as exciting,” he said. “The quality is certainly lacking.”
Martz disputed the popular refrain that Santa Barbara landlords charge exorbitant rents compared to similar coastal communities. “Our rents are commensurate with others,” he said. Indeed, a review of asking prices along State Street (averaging $2-$6 per square foot, depending on the block) shows that they match prices in San Luis Obispo, Ventura, Santa Monica, Pasadena, Malibu, and so on. If rates are set too low, Martz warned, we’ll get more 99-cent stores.
The bigger issue, he explained, is the awkward size of so many State Street spaces. Long, narrow, and typically around 2,000 square feet, they’re two to three times larger than what most small businesses want, and they can’t be easily split in half. A lot of properties also offer second-floor or basement spaces that can’t be leased to different tenants but are useless to street-level retailers.
Some storefronts can stay empty for months or even years because either the landlord is stubborn over terms or they have deep pockets and simply don’t mind money not coming in, Martz said. Others are holding out for a certain type of tenant. And then there are those working hard to fill their spaces by upgrading amenities or taking reduced rates.
Martz confessed he’s a little conflicted over how State Street’s problems are publicized. On one hand, media coverage can kick-start conversations. On the other hand, it can scare away investors. “If you’re from Colorado and thinking about bringing your concept to Santa Barbara, you might scan the headlines and think twice about pulling the trigger,” he said. “It’s important to remember that while we may have our challenges, we have a lot of success stories too ….” A brewery, a seafood restaurant, and a men’s clothing store, all locally owned and operated, are about to open smack in the middle of State Street.
Behind the Curtain
State Street landowners are an eclectic mix of family trusts, wealthy individuals, Los Angeles investment firms, mysterious LLCs, and Santa Barbara foundations: just the kind of consistency you’d expect from a recognizable slice of Central Coast real estate. But as Chamber of Commerce CEO Ken Oplinger pointed out, “We also have more absentee owners than most other places — owners who just don’t care.”
Many of the vacant spaces, Oplinger explained, belong to family trusts and LLCs located outside Santa Barbara. “Nine times out of 10, they’re the problem,” he said. “You get enough of those in a community, and it can really hurt.” According to county tax rolls, 927 State Street, which has been empty since December 2016, is owned by State Street Enterprises LLC out of San Diego. The Chaffee Family Survivor’s Trust in Escondido owns 623 State Street, vacant since December 2017. More than a quarter of the 204 frontage properties recorded on State Street list owners with out-of-town addresses.
To help guide State Street back on course, Gene Deering, senior vice president of Radius Group Commercial Real Estate, suggested property owners take on a more dynamic role. “If owners are proactive on upgrades for their building and provide improvements or free rent to prospective tenants, this will increase the chances of them taking a risk on State Street,” he explained. “If you haven’t upgraded your property in the last 15 years, it’s time to see what you can do.” Deering also encouraged landlords to collaborate with their neighbors on modernization projects. “You have more influence than you think.”
Throughout two dozen private conversations with State Street tenants about their landlords, three names came up often. Jim Knell, founder and chair of SIMA Corporation, was described as particularly difficult to work with, allegedly bargaining in bad faith and squeezing every possible penny out of his tenants. He disputed these accounts. “It’s real easy to make generalizations without facts,” Knell said. “Of course that is the essence of ‘fake news,’ isn’t it?”
Paul Wellman (file)
Richard Berti was also described as challenging, reportedly charging high rents for outmoded spaces. Berti countered that he’s in fact lowered his rates in response to State Street’s troubles and worked with tenants to keep their stores open. Berti instead blamed the Funk Zone for diverting foot traffic away from State, and he criticized the city for its inaction. “The city has done almost nothing to help, other than to hold meetings,” he said. “The benches are gathering places for vagrants. The sidewalks, streets, and lighting are not well maintained.”
