Archive for December 19th, 2009
Konstantina Mahlia’s story exemplifies exactly what wrong with this business community and Tucson in general. The story is powerful, the story is sad and her story should make you mad as hell at political and business leadership in this community.
Konstantina started the dream of business ownership in a small carpenters warehouse space near downtown Tucson. She creates unique, one of a kind jewelry that ranges from $1000 to $40000 per peice. Her market is primarily outside of Tucson and her jewelry has been worn by celebrities and has won national industry awards. Konstantina found herself as an entreprenuer later in life and had never ventured into business before. Her story is a perfect match of design talent and the willingness to take some risks to turn a passion into a business.
Konstantina decided to upgrade her local presence and leased an 1100 square foot retail/manufacturing space in the historic Tucson train Depot. What happened over the course of the next few years has been nothing short of a travesty.
First a history of the the depot and it’s owner, the City of Tucson. Tucson rehabilitated the train depot with a mix of dollars including federal grants. It is a mixed use development with office space, retail, restaurants and a museum. The Depot is a shining jewel in the failed Rio Nuevo downtown renovation.
The City leased the location to Mark and Sonia Economou to open Central Bistro while chaos and construction made it all but impossible to make the new restaurant a viable business. The original lease called for $225,000 in taxpayer dollars for fixturization and 18 months of free rent. The Economou’s had never owned or operated a restaurant and were soon asking for another $100,000 from the taxpayers and another year of free rent. They were turned down and put out of business. More to come on the restaurant space later.
On the opposite side of the Depot an advertising and public relations firm, LP&G leased office space for their 26 employees. When the the market turned LP&G shrunk to 5 employees and started to downsize out of the Depot.
Rob O’Dell – AZ Star – Aug. 3, 2009 - The $12 million depot restoration was supposed to attract offices, shops, a museum and restaurant — and most importantly, people. But it has never been a huge draw for visitors and shoppers.Leslie Perls, LP&G’s owner, said her company was the first tenant in the depot and wants badly to stay. She noted the company would still being paying the $24,000 in common-area charges and $21,000 in rent over six months.“We had a great reduction in revenue and are unable to maintain the current rent we are paying,” Perls said. “We love the space and want to try to stay if we can.”Lou Ginsberg, the city’s special-projects manager for real estate, said the city rewrote the lease after LP&G approached the city and opened up its books to prove its financial situation.Ginsberg said the lease was on the consent agenda because “that’s where we put lease agreements.” He declined to comment on the lease for Maynard’s because he said it isn’t finished.
LP&G visited with Rob Caylor, owner of the new owner of the old Valley Bank building downtown. I guess LP&G was in negotiations to rent his building. When the City of Tucson dropped the rent for LP&G Caylor was out of a tenant. He mailed out a pointed email to councilman Glassman in August:
You may know that I own the old Valley Bank high rise downtown and LP&G has toured this building as a possible tenant. They currently occupy the City’s depot building of approx. 5000 sq. ft. with 3 employees. They came to my building looking to downsize so they could pay less rent. The article said the council was going to give them free rent. This not only is in direct competition to me, it doesn’t make any economic sense.
What LP&G needs is smaller space! Not free rent. I have a $5.5 million dollar mortgage I have to pay and I have never asked a favor of the City. But I ask today that no more rent subsidies should be given. Why not let them move to any one of several locations downtown that fits their needs and their budget!!!
As for Maynard’s Market, how in your right mind can you give a rent reduction in the future when they haven’t even completed their first rent reduction? And if you think that Mr. Oseran has spent $1 million renovating his space, then I would ask that he produce receipts since I built the original Central Bistro from shell space to completion for less than $500,000. How do you think Old Pueblo Grill and Café Milano feel about giving Mr. Oseran a break when they are just trying to stay in business and pay their taxes? You have subsidized by providing him an $11 million garage, in which you will subsidize the parking, and as for the common area, you subsidize the 24 hour security that no private owner could afford on his own. It is time to wake up and let businesses prosper or fail without your meddling.
I appreciate your consideration in this matter.
