Land of the sky-high rents

In our broad valley at the confluence of the French Broad and Swannanoa rivers, ringed as we are by mountains and sheltered by the architecture of glory days long past, it’s possible to imagine Asheville as a city apart, populated by quirky individualists and served by independent businesses tailor-made to suit the local ethos.

Going-up-Hotels-crowds-and-rent-Best-of-WNC-Part-2-330x355But it’s dawning on us that our illusion of isolation is just that — an illusion. In the sky above Asheville, construction cranes swing to and fro, building towers for national hotel chains. At the street level, some storefronts are already occupied by well-known national brands, from clothing retailers Urban Outfitters and Anthropologie to restaurant chains Marble Slab Creamery, Jimmy John’s and Mellow Mushroom. Beside the river, Colorado-based New Belgium Brewery has opened its East Coast outpost. And along commercial corridors like Hendersonville and Tunnel roads, strip development and big-box stores abound.

Asheville has well and truly been discovered, and our growing integration into the national economy has brought both rewards and threats. Last fall, downtown independent business owners timed a protest against the growing presence of chain retailers to coincide with the opening of an Anthropologie store on Lexington Avenue. This spring, a national study by the Institute for Local Self-Reliance revealed that Asheville experienced the fourth-fastest increase in retail rents in the country, among urban areas. With a 17 percent jump in average retail rental rates between 2014 and 2015, Asheville trailed only Charleston, S.C. (at 26 percent), Portland, Maine (22 percent), and Nashville, Tenn. (19 percent). And, the study points out, over the same period, both median per capita income and retail sales grew just 1 percent.

So if sales revenues aren’t growing, what’s behind the big price increases for urban retail space? According to the study, and to a number of locals interviewed for this story, some of the factors contributing to the price surge include intense demand for commercial real estate as an investment, the growing popularity of cities, and the financial clout of chains and national brands.

Back to the future

While today’s local business advocates lament the influx of chains, downtown Asheville once boasted plenty of big-name retailers, from the iconic S & W Cafeteria to J.C. Penney, Sears and Belk department stores. After those businesses moved to the Asheville Mall in the 1970s, commercial activity downtown dwindled and many storefronts were boarded up. As the center of the city stagnated, ownership of many downtown buildings was consolidated in the hands of a small number of families.

The Lantzius clan is one such family. In the late 1970s, John Lantzius  a landscape architect who was born in Vancouver, British Columbia, raised in Asheville and, as an adult, resided in both cities — began buying buildings along Lexington Avenue. Lantzius cleaned and repaired the old commercial buildings and began curating a considered mix of small businesses to promote his vision of a dynamic, livable city with an emphasis on historic preservation. With other downtown advocates, Lantzius opposed a city plan to demolish an 11-block area to create a downtown shopping mall.

After city voters nixed the downtown mall idea in a hard-fought $40 million bond referendum on Nov. 3, 1981, Lantzius continued to acquire property, eventually owning buildings along both sides of Lexington Avenue from College Street to Interstate 240, as well as several properties on Broadway Street. He and his family members amassed over 500,000 square feet of commercial space and were among the public-spirited catalysts for the revival of downtown Asheville. Julian Price, Roger McGuireDavid Brown and others also acquired property and worked to nurture the city’s comeback.

Truly Ball, owner of Nest Organics on Lexington Avenue, has many fond memories of Lantzius, who died in 2014. “We had a wonderful, wonderful landlord in John Lantzius, whose legacy was preserving downtown Asheville,” she says, noting that Lantzius had “the personal touch,” often stopping in to chat and check on how her business was faring. He could often be seen picking up trash along Lexington, she recalls.

TRULY LOCAL: Homegrown retailer Truly Ball of Nest Organics says about 60 percent of her merchandise is locally or regionally produced. Photo by Virginia Daffron
TRULY LOCAL: Homegrown retailer Truly Ball of Nest Organics says about 60 percent of her merchandise is locally or regionally produced. Photo by Virginia Daffron

“Obviously, he was a businessman and he was doing well, but he wasn’t in any way greedy,” Ball explains. “He really cared about the city.” Since Lantzius’ death, however, many tenants, including Ball, have wondered how his heirs will handle the family holdings.

