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[whitespace] Luis Pazo
Photograph by George Sakkestad

Not a Moving Experience: Luis Pazo, owner of Pollo Campero, says the San Jose Redevelopment Agency has broken promises about helping him relocate his business, which lies in the path of the new City Hall.

City Hall 'n The 'Hood

After two decades of messy relocations to build the convention center, the transit mall and the Mexican Heritage Garden, you'd think Redevelopment would get the hang of it. Think again.

By Dara Colwell

A FEW DOZEN CUSTOMERS casually eat pupusas and watch a soccer match on three wall-mounted televisions at Pollo Campero Salvadoran restaurant on the eastern edge of downtown San Jose. The stout restaurateur sits at a table facing East Santa Clara Street and draws several concentric circles on a stack of papers that chronicle his epic battle with the city's Redevelopment Agency. He explains that the bull's-eye is his livelihood. "Business is at the center of life," Luis Pazo says, his pen resting on the solid spot. "For four años estoy aqui"--I've been here four years.

But for almost two of those years, Pazo has prepared to move to make way for San Jose's new civic plaza, the most expensive building ever constructed in San Jose outside of the airport. The city's voters sleepily approved the project in 1996 on a ballot measure that promised that a new City Hall wouldn't cost taxpayers a nickel more than they were already paying to rent office space and sell the old City Hall. After San Jose decided to go ahead with the $329 million government office and symphony hall complex on East Santa Clara Street, where Pollo Campero serves plates of rice and beans, Pazo and his neighbors were told the city would help them relocate--quickly. That hasn't happened.

While soaring rents and a general lack of building space hinder the city's relocation effort, which was supposed to be completed in January, Pazo's anxiety grows. "The problem es que the city talked to me many times and the only thing I know for sure," he says, motioning toward a manila folder, "is this notice--I have 90 days you need out."

While the city's Redevelopment Agency, which is responsible for moving and relocating businesses in San Jose's costly real estate market, claims it is doing all it can, a number of business owners disagree. They contend that the agency has frequently stalled, given them outdated information, calculated relocation costs using vague financial formulas and shortchanged them. "The only space available now," Pazo says, "the rent is very high. Why is it taking so long to make a decision? Every time, I start from the beginning."

MAPLE LEAF PLAZA, located off Saratoga Avenue near fast-food restaurants--McDonald's, KFC, Wendy's and Taco Bell--is a weathered strip mall populated with a handful of unkempt-looking businesses. As cars zoom toward the 280 Freeway, the mall's parking lot remains empty, mirroring the defunct Mexican supermarket, strewn with garbage, that faces it. At the other end sits Great Pizza, a restaurant that has been out of business for three years. One look inside reveals a dusty carpet covered in scattered dead leaves and junk mail. The Redevelopment Agency suggested Pazo relocate his restaurant here because it has the same square footage, but Pazo refused. At eight miles spitting distance from his customers, downtown's bevy of Salvadoran, Guatemalan and Mexican workers, Pazo felt it would be a death knell to his business.

According to state guidelines, the onus of finding a relocation site rests with business owners, so Pazo decided to look for himself. He found Salsa Fresh, the brightly bannered Mexican restaurant on South Second Street, which was almost double the size of his current business. When he began negotiating with the owner, the rent was $6,600 per month, twice Pazo's current rent. After two months of repeated calls to the agency, Pazo says he finally got a relocation adviser to look at the property. But by then, the rent had climbed to $11,000 per month, according to real estate papers. Pazo again had to look elsewhere. He found Lee Yick Laundry Cleaners, around the corner on West Santa Clara Street, which was roughly the same size as his restaurant. The rent was $8,000 per month, but by the time Pazo got the Redevelopment Agency to look into it, it was no longer an option--the building had been sold.

"The city's dragging its feet until someone else takes it," Pazo, now flustered, says through a translator. "Property is a premium downtown. They say 'your case is in my hands,' but you have to be satisfied with what they offer. They offer me nothing--they have no space for me."

JOHN CUTLER, the Redevelopment Agency's real estate coordinator, says he has spent the last 33 years brokering real estate deals for city government. He estimates that since he came to work with San Jose's Redevelopment Agency a year and a half ago, the agency has relocated 35 businesses to make way for the civic plaza project and 100 businesses overall for various city projects. Cutler maintains the agency has worked closely with tenants to fit their needs. "The agency has a relationship with Realtors throughout the area. Our relocation advisers drive the streets, review newspapers and see sites ahead of time," he says. "We try to be as responsive as can be. To my knowledge, no one has lost a place for lack of response."