When the Central Bistro vacated the Depot a built out restaurant remained complete with bathrooms, kitchens, floor cuts for plumbing and upgraded electrical sat empty. The owner of the Hotel Congress, Richard Oseran approached the city to lease the space with the plans to open Maynard’s market and restaurant. Oseran negotiated another free year of rent and claimed to put in $750k to $1million into the operations. After just six months of operations Oseran went back to the City for an additional rent reduction. From the Tucson Citizen December 2008:
The city gave Oseran a rent-free lease for the restaurant space until May 2011, but Oseran is paying $200 a month for the lobby and platform area, according to the lease agreement. Starting in March 2011, rent would be $7,010 per month. A year ago, Deputy City Manager Mike Letcher said the three-plus years of free rent would take the place of the city paying for tenant improvements in the city-owned depot. Oseran said building the restaurant and market cost about $750,000, about twice as much as he expected.
The actual cost of hard build out is estimated to be no more than $500,000. How Maynards got to $750k needs to be flushed out. One year after build out and a few months into operations Oseran comes back to the City of Tucson, hat in hand asking for additional rent reduction beyond his originally agreed upon term. He sighted financing needs and a week downtown market.
From the AZ Star, September, 2009:
Maynards’ owners, Richard and Shana Oseran, are scheduled Wednesday to ask the City Council to adjust its suspended rent down by about 25 percent, retroactive to Jan. 1, 2009, to $15 a square foot, which is the current market rate downtown. The rent would then rise 3 percent a year for the remainder of the lease, which will be renegotiated at a market rate in 2015.
Now the political intrigue; it just so happened that 2009 was an election year, and it just so happened that Oseran and LP&G where given their reduced rent during the heat of City of Tucson elections. Tucson’s failed downtown redevelopment efforts, known as Rio Nuevo, was becoming a major factor in the city elections. Richard Oseran has hosted fundraisers for non other than Nina Trasoff the City Council member in charge of Rio Nuevo. If you would like to see the election results as they come in you can visit Oseran’s Hotel Congress where you’ll find the Democratic party celebrating their win and a loss of non other than…Nina Trasoff. So a politically connected, fund raiser gets a super sweet deal and everyone struggling downtown gets constant roadblocks for the basics.
Rob O’Dell – August 8, 2009 – Downtown business owners are steaming mad over rent breaks being given by the city to some tenants in downtown’s Historic Train Depot.The City Council voted 6-0 to approve a rent reduction of $26,000 spread over six months for advertising and marketing firm LP&G on Wednesday because of the agency’s financial troubles.The city also is working on a deal to lower the rent for Maynard’s Market and Kitchen, despite the fact that Maynard’s owner Richard Oseran won’t see the reduction until 2011 because he has free rent until then.A new construction company moving into the depot is getting a lower rent than current tenants as well.
This has fellow Train Depot tenant Konstantina Mahlia, owner of the Mahlia Collection Inc., irate over the fact that she asked for a rent reduction last year and early this year and was denied. She called the situation “beyond offensive” and told the council it was “quite unjust.”Mahlia said the city told her she was bound legally by the lease and it couldn’t be changed. As a result, as the smallest business in the Train Depot, Mahlia said she is now subsidizing the larger businesses.“It’s such overt prejudice and favoritism,” said Mahlia, who sells jewelry and furniture. “My rent is paying for the new guy next door, Maynard’s and LP&G. . . . It’s crazy. I’m the smallest player, and I’m supporting them.”
Council should OK Maynards rent adjustment
Major downtown merchant gets big City Council rent cut
A new lease that will save a prominent downtown business owner nearly $100,000 in rent until 2015 was enthusiastically approved by the City Council on Wednesday.
The council voted 6-0, with Councilman Steve Leal absent, to lower the rentfor Maynards Market and Kitchen in the Historic Train Depot on North Toole Avenue. Maynards is owned by Richard Oseran, who also owns the Hotel Congress across the street.
The council voted to lower Oseran’s rent by nearly $2,000, to $5,300 a month, even though he doesn’t begin paying rentfor Maynards until June 2011. A previous lease gave Oseran free rent for the space for 3 1/2 years.
That free rent is equal to about a $220,000 taxpayer subsidy if calculated using the new rent rate that Oseran will begin paying mid-2011. It would be about $310,000 in taxpayer subsidies if using the rent rate established in the previous lease.
