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That's Entertainment

The Pavilion's new cinematic focus signals the end of the redevelopment agency's costly downtown retail experiment. Unfortunately, a parade of small business owners paid the price.

By Richard Sine

Abdul Ahmedin says he worked 14 hours a day, seven days a week to make Frosty's Yogurt a success. For three summers, his children manned the scoops at the shop in the food court of downtown San Jose's Pavilion shopping and entertainment center. With the encouragement of the mall's landlord, Melvin Simon and Associates, the Eritrean immigrant lobbied for a cinema complex the center's owners said would turn around the shopping center's fortunes. He signed a petition and his fellow tenants spoke before the city council and asked his customers to sign a petition to urge its quick approval.

Then, five months before the theater opened, Ahmedin and several other business were evicted to make way for Starport, United Artists' planned virtual reality theme park.

Now Ahmedin spends his weekend nights marching in a little circle in between the theater and the half-empty Pavilion, whose owners he and three other businesses are suing. The protestors' cowbells and toy drums echo through the postmodern plaza, where ceiling fans swish lazily like in some South American customs office. They hand out flyers, but there are few moviegoers even on a Friday night.

Public documents newly unearthed by Ahmedin's lawyers show that the city's Redevelopment Agency put pressure on the mall owners to fill up spaces in the mall later occupied by the litigants, even though the agency knew that those new tenants might only be there for a short while. The litigants and their lawyers say the mall purposely sought out unsophisticated, small businesspeople who would accept the short-term leases offered by the mall. Depending on who you talk to, the deal made between the litigants and the mall was good business sense--or a carefully-set trap.

The forces that shaped Ahmedin's situation have their roots in conflicts that were raging long before the Pavilion was even built. In exchange for contributing $10 million of the Pavilion's $30 million price tag, San Jose Redevelopment Agency head Frank Taylor promoted his vision: nothing less than a Rodeo Drive-style mall full of tony specialty shops for tourists, conventioneers, and local workers. The city's ground lease demanded that developers Melvin Simon and Associates find a mix of tenants that "shall equal or exceed" the quality of stores at such upscale malls as Stanford Shopping Center, Horton Plaza in San Diego, St. Louis Center in St. Louis and Tabor Center in Denver. Given this charter, the City Council criticized mall manager Peggy DeVine in early 1989 for being slow to find stores that would "make a statement," as the San Jose Mercury News said then, "that retail is alive and well downtown." The Pavilion's opening had already been delayed three times as the mall searched for tenants. Leasing agents were hampered by the fact that they had failed to find a nationally-known department store to act as an anchor.

Confidential letters showed that Melvin Simon, which was recruited by Taylor after the Campeau Corporation California dropped out in 1986, resisted Taylor's demands as early as 1987. DeVine found the Pavilion to be a tough sell in a downtown with relatively few high-income residents nearby, little tourism and a small commuter workforce, especially when compared with the downtowns of other major cities.

The city's formula for the mall was an immediate disaster. "It seemed like thousands of people came on opening day [in 1989]," recalls Pauline Sortor, who closed up one of the last original stores, The Two Virgins, earlier this month. "We never saw them again."

Business never picked up, and potential sources of customers drained away. A lawsuit against the Redevelopment Agency by the County of Santa Clara sidetracked development of planned downtown housing, office buildings and a new San Jose Repertory Theater, all expected to bring substantial foot traffic into he mall. The Valley Fair shopping center also remodeled to resemble one of the upscale malls in Taylor's vision, drawing customers.and big name retailers away from downtown.

To stanch the hemorrhage from its downtown mall, Melvin Simon quickly came up with a new rent arrangement. Instead of making tenants pay a fixed rent, the landlord only required they pay maintenance fees plus a small portion of their gross sales. The agreement added that the shortfall between full rent and the lower rent was "forgiven." The mall renewed this arrangment retroactively about every six months.

DESPITE THE break in rent, tenants like original yogurt shop owner Vince LoFranco worried about the steady increase in vacancies and rapid turnover of stores as far back as 1991. (More than 50 stores have come and left the Pavilion since it opened.) When the city agreed to let Melvin Simon bring in the San Jose Live sports bar, LoFranco worried that the mall would soon be full of bars, hurting his day business and changing the "general character" of the complex, which Melvin Simon promised not to do in its lease. LoFranco started to complain to fellow tenants and to his landlord.