The third name mentioned was often Lynne Tahmisian, owner of the retail and office property La Arcada on the corner of State and Figueroa streets. Tahmisian’s tenants — and those around town who simply know her by reputation — are quick to sing her praises. She blends a sharp business wit with empathy for her fellow Santa Barbarans, they say, and finds ways to make deals to everyone’s benefit. Tahmisian said she inherited her management chops from her late uncle Hugh Petersen, who bought the property in 1972. “His philosophy and mine are to [rent to] local entrepreneurs,” she explained. “I often say it’s difficult to get into La Arcada, but once you do, we will do just about anything to keep you and help you succeed.”
Tahmisian maintains low rents to help La Arcada’s family — “Because that’s really what we are,” she said — and will sometimes waive monthly payments altogether. “Compassion has to start at home,” she said, acknowledging the steep hill State Street must climb. “Yes, I am very concerned about our retail future,” she said. “We have to develop new mindsets that center on our community rather than on ourselves individually.”
The Viejo Look
There is a reason State Street feels preserved — though some would say hung up — in white-stucco time. Since 1960, a quietly powerful group of volunteer architects, historians, and planners has closely guarded the heritage of what’s called El Pueblo Viejo (The Old Town). They designate landmarks and scrutinize new building projects to be sure they keep within the city’s classic Spanish Colonial aesthetic. Any landowner or developer wanting to alter an exterior or build something new in this highly protected area of downtown must win the approval of the nine-member Historic Landmarks Commission (HLC).
The HLC is often credited with keeping Santa Barbara from looking like Newport Beach, but it’s just as frequently derided as unnecessarily difficult and unfairly capricious, as well as a potential impediment to the kinds of development projects needed to breathe new life into the State Street corridor. The Santa Barbara Independent spoke with four applicants in various stages of review with the HLC who discussed their experiences on the condition of anonymity so as not to jeopardize their projects. All four described costly delays in the process and hostile attitudes by certain commission members. There was also a consensus that the HLC, largely composed of retirees, is driven by personal no-growth agendas that are setting up the city for further failure. Said one particularly annoyed applicant: “They’ve got one foot in the grave and another on a banana peel.”
In April, the HLC denied a request by the Montecito Inn — still recovering from Thomas Fire and debris-flow fallout — to install a black awning over its new Franklin’s Crab & Co. restaurant. The commission demanded that the awning be dark green instead. Inn owner Danny Copus appealed the decision with a blistering letter to the City Council. “In all of the city’s good work that it does to keep our town looking beautiful, it is at times notoriously obsessive compulsive,” he wrote. This kind of arbitrary decision-making, he said, is “holding back people from even wanting to do business at all in our fine community because of the occasional absurdity of process to get anything approved.” And that, Copus concluded, “is partly why we have so many vacant storefronts.” The council voted unanimously to grant his appeal.
During the HLC hearing on June 27, chair William La Voie chastised a designer hired by City Hall to develop its “No Smoking” signs. It was a classic example of La Voie’s style, which so many have described as aggressive and condescending. (Originally appointed in 1993, La Voie was temporarily suspended at least once before for similar behavior.) At this particular hearing, after vigorous debate over a specific shade of brown, La Voie jumped in: “Did you look at the sign sections in the EPV [El Pueblo Viejo] guidelines? Did you?” Before she could answer, he continued: “You did not. We have extensive guidelines on what signs are supposed to look like. We can control the font, color, and shape. … We are not Los Angeles. We are Santa Barbara. We are creating old Spain in America.”
Raising his voice over fellow commissioners now chuckling at the one-sided exchange, La Voie went on berating the stunned designer. When she asked to respond, La Voie told her no. City leaders have privately expressed a desire to replace La Voie and other members of the commission, but they say it’s difficult to find younger experts willing to donate their time. Three of the commissioners’ four-year terms, including La Voie’s, end in December 2018.
From the 400 block of lower State Street to the arts district in the 1300 block, 38 storefronts stood empty, according to a survey by Radius Commercial Real Estate Group in June 2018. That’s a total of 295,000 square feet of unproductive real estate, or 14.8 percent of properties from Gutierrez to Sola Street.
Follow any State Street business story long enough, and you’ll wind up at 630 Garden Street. That’s the home of the city’s Community Development Department (CDD), where a staff of 75 planners, building inspectors, and safety officers oversee almost every aspect of Santa Barbara assembly, from grand new edifices to retiled bathroom floors. Employees there work particularly hard, and these days even harder, just to keep pace with recent housing initiatives.
