Red Ink on Second Street: Default or Confusion?

Hit with alarming bills and receiving extremely sporadic utility statements, some Second Street retailers are fearful of being elbowed out; property managers West Village say the notices were sent in error. (Photo By John Anderson)

With its smart stores, mixed-use design, and wide sidewalks, the 2nd Street District – 2SD to those in the know – is revered, across the street at City Hall, as the future of Downtown Austin – a blueprint for dense, urban growth.

But closer to the ground, there are signs of discord behind the 2SD's upscale veneer. Three district retailers – wishing to remain anonymous, for fear of appearing financially troubled or compromising their relationship with the property management agency – confirmed to the Chronicle that at the beginning of April they were unexpectedly hit with lease-default notices containing large bills for utilities and back rent. Invoices from the West Village management company overseeing retailers have been sent out in the tens of thousands of dollars – even while some retailers report they haven't received a utility bill in as long as a year. "It's districtwide," said one retailer, echoing claims that as many as eight stores were served with large bills and lease-default notices.

On April 2, a letter was sent to someone we'll call Retailer X. Citing a balance of more than $20,000, the letter stated, "You are hereby notified that you are in default of your lease agreement." Moreover, the staggering amount – several months' worth of rent, enough to torpedo any new business – was due two weeks from the date of the letter, with failure to pay possibly culminating in "all legal remedies available under the lease." Retailer X was flummoxed, saying they'd reached an agreement with the management company on rent deferments that were now listed as due. Additionally, there were thousands of dollars in other fees: property tax and common area maintenance fees (both dating from 2005) and more than $2,500 in water and chilled-water bills, stretching as far back as January 2006. (Newer Downtown businesses hook into a chilled-water air-conditioning system.) Despite having been in business more than a year, Retailer X claims to not have received a bill for the chilled-water service until getting the default notice, which demanded more than $2,000 in payment covering six months. And it appeared that West Village was simply estimating everyone's usage – and consequent bill.

According to the retailer's lease, this latter practice may be perfectly acceptable. "I don't dispute that we owe them some money," X says. "We expected that we would get a bill from a utility provider – but the rather willy-nilly fashion [West Village] decided to use … it's certainly not a flat-billing practice."

This is not the only store to report odd billing practices. "It is something that happened to our store," Retailer Y says. The business owner hasn't received a chilled-water bill in more than a year and had to repeatedly needle West Village for an electric statement. "Personally, I requested a bill on a regular basis and was told, 'We're working on it.' The electric bills would not come on a consistent basis." (The business owner rents in the CSC building; apparently, West Village manages electricity in this building, while Austin Energy maintains the electric accounts for retailers in the AMLI building.)

While Second Street itself is lined with businesses, there are several unleased storefronts on neighboring streets. Retailer X fears the default notices may be an attempt to run out smaller, local stores in order to bring in larger, chain retailers with bigger budgets. These fears are founded in West Village's namesake project in Dallas: largely a collection of trendy, national stores.

A third source, Retailer Z, thinks nothing so nefarious is afoot, instead describing the bills as one cog in the confused beginnings of a new business – for the renters and leasing agency both. Although Retailer Z opened early last year, the store didn't receive a chilled-water bill until May 2006. The initial bill seemed high, with no frame of reference, but Retailer Z shrugged and paid – until getting a bill roughly twice as large the following month, a combined water and chilled-water bill of more than $2,500. "Then I started getting really upset," Z says.

West Village's Austin representative, Frank Seely, told Z to ignore the high bills while the company works on establishing a more equitable billing system and eventually installs submeters in individual businesses. "That conversation was around last August and September," Z says. Possibly adding to the confusion, a little later in the fall, a familiar name at West Village's Dallas office left the company. All three retailers identified the former leasing agent by name; they believe the agent was fired for poor billing and money management – possibly explaining the utility billing problems. Seely somewhat acknowledged this problem, saying the previous agent "left, so we're just picking things up. It's just a matter of reconciling the accounts."

Fast-forward to April 2, when Retailer Z also got a bill and lease-default notice. "My letter said that I owed $13,000 and change," Z says. But after discounting two months' rent (sent out early in the month, the bills all included April's rent; the lessees were also mistakenly back-billed for a month's rent already paid), Z's bill only included the old utility bills Z had been told were being recalculated. "I feel like – and I can only speak for myself – when I waded through it, there wasn't anything on my bill that I didn't know about. There wasn't one big crazy new charge on there. … I was relieved."

Z is in contact with West Village's Dallas office, which, according to the retailer, "knows that it's a problem." While not worried about being elbowed out of the lease, the retailer is frustrated by the lack of timeliness. "I'm thinking, 'It's building up' – it's not like I'm going to get [chilled water] for free. I want to close out my books, but I can't because I have to accrue the utility bills. The thing that needs to be improved upon is the timeliness of the info – that's the crux of it. I don't think the default letters were intended to get anyone out of here. … The combination of a form letter, a management company trying to please a landlord, and any one of us [retailers] not having one or two [payments] on our accounts – all that created the state of the union right now on Second Street."

West Village's Seely calls the letters simply "some housekeeping we sent out" but acknowledged the bills contained "a lot of inaccuracies … due to the software system." "They were some standard letters that were generated and sent out; that's all it was. … [You can] call it computer error." He also said that the chilled-water billing inaccuracies are "being reconciled at this time" and are in no way intended to clear out retailers for larger, more lucrative stores.

*Oops! The following correction ran in our May 11, 2007 issue: The article "Red Ink on Second Street: Default or Confusion?" mistakenly described a leasing agent's departure from West Village, the management company overseeing Second Street retailers; the departing employee was a property manager, not a leasing agent. The Chronicle regrets the error.