Then, in late 1992, Melvin Simon added a new clause to Vince LoFranco's rent agreement, which was again retroactive. Under this new "hold harmless" clause, LoFranco would agree to never sue their landlord under any circumstance.

LoFranco refused, and shortly thereafter was given a three-day notice to quit or pay $28,000 in back rent, the amount he would have had to pay if he was paying full rent for the past year. LoFranco left--and two months later, Abdul Ahmedin moved in.

An arbitrator chosen to decide the rent dispute ruled in LoFranco's favor in 1994, agreeing with LoFranco's charges against the mall and waiving his back rent. That ruling is on appeal.

LoFranco then sued the mall for fraud, appealing his case all the way up to the state Supreme Court. He lost this month, on grounds that he exceeded the statute of limitations for filing suit. "They strung everyone along, geting us in deeper debt each month," said LoFranco. "You know they wouldn't have pulled this if they were dealing with the large chains."

It was not the first time that a litigant lost a suit to Melvin Simon. Ken Williams sued the developer after leasing space from a building adjacent to the Pavilion that was never built. The judge tossed out Williams' claim, ruling that the lease had been breached, but that the restaurateur had not been damaged because a high-priced restaurant in downtown San Jose would have failed anyway.

A few days later, Williams hooked a hose to the tailpipe of his silver Thunderbird and asphyxiated himself.

At about the same time Vince LoFranco was struggling with Melvin Simon in 1992, Melvin Simon was renegotiating its ground lease with the Redevelopment Agency, which owns the land beneath it. The mall was losing millions, though no one will publicly disclose how much. "At one time we let them know we were gonna give them their keys and let them have it," said Vicki Herl, who replaced DeVine as general manager of the Pavilion. Then she pauses. "I don't think they believed it."

Concerned about having its public investment turn into a boarded-up embarrassment, the agency chose to give Melvin Simon much more flexibility in choosing tenants. "In a departure from our past position we have agreed to [Melvin Simon]'s long-standing, forceful recommendation to allow a greater emphasis on committing more Pavilion space to entertainment and restaurant uses," wrote agency negotiator Robert Turk in a December 1 memo to Melvin Simon. While still insisting on some retail shops, the new ground lease permitted more spots for bars or "entertainment" uses, which Melvin Simon had proposed all along.

In exchange, however the redevelopment agency reaffirmed a demand that the mall not evict a rent-paying tenant until it had found an appropriate replacement.

That same memo singled out for attention the food court from which Ahmedin and other litigants were later evicted. The yogurt shop got special consideration. "[Melvin Simon Associate's] longer term hope for attracting a strong restaurant user for the present Food Court area was noted. We encouraged MSA to hold such plans in abeyance until all other major objectives, including the movie theaters, were in place and operating before any displacement of the Food Court would be actively purused....MSA will continue to seek suitable replacement operators for the Food Court where vacanices now exist. In particular, a Yogurt/Ice Cream operator should be put in place either where the former Ultimate Yogurt operated or in [another space]...The lack of that particular operation is a constant source of irritation for the public and should be cured without further delay."

For Pauline Sortor, a former Pavilion tenant who is not involved in the suit, the meaning of this memo is clear: "Keep everyone happy until the theaters move in. Then you can kick them out."

For Jim Forsberg, assistant director of the redevelopment agency, the food court provision simply meant that "we wanted to make sure the food court had every opportunity to succeed. We didn't believe they would get kicked out when they got new tenants."

Forsberg added that his agency views Melvin Simon as "heroes." "The agency's contribution is minuscule compared to what Simon lost in this. They carried stores for years with free rent and somtimes payment of all improvements...They have the clout to bring in chains that otherwise wouldn't have come in, and they have the ability to take losses."

Pavilion manager Vicki Herl, who replaced DeVine in 1989, had an entirely different reaction to the food court provision: "Bob Turk ate yogurt there every day," she remarked to her lawyer as she put out a cigarette. "He was really mad when that yogurt shop closed."