Tom Leslie — who manages properties owned by Lantzius’ sister, Dawn, and his two daughters, Anne Maria Strauss and Susan Rich — says the family remains committed to John Lantzius’ vision for Lexington Avenue. They hope and plan to continue to rent to mostly “home-grown” businesses, Leslie says.

Ball’s shop is a tenant in 49 North Lexington Ave., which sits at the corner of Lexington and Walnut Street. The 71,000-square-foot building also has retail frontage along Rankin Avenue. Those spaces on Rankin, along with several others in the building, have been vacant for quite a while. Leslie explains that city building codes require a new sprinkler system to be installed before any unoccupied units can be rented. He is soliciting bids for that work, as well as for a new roof. When those projects are completed, Leslie expects the spaces on Rankin Avenue to rent for $20-$28 per square foot per year, which he describes as “market rate” for downtown Asheville.

In high demand

According to the ILSR’s April report, one of the main factors fueling rising rent prices is demand for real estate as an investment. “A global surplus of capital seeking higher returns is flooding into urban commercial real estate, causing a speculative run-up in prices,” the report explains.

Local real estate broker Jim Diaz of CoveStar Investment Realty Advisors agrees that there’s more demand for downtown investment property than there is supply. “Because of the appeal and the unique character of Asheville,” he explains, “there is a desire for ownership … no matter what it costs.” That demand has led to a market in which prices have become disconnected from the underlying investment fundamentals, Diaz says. “People are now willing to pay more for the same cash flow [from commercial leases]. As the values have gone up, returns are going down.”

Citing recent downtown sales including 28 North Lexington Ave., 60 Patton Ave., 29 Page Ave. and 50 and 60 McCormick Place, broker Austin Walker of Whitney Commercial Real Estate Services agrees that the market for Asheville property is red hot.

For example, the Junior League of Asheville bought its headquarters at 29 Biltmore Ave. —  which served as the home of its Next to New thrift shop until the store closed in 2009 — for $35,000 in 1984. The 4,000-square-foot building sold on June 14 of this year for $875,000 to local real estate investor Alex Quarrier, who told Xpress he hopes to continue to work with the current retail tenant, Van Dyke Jewelry & Fine Craft. On the upper floors, Quarrier says, he’s looking to attract an office tenant; in the future, he may consider creating residential units above the retail space. The Junior League has moved to new office space at 409 Executive Park, which is located on College and Charlotte streets.

As well, the former Jesse Ray Funeral Home property at 185 Biltmore Ave. was sold in March last year for $875,000 after it passed into the estate of Julia Ray, Jesse Ray‘s widow. Although the brick building had a lot of history — it was Asheville’s first hospital serving the African-American community when the Rays bought it in 1951 — the structure was demolished and the parcel now serves as a parking lot for Green Man Brewery.

Moving blues

Across the street from the Lantzius property at 49 North Lexington Ave., smoke shop Octopus Garden occupied a storefront at 80 North Lexington starting in the early 1990s, says Greg Casey, who manages all of the retailer’s seven locations around Asheville. When Octopus Garden’s lease ended, Casey explains, the Seattle-based owner of 80 North Lexington declined to renew the agreement, saying the owner plans to develop residential units on the upper floors of the building.

When they realized the lease wouldn’t be renewed, Casey says, Octopus Garden had only 30 days to find another space. Though Casey originally planned to move overnight and open in the shop’s new location at 188 Coxe Ave. the next morning, things didn’t work out that way. Delays in obtaining necessary city permits led to the shop’s equipment being placed in storage, where it remains two months after the move. Casey says he hopes to open the new store in one or two months.

But looking on the bright side, Casey continues, Octopus Garden is “super excited” about moving to Coxe Avenue, one of the main thoroughfares in the area that locals and city planners are calling the South Slope. “It’s definitely the up-and-coming area,” he comments. When the new store opens, it will have more than twice the area of the old downtown location, yet the rent will be slightly less. Casey says he expects it will take foot traffic in the South Slope a couple of years to catch up to that on Lexington Avenue, but he’s optimistic about the store’s future in its new location. That’s fortunate, because Octopus Garden signed an 18-year lease. “We didn’t want any chance of going through what we are experiencing right now anytime soon,” Casey says.