Once Oseran does start paying rent in mid-2011, he will save about $100,000 in rent until the lease expires in December 2015.
The news that Oseran, one of downtown’s biggest business owners, was receiving a break on his rentangered a number of downtown business owners, who decried Oseran’s rent reductions as favoritism because the city refuses to help many smaller businesses.
Council members praised Maynards as a downtown success story and said the rent reduction was the right move.
Oseran is making things happen downtown, added Councilwoman Nina Trasoff, who said she was “delighted” to make the motion that Oseran’s future rentbe lowered. “This is an unusual step to be taken, but it’s also unusual times,” Trasoff said.
Oseran said he’s invested nearly $1 million in improving the city-owned building and said the rent reduction “continues to allow us to make the investment in the business to be successful.”
When asked about the nearly $100,000 he would save in rent, Oseran said he hadn’t calculated how much he would save over the life of the lease.
He said the city adjusted Maynards future rentto reflect the current market rates, just like many private landlords are doing. “It wouldn’t have been a newsworthy event had it been a private landlord,” Oseran said
Ginsberg said LP&G produced its financial statements and, based on those, “we renegotiated the rate, which we will review quarterly. And LP&G is still paying its full share of the common-area maintenance expenses at the depot.”A new depot tenant, a construction company, will be paying $15 per square foot, which Ginsberg said is the going rate downtown. (office isn’t supposed to pay the same rate the end cap restaurant)“There is no discrimination going on here. I’m an even-handed, consistent individual, and my first priority is to the taxpayers who own these properties,” Ginsberg said. (thanks for looking out for us!)In the interest of those taxpayers, we believe that if businesses seek to lease property from the city at discounted or lower rates, their financial statements should be on the public record. If businesses object to that, then they should lease property in the private sector.We also believe that rent abatements should be included on the council’s study agenda, which gives notice to the community that a deal is pending a week or so hence, and assures an early public airing of the details. Finally, the vote on any rent-relief deal should be separate from other items on the council’s agenda.The bottom line, as Letcher says, is that the city should not be a landlord.“The city needs to figure out a way long term to get out of the landlord business,” he said. “We’re facing a situation where if a tenant leaves . . . it’s got to be supported by taxpayers.”We agree.
By Joe Higgins and Chris DeSimone, special for Inside Tucson Business
Published on Saturday, December 19, 2009
There’s no mistake about it, Tucson and Southern Arizona is a terrible place to do business. Whether you’re a big home builder a car dealer or a small shoe repair shop you are in a community that doesn’t welcome you, tries to demonize you and will not back you up when push comes to shove. How did we get here and who’s responsible to fix it?
The facts are undeniable. At the height of our booming economy, a statewide poll conducted by the Arizona Small Business Association ranked Tucson the worst municipality for business in the state.
The good news is that people are starting to ask questions. Business owners are starting to ask why it’s so difficult to operate and thrive in Southern Arizona?
A group of small business owners has had enough. Last week Tucson First launched their www.ChangeTucsonChamber.com campaign on our radio program. We commend their efforts and hope for a speedy resolution.
The people behind Tucson First did their homework. After analyzing chambers of commerce they found leadership at the chambers they studied had strong business leadership with a vested interest in the direction of their communities. The chambers they studied got things done.
Albuquerque is a market that’s held up as an example. Tucson Regional Economic Opportunities (TREO) and a number of elected dignitaries visited there this year. Albuquerque launched downtown revitalization the same time as Rio Nuevo and now they have a growing district complete with condos, hotels, shops and a convention center. What they didn’t have was Rio Nuevo’s $600 million tax increment finance district.
Albuquerque officials chose to create a pro business environment that told entrepreneurs to come on in. New Mexico has a movie industry, solar industry and it is home to an Intel plant and the Los Alamos testing facility.
The membership of the Greater Albuquerque Chamber of Commerce totals more than 4,200. The membership of the Tucson Metropolitan Chamber of Commerce is less than 1,700. Albuquerque’s chamber asks tough questions and works to set the playing field to benefit the entire business sector.
For the past 32 years Tucson’s chamber has had the same leader. The legacy of the chamber in those years has resulted in as fragmented, uncooperative and ineffective business sector as we’ve had at any time in Tucson’s modern history.