John Moore, an activist who has been working with the businesses along East Santa Clara Street, thinks the agency is deluding itself about the success of its efforts. "The owners are in a serious bind in terms of time and money," says Moore, a retired math and language teacher who has lived in the neighborhood since 1984 and frequents the restaurants and stores lining East Santa Clara Street. "The Redevelopment Agency is doing something--they're doing the minimum," he says.

Moore is a constituent of City Councilwoman Cindy Chavez, whose district lies in the redevelopment zone. Chavez initially voted against the new City Hall project, she says, because of the impact it would have on the neighborhood. Chavez, whose office has intervened for residents with the Redevelopment Agency, acknowledges that relocating businesses is an inherently long, complicated process. "You can't just turn around, toss someone out and throw a check at them," she says. "The challenge has been to keep [business owners] whole so they have a better than average chance of survival."

But escalating property costs have made this difficult. The Redevelopment Agency's original figure for the City Hall complex was $214 million in 1998. Now, according to Bill Ekern, the agency's director of project management, the estimate is $329 million. "Costs have gone up substantially since we started the project," he says. "We didn't expect the market to accelerate as rapidly as it did." Increased costs are also spilling into other redevelopment projects. The agency estimates the proposed parking garage at the corner of Fourth and San Fernando streets will cost the city $52.2 million--an increase of more than $21 million in just the past 16 months. According to Ekern, the agency initially allocated $4 million for downtown relocation costs in 1997, but recently upped that amount to $6 million. "The spaces are tighter than we thought and what's available costs more," he says, adding, "but the challenge is not so much the money--the money is there--it's making sure whatever we do is equitable."

WHILE PAZO HUNTS for property, his neighbor Ken Trieu, owner of Huong Lan Sandwiches to Go, decided to take advantage of a family friend selling her business on the cheap and move his shop. The former Chinese restaurant, which is located on Tully Road, was built in 1996 and the owner had pumped in $700,000 worth of improvements. When it was offered to Trieu for $350,000, he decided to take it. "If you wait for them [the Redevelopment Agency], you can't find any place," he says. Trieu previously turned down a property the agency had recommended in Japantown because there was no parking, which is crucial to his business. Now Trieu, who also didn't wait for the agency's hard-earned seal of approval, has had to fight the agency to fully cover his relocation costs.

According to three letters--the only written documents Trieu received from the agency in the two-year dialogue to relocate him--John Cutler offered the business owner an initial settlement of $350,000 in September 2000. But according to Trieu, that lump payment did not include his $9,000 per month rent increase, moving and relocation costs, advertising costs and bringing his equipment up to code, so he turned it down. The offered amount also did not include a "goodwill" payment, which, in basic terms, is a business's loss of benefits relating to getting new patrons and keeping old ones. The loss of goodwill is measured by the loss of profits a business suffers when it moves to a new location. The loss of profits can be caused by a number of factors, such as traditional customers not knowing where to find the new location. The Redevelopment Agency is supposed to cover loss of goodwill for a two-year period.

One month later, in November, Cutler wrote Trieu again. This time, having reviewed his estimates, he offered Trieu even less--$276,325--claiming the first estimate had not been "site-specific." Trieu pushed again. In December, the estimate was upped to $307,865, but still dissatisfied, Trieu pursued his claim and eventually reached a verbal settlement with the agency this February for $365,000, including a loss of goodwill. Trieu is still down $350,000--the payment it took to secure the site--and he estimates he has invested more than $500,000 in the restaurant just to get it up and running.

"Am I satisfied? No way," he says, over sharp Vietnamese coffee. "If I stayed, I would lose my business. They [the Redevelopment Agency] promise to help us, but they don't. I chose a place for myself and then they backed out of it saying they don't buy businesses. All the money is coming from my family's pocket."