SPREAD THE LOVE: ZaPow and Octopus Garden will join restaurants and breweries in the up-and-coming South Slope district. In October, ZaPow plans to move into 150 Coxe Ave. (the building under construction in this photo); Octopus Garden will be just down the street at 188 Coxe Ave. Photo by Virginia Daffron
SPREAD THE LOVE: ZaPow and Octopus Garden will join restaurants and breweries in the up-and-coming South Slope district. In October, ZaPow plans to move into 150 Coxe Ave. (the building under construction in this photo); Octopus Garden will be just down the street at 188 Coxe Ave. Photo by Virginia Daffron

Joining Octopus Garden in the fast-growing district will be ZaPow art gallery, which will move to 150 Coxe Ave. in October. Gallery co-owner Lauren Patton says she was thrilled to sign a 10-year lease on a space that will include the gallery, a recording studio and classroom, storage space for artwork, a mailing area and two public unisex bathrooms. The area’s many breweries and restaurants will be a great draw for her customers, she continues.

ZaPow’s lease renewal negotiations for its current space, Unit 101 at 21 Battery Park Ave., drew attention in June when the business faced a big rent increase. When Patton and Matt Johnson first leased the location in 2011, their rent was below market rate for the 2,700 square foot space. By this year, Patton says, the gallery was paying $22 per square foot.

Walker says Patton’s rent is close to the average for current rents downtown, which he pegs at $24 to $26 per square foot. A year or 18 months ago, he explains, average rents were around $18 per square foot. “Then they just started skyrocketing,” he says.

ZaPow’s landlord outlined several possibilities for the gallery’s lease renewal, ranging from an 18 percent increase for a one-year extension to a 24 to 36 percent increase over a five-year term. All of the options required immediate payment of an additional month’s rent as a security deposit. Patton and Johnson took to social media, asking for pledges to help cover the increased costs; the property owner subsequently withdrew from the negotiations.

While Patton declines to identify the property owner, public records indicate that Unit 101 belongs to Tom Flora, who operates Three Dog Bakery next door in Unit 103. Flora, however, says he’s not the gallery’s landlord, and that father-son team Greg and Eric Barnes of Atlanta own the space. Asked why public records name him as the owner of the unit, he says, “Well, because the records are kind of screwed up in this building.” Attorney Thomas Grella, whom the Buncombe County Tax Office identified as the lawyer for the transactions involving units 101, 102 and 103, did not return a call seeking clarification.

Salon owner Rebecca Hecht — who founded the local business advocacy group UnChain Asheville — points out that moving a business is far from easy or cheap. Beyond hiring movers to relocate furniture, merchandise and equipment, business owners must secure new signage, phone lines, internet service, printed materials and more. The costs, plus the disruption of the move and the challenge of attracting customers to the new location, Hecht says, can severely strain the viability of a small business.

Traffic up, sales down

Asia Guyer owns the North Lexington clothing boutique Virtue. When Guyer began building her downtown retail clothing business in the early 2000s, her target demographic was local Asheville women who wanted fun, fashionable and affordable wardrobe items. But lately, with sidewalks crowded and parking scarce, her customer base seems to be tilting more and more toward vacationers and away from locals. Guyer says she believes residents are choosing to shop in less-congested areas, and her sales are at their lowest level in six years.

“Tourists don’t spend as much money,” Guyer says. “They’re traveling, they’re on a budget and they’re thinking about what they can throw in their suitcase.” While Guyer didn’t want to comment on her lease situation, public records show her building is owned by local real estate investors David and Cecelia Brown.

Nest Organic’s Ball agrees that an increase in foot traffic hasn’t yielded a corresponding increase in sales. As well, she’s noticed that visitors seem to be coming from farther afield, with a noticeable uptick in European tourists, a trend also reported by other downtown retailers.

Hecht concurs that the demographics of the visitor mix have shifted. Previously, she says, “We had a lot more people in their 30s to their 50s, and they had a little more expendable income.” These days, she sees a younger crowd with a different set of reasons for visiting the city. “Whereas before it was like, ‘Oh, there’s a great arts-and-crafts scene here, there’s great food and lots of awesome little shops,'” she explains, “now it’s beer, beer, beer.”

Local salon customers, Hecht says, have complained more about the hassles of driving and parking downtown in the past year and a half than ever before. While she values the vibrant atmosphere of downtown, and the cachet that comes with an urban location, she has begun to question whether the visibility of Adorn Salon & Boutique’s location on College Street is worth it. “If your locals aren’t downtown anymore, it’s not like they even have the awareness that you’re there,” she explains.

