Second Street Retailers Take Stand Against Landlord

Gomi owners April and John Lohse arrived at their store recently to find it had been padlocked by property managers. They're not the only retailers crying foul. (Photo by John Anderson)

Controversy hit the city's prized 2nd Street Retail District after eight stores received default of lease notices in early September (see "Nightmare on Second Street," Oct. 19). Now worried retailers have retained attorneys and allege property management firm Urban Partners Inc. has been trying to force them out through inflated utility bills, unfulfilled promises, and threats of eviction. "They sent out default notices, demanding full payment," said one retailer, speaking confidentially. "Don't think because we haven't done anything up to now, we won't do anything in the future."

The issue centers on utility bills. The ground-floor retailers were hooked up to the Downtown cold-water system, and the property managers acted as the utility firm. However, tenants did not receive bills for up to two years after they moved in. When the bills finally arrived, they had been backdated over two years and were up to 40% higher than monthly estimates the retailers were given before signing leases. While retailers agreed they owed something for the services, they disputed the totals and the monthly amounts; one retailer's monthly bills ranged from $100 to $1,100. However, even though meters were installed, they were never read, and instead, the bills were estimates in spreadsheet form. "They divvy it up by the percentage of the rentable square footage you occupy. But this means a store with one staff bathroom pays the same amount per square foot as a spa or a restaurant," one retailer said. "How are you supposed to operate a business when you don't know your operating costs?"

Where the tenants got caught out was that, although utilities were billed separately from rent, if they fell behind, it was counted as back rent. "The lease clearly says that utilities are considered part of rent, and nonpayment of rent can be considered default," said one retailer. "Some people are behind on rent, but utility bills are what are putting most people in default."

The firms are all tenants in the blocks just east of City Hall – the privately owned AMLI building on the north side of Second and the Computer Sciences Corporation building, built with council investment, on the south. However, the ground-floor retail in both buildings was developed by AMLI Austin Retail LP, with the property management left to Urban Partners. (Both companies were contacted for comment but failed to provide promised interviews.) According to Council Member Brewster McCracken, the City Council feels the retailers' pain. "We have a responsibility because we're one of the landlords," he said. "Urban Partners is the district's agent, so we need to be in agreement about the proper way of handling this."

Retailers said Urban Partners had been unresponsive and believe getting the firm to correct the disputed bills is next to impossible. "They'll tell you one thing to your face, they'll tell you another in e-mail, but they won't ever put it in writing and make it official," one said. John Lohse, owner of DJ culture and clothing store Gomi, not only was served a default notice; he was the only tenant to be locked out of his business. Lohse said he had been presented with a $13,000 utility bill. He disputed the sum and thought he and Urban Partners were moving toward resolution, but nothing ever materialized. "It's plausible deniability," said Lohse. "They say, 'Here's this utility bill; ignore it,' but if you look in your lease, it puts you into default."

The bills were not the only issue. Tenants alleged they were harried over utility bills while AMLI still owed them for build-out costs. They further complained of lengthy delays in the installation of access ramps to make stores compliant with the Americans With Disabilities Act. Tenants also claim their businesses have been damaged by the property managers leaving several stores empty by letting tenants sit on their leases for months without moving in. Similarly, shoe store Lucky Soles had only a brief lifespan in the AMLI building. Months after closing, the store still has its logo on it, making it look abandoned.

Some tenants feel the management company was targeting independent local firms and noted that the two retailers that closed, Gomi and Lucky Soles, were established Austin businesses that moved to the area. As one retailer said, "Every­one was concerned about Las Manitas closing. Well, we're a block over from Congress, and no one seems to care. Did anyone research whether it was actually possible for a local store to survive here?"

Actually, they did. According to McCracken, a 2002 council study showed that the area needed 200,000 square feet of retail to be self-sustaining. However, with the district only 40% built out, McCracken is concerned about the survival of local retailers that moved in early. He promised further investigation of tenant allegations, to ensure they would not be evicted in favor of national chains. "Second Street has changed a lot of business paradigms," McCracken said, "but it still has to reflect our values."