THE AGENCY'S relocation assistance guidelines, detailed in an eight-page brochure, are written in dense bureaucratic language which must be read several times for clarity. According to the agency's current relocation packet, business owners receive up to $3,000 to search for a new location. Reestablishment expenses, which cover general improvements, increased operation costs and lease or rental charges, reach up to $30,000, although the agency has the ability to exceed that. Because the rental market in Silicon Valley is so tight, the Redevelopment Agency expanded state guidelines from $1,000 for the location search and a $10,000 maximum for reestablishment expenses. There is no limit on moving costs, which can include replacing equipment, and the agency says it will pay the difference in rent for up to 36 months.

What the current $30,000 applies to is vague, with certain payments running into each other and others actually falling into separate categories. For example, if a restaurant has a sign that needs to be relocated but the new site doesn't allow that sign, the agency may have to buy the owner a new one. According to Cutler, replacing the sign is not covered by reestablishment expenses, but considered a reinstallation expense. There are no limits, he says, on reinstallation costs, but reestablishment costs typically stop at $30,000.

According to Cutler, "It's hard to explain. We go through an extensive list, item by item, category by category. There are so many things folded into reestablishment, there is some overlap. Maybe $30,000 is the maximum because so many other things are covered under separate payments." Cutler did not say what, exactly, those distinct payments were.

Cutler says the difference in rent also figures into this amount. "We will pay the difference we feel is reasonable. Let me put it this way: If an owner chooses to pay $11,000 a month when they're paying $3,000 now, and we know a comparable location that's less, just because they choose that specific location, I don't believe we would base the rent differential on that," he says. "We consider that to be excessive."

With a less than one percent vacancy rate downtown and higher rents in areas that do have greater vacancies, "excessive" increases may be inevitable. "I've seen office rents increase 40-50 percent over the last year in the downtown area," says Gary Seiden, senior vice president of Ritchie Commercial, downtown's sole commercial real estate broker. "But downtown still has the best rents relative to everywhere else in the valley. [Business owners] getting the boot are stuck in a bad spot. There's no easy answer here."

Marcelino Castillo
Photograph by George Sakkestad

Mi Casa Es Redevelopment's Casa? Marcelino Castillo, owner of Casa Castillo Mexican restaurant, says the agency in December sold the Twohy Building he has occupied for 17 years and told him that the new owners would honor his lease. Instead, the new owners mailed him a 90-day eviction notice.

MARCELINO CASTILLO, owner of Casa Castillo on South First Street, recently joined the ranks of downtown business owners being relocated by the Redevelopment Agency. Castillo, one of the founders of the San Jose Downtown Association and past president of the Hispanic Chamber of Commerce, says his restaurant, which is located in the historic Twohy building, has weathered the construction of the Fairmont Hotel, the UA Theaters, the trendy but short-lived Pavilion and the light rail passing through First Street. Just before Christmas, the Redevelopment Agency, which is Castillo's landlord, notified Castillo that a Los Angeles-based developer had successfully negotiated for the building and had no plans to continue his lease. Instead, the developer wanted an Italian restaurant to move in. Castillo, who has been in the building for 17 years and has seen downtown through its growing pains, was given a 90-day notice to relocate. The initial discussion, Castillo says, lasted about half an hour. By mid-January, Castillo had still heard nothing.

"There has been a lack of communication between the Redevelopment Agency and business owners," he says. "If I wasn't pushing through my lawyer, we wouldn't be having a discussion. They want us to do everything on their timetable, not ours--it can't be done."

While Castillo says he has always been willing to embrace change, he is adamant he does not want it at the expense of his family. "To them, it's a project--to us it's a lifestyle," he says, leaning forward energetically. "To them, it's a platform where they see themselves bringing the city to the next level. To us, it's survival."

Scott Knies, executive director of the San Jose Downtown Association and who appreciates Castillo's sentiment, says it's a given that the impacts of construction will have a price tag attached. "Change is inevitable for a city to keep moving forward. It's weighing the overall good of the community against individual costs," he says. "But emotional impacts are not easily calculated on spreadsheets."

As Castillo continues speaking, one of the waiters pulls him aside. Castillo is gone for half an hour. When he returns, he explains apologetically that his bartender just quit because he found another job--he needed job security.

"What do I do in the meantime?" Castillo says, somewhat discouraged. "I still got to do business."

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From the March 22-28, 2001 issue of Metro, Silicon Valley's Weekly Newspaper.

Copyright © 2001 Metro Publishing Inc. Metroactive is affiliated with the Boulevards Network.

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