Power of chains

Anthropologie’s Lexington Avenue shop is one of over 200 locations for the retailer. Asheville resident Faymi Winters oversees the store, along with seven others, as a district manager for the brand. “We have been welcomed so warmly by our local customers and business owners along Lexington,” she reports.

Winters doesn’t buy into the “chains versus local businesses” debate. “Some of my favorite stores are local businesses, and my team feels the same way. When I shop at Minx [on Lexington], I see customers there with bags from Anthropologie, bags from Tops For Shoes and I see the same in our store,” she says. “There’s room for everybody,” Winters suggests.

But there’s no denying that national businesses bring a lot of bargaining clout to the table in real estate negotiations. As the ILSR report points out, “Banks and other lenders often provide lower interest rates or better terms if a property owner or developer has signed national, brand-name tenants.” Not only that, but chains are increasingly seeking urban space for expansion, “…having saturated the suburbs and under pressure from shareholders to show square footage growth year after year,” the report explains.

National retailers generally require larger spaces than independent local businesses need or can afford. Once an older building has been redeveloped to suit a national tenant, the chances that the resulting space will ever again be home to an independent business are slim, according to the ILSR report. Mayor Esther Manheimer says the city could require an additional approval process for knocking down interior walls or other building projects that would create bigger spaces within existing downtown buildings.

Beyond targeted measures that seek to preserve spaces suitable for local businesses, Manheimer says, the city’s options are limited. “We have no ability to exert rent control, and we can’t prohibit chains or any other category of business from renting space downtown,” she explains.

Growth and consequences

Once upon a time, urban planner Joe Minicozzi says, “Chains built valuable assets in communities. Now they don’t.” National retailers, he continues, come to Asheville to extract wealth from the community. That money is distributed to shareholders and corporate employees who, by and large, are elsewhere. But Minicozzi doesn’t think that giving handouts to local independent businesses is the answer. Rather, he says, Asheville should seek to level the playing field by encouraging growth downtown and in emerging areas like the South Slope, which would create new opportunities to grow the local economy and deliver local benefit. While he professes that, “generally speaking, monolithic chains cause harm,” it’s important to remember, “This is a downtown, not a museum.”

Minicozzi expresses frustration that one of the key components of the city’s 2009 Downtown Master Plan has not been implemented: the establishment of  “Community Investment Districts” to oversee and maintain sections of downtown. Within district boundaries, property owners would pay slightly higher taxes; the increase would be dedicated to administering and improving that CID. John Lantzius, Minicozzi recalls, was a great supporter of the CID concept, and he owned buildings within an improvement district in Vancouver.

In Asheville’s downtown, says Minicozzi, who advises cities across the country, “We are lucky that we’ve got so many different spaces. It would be awful if we were all chains. But we run the risk of going that direction.” Because Asheville is ambivalent about growth, he continues, “We’re not growing our city to capture the demand that’s coming in. The property that’s left as we get more popular becomes so precious, and then, of course, prices go up.”

But independent businesses can learn from national chains. For a start, suggests Minicozzi, indie businesses could keep their shops open past 6 p.m.”Most cities would kill for the foot traffic we have in the evening, especially on Friday nights and the weekend,” he says.

Resentment toward chains that move into Asheville may be misplaced, Minicozzi points out. “To some extent, it isn’t about hating the player, but hating the game.”

Building community

When architect Jim Samsel set out to purchase 60-64 Biltmore Ave. in 1985, he recalls, “The first banker I tried to get to look at it wouldn’t even get out of the car.” By taking on what he describes as “a great deal of risk,” Samsel and a partner eventually secured financing to buy the two buildings, and embarked on a multiyear renovation to update the 1920s-era structures. Samsel now has five partners in the limited liability company that owns the property.

In 1991, Samsel’s first tenant, Laurey’s Catering, moved in. After a while, the Asheville Wine Market took up residence in the building. Samsel thinks the synergy between the two businesses helped both to grow, a phenomenon he’s seen repeated with other tenants over the years. With few exceptions, he’s managed to rent mainly to locally owned small businesses, and he says he’s tried to keep his leases reasonable. Over time, though, costs do go up and those must be shared by tenants, he explains.