Tucson didn’t get to this point over night. It took years of poor decisions. The root problem in our region tracks back to weak business leaders who put survival above the collective good of the business community. Check around and ask others what has the Tucson Metropolitan Chamber of Commerce done in, say, the past 15 years to make your business life easier. We’ve asked and have yet get a good answer.
Among the things Tucson First has learned is that the Tucson chamber has a numbers problem. Chamber membership has dropped by half over the past 12 years from 3,300 in 1997 (when it was the largest in the state) to 2,400 in 2003 and now down to less than 1,700. There are nearly 32,000 businesses in the Tucson region, yet only 5 percent of them belong to the chamber.
We have written and talked on-air previously about the multitude of business organizations and how they dilute effectiveness. Just think what might be if the Southern Arizona Leadership Council, TREO, Caballeros del Sol, Metropolitan Tucson Convention and Visitors Bureau and the chambers of commerce in the region actually worked together to move policy.
Entrepreneurs are not looking for handouts or incentives, what we want is a level and predictable playing field and a community that values our involvement. We must show courage and absolutely never ever tolerate mediocrity, cronyism and good old boy leadership.
We must get off the sidelines now! You know the history of the Tucson Metropolitan Chamber of Commerce and its performance record. Lots of small acts of courage will provide the true change that you are craving. We can not and will not tolerate the status quo.
Tucson First needs your help. Their website is at www.ChangeTucsonChamber.com .
As Ben Franklin said, “If we don’t hang together, we will most certainly hang alone.”
Contact Joe Higgins at or Chris DeSimone at . They’re the hosts of “Wake Up Tucson,” which airs 6 – 8 a.m. weekdays on The Voice KVOI 1030-AM. Check out their blog at .
Copyright © 2009 Inside Tucson Business
1) The FY 2010 budget was never actually ‘balanced’.
2) The ‘plan’ was to balance the budget – but not until FY 2014.
3) The FY 2010 adopted budget was overly optimistic – it was baloney from the beginning.
4) The budget shortfall was known in September.
The FY 2010 budget was never actually ‘balanced’
The FY 2010 budget was ‘balanced’ BUT only because of $29.1 million of one-time fixes:
*more borrowing (sort of like using one credit card to pay off another)
*loan repayments (since Rio Nuevo borrowed a bunch of money that can give it to the City)
*collection of a legal settlement
So really the budget was short by $29 million and eventually we needed cuts or more revenue of $29 million eventually – the time has come! (slide 9; 9/15/09 presentation)
The ‘plan’ was to balance the budget – but not until FY 2014
The “General Fund Recovery Plan” did not balance the budget until FY 2014. The City was hoping to spread out the pain over 4 years. We expect our elected leaders to make difficult decisions and they did NOT. NOT dealing with the problem will lead to a lower credit rating. (slide 18; 9/15/09 presentation)
The FY 2010 adopted budget was overly optimistic – it was baloney from the beginning
Budget forecasting involves make projections of the future. If you take a look at some of the projections they look overly optimistic – or ‘pure baloney’. As an example – State Shared Sales Tax: the FY 2010 budget forecasted that these revenues would decline by 2% BUT these revenues had declined by about 17% from February ’09 through June ’09. My question to City Council if this was declining by 17% in recent months, tell me how you projected that it would magically, suddenly reverse course? Even if you project some modest improvement in the economy, a prudent person would only plan on a 3% recovery; NOT a 15% recovery. I submit to you that any competent analyst in the City Finance Department knew the Adopted Budget was pure baloney from the beginning. (revenue from the State can be obtained from the AZ Treasurer’s site; see link below)
The budget shortfall was known in September
The City knew that they were in trouble by September 28, 2009 – why did it take so long to deal with it? On September 28th the State distributed ‘State Shared Sales Tax’ to Tucson. On that date, this was the 10th month in a row that revenues were 15% below the previous year –and- the 3rd month of FY 2010 that these revenues were well below forecast. One month does not make a trend, but 10 months is a trend. If I can figure this out sitting at home, using a spreadsheet and rudimental analytical techniques – where were the professionals in the City Finance Department? Were they muzzled because of the upcoming election? (Slide 23, State Shared Sales Tax, 12/15/19 presentation)
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