Ray Mahboob, who in the last few years has become one of Santa Barbara’s more prolific developers, respects staff as individuals. “They’re all good people,” he said. “Everyone is doing their best.” But the department’s permitting and approval process is nothing short of a slow-moving disaster, he declared. “The whole system is broken. It needs a complete overhaul.”
This sentiment is shared by many other developers, architects, contractors — nearly everyone who brushes against the CDD. Even a few City Hall leaders privately acknowledged the morass of confusion and inefficiency within the department, but they’re loath to spend the political capital or retirement pension it would cost to blow the whistle. “We need to be willing to ask uncomfortable questions,” said one city official who asked to remain anonymous. “The first step is to even admit we have a problem.”
Commercial investor Jason Jaeger of Jaeger Partners agreed with Mahboob. “Every step of approval is excruciating,” he said, explaining that projects in Santa Barbara take three, four, or five times as long to get off the ground as they do in other communities. He talked about how one client — the small AH Juice Organics café on Haley Street — had to wait 18 months to open its doors. Another client — this one on State Street — has been on ice for more than a year and is still counting the days. They’ve spent $1 million more than they’d budgeted to reach this point. “Our permitting process is the kiss of death,” said Jaeger.
In a July 20 letter, an architect vented to city officials his “extreme” disappointment and frustration with the permitting process, explaining his clients had endured seven rounds of plan checks for a minor permit revision. “Each submittal costs us thousands of dollars and weeks of time,” he said. “At this point, we cannot afford to do another.” The problem was not limited to this particular project, he went on. “[It] is substantive enough to significantly dissuade architects and business owners from doing business in this city. … We have worked with many agencies throughout California and have never experienced this level of capricious, unending bureaucracy.”
Store and restaurant operators have also recounted instances where planning staff made errors that cost them tens of thousands of dollars with no avenue for recourse. Other common complaints involve multiple planners interpreting the same building code in different ways, as well as massive projects and minor requests clogging the department’s narrow workflow.
Mahboob told his own story to illustrate the dilemma. Not long ago, one of his new State Street tenants was trying desperately to connect with a city planner for final sign-off. They were never able to reach the proper person, so the tenant demanded that Mahboob include a provision in the lease that stated if the city didn’t respond within 60 days, they could break their contract without penalty. “I’d never seen that before,” said Mahboob. “We’re building a reputation. The tenants all talk.” Beyond these procedural frustrations, Mahboob and others worry the CDD may lack the youthful energy and radical revisioning ability needed to resurrect State Street.
Developer Neil Dipaola declined to say anything critical about the planning department, but he did emphasize a need for honest assessments of customer experience. “Let’s get some objective data,” he said. “Let’s find out who’s been applying for permits and see how the process went for them, because the first step is understanding the problem. And if there’s no problem, fine, we’ll explore other issues. But let’s get the data first.”
Two years ago, Buell heard a similar suggestion but took it a different direction. Instead of polling planning customers, he surveyed planning staff. He asked them to assess their own abilities and performance. The results showed the department was executing its duties exceedingly well.
If there is one thing all State Street stakeholders can agree on, it’s that homelessness is a complicated societal ill that’s bad for business. Landlords and storeowners frequently claim that homeless people scare away tourists and keep families from venturing downtown. Maggie Campbell, director of the Downtown Organization until her abrupt departure in January, partially out of exasperation over this very issue, pushed hard for an increased police presence as well as the removal of the sidewalk benches where panhandlers perch. She commissioned a “Retail Strategy” study that supported her efforts by concluding the concentration of loiterers was a “GIGANTIC issue.”
After a homeless man killed a 35-year-old man in front of his wife and 5-year-old daughter as they were having dinner at a restaurant in Ventura this April, Santa Barbara landlords began warning City Hall that a similar tragedy was waiting to happen here. One merchant owning a lower State Street candy store waved an adult toy in front of the City Council to graphically describe how a homeless man accosted one of his customers. Frustration is at a boiling point.