For those buying into the market now, maintaining affordability is more of a challenge, Samsel says: “If you buy a building in today’s market, you pay a higher price per square foot to start with and the taxes are higher.” Newer downtown owners may also be what Samsel calls “folks from afar.” Those investors, he continues, “might have different expectations for the return on their investment.”

Adorn Salon & Boutique’s Hecht says she’s been lucky to rent from landlords who share her perspective as a retailer. Tops For Shoes’ Bob and Ellen Carr, she explains, “understand the ups and downs and ins and outs of retail business, so they can be more realistic with what they think of as reasonable rent increases.” Her husband, Evar Hecht, has also been fortunate in his landlords at 12 Wall St., the longtime location of Paul Taylor Custom Sandals. The owners of his unit, Hecht explains, have been “really reasonable about keeping the rent stable.” But like all downtown retailers, Hecht and her husband don’t have a crystal ball for predicting what will happen at the end of Paul Taylor’s current lease. “When the lease is up, we’ll see what we deal with then,” she says.

Another local business that counts itself fortunate in its landlord is Bouchon, a French-inspired bistro run by chef Michel Baudouin on Lexington Avenue. The restaurateur, who has operated eateries in Asheville for 11 years, attributes part of his success to stable, long-term leases. “I can only speak for myself, but it has been a very good run for Bouchon,” Baudouin says. “I have several years left on my lease and an option to renew.”

At the same time, more local shop and restaurant owners declined to speak to Xpress for this story than were willing to comment, citing concerns about the possible consequences of discussing the terms of their leases for future lease negotiations.

Shangri-La in peril

Former downtown business owner and current City Council member Brian Haynes says Asheville faces a real risk of diluting what has made the city so popular. “If our downtown were to become dominated by corporate chains or large national retailers, it would destroy the very fabric that made us this destination hot spot,” Haynes comments. Losing the city’s unique small businesses would turn Asheville into “Anywhere, USA,” he warns.

Manheimer agrees that maintaining downtown Asheville’s character is both a challenge and a priority for the city. “I hope that having a large number of local owners will, in the long run, help us preserve more downtown space for local businesses,” she says. Broker Jim Diaz also puts considerable faith in local real estate developers and owners. “The last thing they want to do is put a bunch of national credit retail downtown, pouring bleach on the scene and homogenizing the landscape,” he says. “That wouldn’t work at all.”

“Asheville’s downtown is our community jewel,” says Pat Whalen. While other cities grapple with knitting together the holes in their urban fabric, the developer continues, Asheville struggles with different issues: a compact footprint, limited parking and inadequate sidewalk space.

Lexington Avenue provides a great example, Whalen says: “The city has designated Lexington as one of our key pedestrian streets, and it’s a 3-foot sidewalk with utility poles in the middle of it all the way down from Patton.”

FREAKS OUT? Colorful and funky, Lexington Avenue draws crowds of visitors. Many local retailers say the growing foot traffic is bringing higher rents — potentially pricing out the indie businesses that created the street’s vibe. Photo by Virginia Daffron
FREAKS OUT? Colorful and funky, Lexington Avenue draws crowds of visitors. Many local retailers say the growing foot traffic is bringing higher rents — potentially pricing out the indie businesses that created the street’s vibe. Photo by Virginia Daffron

Whalen, who’s been the president of the pioneering development firm Public Interest Projects since 1991, says the dangers facing Asheville are real: “I’m concerned if we can’t spread the love of Asheville’s urban experience to more properties [outside the city center], all that attention to the Central Business District will continue to produce just what we are seeing — higher rents.” And higher rents definitely hit small local businesses much harder than national brands, he concedes.

The solution, in Whalen’s eyes, is expanding the CBD by allowing denser development in the six to 10 blocks surrounding the city’s center, building new parking structures and replacing some existing on-street parking areas with wider sidewalks.

For Hecht, downtown Asheville represents the culmination of a community effort involving the city, property owners, business owners and customers. In the face of the pressures that have inflated the value of commercial real estate and squeezed local businesses, she says, “I’m hoping it’s not too late to save this really special, really unique downtown that we’ve all worked hard together to create.”

 

Originally published on Aug. 19, 2016

With additional reporting by Lee Elliott