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Through the Roof

As rent costs increase, some downtown Truckee businesses have no choice but to close their doors
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“It’s the market. It’s about how bad landlords want to rent it and how bad businesses want to go in.”
~ James Mcdonell, broker

The Truckee California Welcome Center website describes Truckee as “a place rich in history with a quaint downtown that hosts charming shops and superb restaurants set in authentic historic buildings.” However, with more businesses leaving downtown Truckee, those charming shops are being replaced with vacant storefronts and lease signs. Several businesses have left downtown within the past six months, and some point to increasing commercial rents as the culprit.

“If the landlords are raising the rents, they think the economy is better than it is,” said Mike Preaseau, co-owner of the Cooking Gallery. “Basically, the economy isn’t able to sustain the increase in rents.”

Preaseau, who has been in his prime downtown location for 18 years, said his business has been able to survive over the years because the building is owned by a landlord who used to own a hardware store in the same location. He said his landlord, Bob Herhusky, is “a lot more approachable” than other landlords and is willing to work with tenants because he used to be a business owner himself.

However, Preaseau has seen businesses come and go in the downtown corridor and notes that many of the landlords do not live in the area. He said rent prices have gone up and down over the years, depending on the economy and how quickly landlords can fill the spaces.

“There is a formula they try to follow. Landlords won’t lower their rents so they don’t reduce the value of their building,” Preaseau said. “It’s a constant battle between landlords and renters.”

Finding Stability

While rent prices increase, some are finding stability with owning their own building. Cabona’s, a downtown Truckee staple since 1918, has been able to sustain itself because the building and business have both stayed in the family for generations. Jo-Anne Kraemer, owner of Mo, Jo & Zoe, is also about to become a downtown building owner when she buys the building that formerly housed Backstreet Boutique. The deal will go through by the end of February or March, she said.

“Having that stability is huge,” Kraemer said of owning her own building rather than renting.

Kraemer started her business in 2010 in the Loading Dock building (where Marty’s Café and Mountain Home Center are) and moved across the street to the Walkers Toggery building in 2012, and has already outgrown the 17,054 square foot space. Her new digs will be 31,040 square feet, and she said it is worth the move. She also believes the rent prices in downtown are fair.

“It’s fair,” Kraemer said. “It’s market value.”

While some are growing and expanding, other businesses have been pushed out. Art Obsessions recently closed its downtown location and moved to a smaller building on West River Street. And when Backstreet Boutique owner Kim Keese closed her doors in April, she cited the 75 percent increase in rent as a driving factor.

Determining Rent

There are no hard and fast rules in determining rental prices in downtown Truckee. It all depends on the landlord and what they are willing to accept. Truckee does not have rent control, so landlords can charge whatever they think they can get. Some spaces have long-term agreements, while others are on a monthly basis.

“Some landlords won’t budge on their price. Sometimes they will wait for the right tenant or to get the price they want,” said James Mcdonnell, a broker with Truckee’s Main Street Commercial Real Estate who has the Capitol Building as a listing. “Every landlord is different.”

Mcdonnell, who works mostly with corporate landlords, said setting rental prices is like an auction and can get competitive. Some landlords will start with a high number and then come down if there is no interest, while others will wait for an offer. He said sometimes landlords will start at a lower price and then work their way up as leases are renegotiated.

“It’s the market. It’s about how bad landlords want to rent it and how bad businesses want to go in,” he said. “The value of commercial buildings is how much rent you can produce.”

High-end retail spaces like those in downtown Truckee and in the Safeway shopping center are typically $2 to $2.25 a square foot monthly, Mcdonnell said. Compare that to businesses in other parts of Truckee or Tahoe City, which charge $2 a square foot or less.

The Capitol Building, which has been vacant for over a year, is $2.25 to $2.95 a square foot a month, not including building operating costs, which add on .35 cents per square foot a month. The combined square footage of the upstairs and downstairs of the historic building is 5,500, which would make rent upwards of $16,225 a month. The Truckee Mercantile, which housed Art Obsessions, is listed at $2.50 a square foot and is 4,200 square feet, making rent $10,500 a month.

Preaseau noted that it is difficult for smaller retailers to occupy larger spaces, like those that are currently vacant in downtown Truckee. However, Mcdonell said that smaller retail spaces can command more than larger spaces.

“In downtown, every building is different,” Mcdonell said. “Smaller spaces are more per square foot. Larger spaces typically take longer to rent.”

Worth the Price?

A new business owner who wished to remain anonymous said he was shocked to discover that rent prices on West River Street and Riverside Drive were half as much as those just a couple of streets over in the downtown area. But Mcdonnell explained that the high amount of foot traffic drives those prices.

“Downtown has all the people walking and pedestrians. There’s more going on. It has exponentially more synergy,” he said. “West River Street is sleepy. Rent will be substantially lower.”

However, Mcdonnell warns that business owners are taking a risk when moving to a cheaper rental space in a less prominent location, thinking they will save money. He notes that the money the owner saves in rent will often be spent on advertising and marketing to attract clientele.

“Your sales are going to drop right away, probably around 70 percent. It’s risky for tenants,” Mcdonnell said. “I’ve seen some businesses make huge mistakes in spending less in rent. You lower rent but have higher advertising costs. People don’t understand that.”

Paying higher rent prices during lean winters like this one can cut into business’s bottom line. However, Mcdonell said some landlords are more willing to work with their tenants, offering free rent during construction or paying to upgrade facilities, which translates into long-term renters and rental security.

“Tahoe is different. If you are in the retail or the service industry, you have to appeal to locals,” Mcdonell said. “Some people only appeal to tourists … This winter is going to set people back a little bit.”

While rental prices are largely up to the discretion of the landlord, Mcdonnell thinks the economy is moving in the right direction and more retailers will return to downtown.

“Truckee is on the up and up,” Mcdonell said. “It is definitely out of the red and moving into the sunlight.”

 
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October 12, 2017