HANGING IN the lobby of the Pavilion's management offices are two colorful drawings of the Pavilion as it was meant to be--packed with upscale shops and happy shoppers. In an oversight, however, the artist has forgotten to include a single non-white face among the crowd.

In Pavilion manager Herl's office down the hall is a piece of art that captures a little more closely the reality of the Pavilion: an inflatable rubber doll of the anguished figure in Edward Munch's The Scream. When Herl took over management of the Pavilion, she admits to a reporter, "I asked the same question you did: Why did we open this now?"

Herl says that with hindsight, it is clear that upscale retail arrived too early in the downtown's sequence of redevelopment. But now she says businesses at the Pavilion have seen "double-digit increases" in revenues due to the new theaters, even though the movies aren't attracting big crowds. (Ahmedin says he counts about 200 an evening on weekends; the theater declines to comment on attendance.)

Herl chain-smokes cigarettes and, through the smoke, answers the charges of the four businessowners who are suing her and Melvin Simon with a single, brisk noun: "Bullshit."

At a certain point, the suit degenerates into a he-said, she-said debate. The plaintiffs say Herl either implicitly or explicitly told them them they would share in the surge in business that would come with the new theaters. Ahmedin goes so far as to say Herl lied to him directly; Herl denies this. Ahmedin said Herl offered to relocate his business at the mall's expense; she denies that, too.

At issue in the lawsuit is the fact that the small businessowners signed reduced-rent leases which allowed eviction within 30 days. They say mall management told them they would get long-term leases, with higher rents, after the theaters brought in new business. Herl contends she offered the short terms to give the mall the flexibility to change its tenants, and to give the struggling businesses the right to leave.

Melvin Simon lawyer Tom Perkins points rather triumphantly to the deposition of one plaintiff in the case, Sang Kwon Yun, who operated Pavilion Pizza. Yun admits in a deposition that nobody actually promised him he would still be in the Pavilion after the end of last year. When contacted by phone, Yun handed the phone to his wife, Chungin, who speaks better English.

"I came from Korea in 1982," Chungin told me. "My husband came in 1986. We met in church." Chungin says she supported her husband's struggling business by working as an registered nurse during the day. When big conventions came to the nearby Convention Center, she would help out her husband at the pizzeria until 11 p.m. (The mall required its tenants to be open seven days a week and some evenings, and many tenants could not afford to hire help.)

The Yuns negotiated their lease with an outside agent in the spring of 1993. Chungin said neither she nor her husband ever talked to Herl personally. Instead, Chungin faithfully attended monthly marketing meetings which included frequent updates about when the theaters would come and what kind of marketing efforts would be needed to promote it. She says merchants were shown blueprints of the coming theater. When the city finally approved the theater in 1994, the mall sent out a flyer thanking merchants for "hanging in there."

Evicted along with Ahmedin and the other plaintiffs in the suit, the Yuns are now looking for a new business to support themselves and their two children. "It's very difficult. They're asking for a good financial background and we already have a record of eviction. We lost money at the Pavilion."

The four businessowners in Ahmedin's lawsuit say they feel betrayed not only by the mall and the city but by the downtown business association. But Francine Principe, who then worked on retail retention and recruitment for the association, said all the businessowners were shown or notified that they could see suitable spaces within their price range and within a few blocks of the Pavilion. Principe, now the director of retail development for the Redevelopment Agency, contends that the departing shop owners either turned down the spaces or didn't return her calls. Since then, other stores have moved into those spaces. Nora Coryell, a litigant and owner of the Americas craft shop, recalls that she was shown a space that she could only occupy for a year before she would have to move out again for retrofitting. Chungin Yun says the space offered to Pavilion Pizza was too large.

AFTER SIX years of struggle, Herl says the mall is finally on the verge of success. The theater is open, and the summer blockbuster season has begun. United Artists' virtual reality center, which replaced the evicted businesses, may open as early as August. The 27,500-foot center will include attractions like "Virtual Glider," which simulates a glide through the Grand Canyon. Herl says well-known restaurant chains such as Pizzeria Uno and Johnny Rockets are about to sign long-term leases. She says these chains have the name recognition needed to draw customers and keep them for the evening. They also have the financial resources to withstand a period of loss as the center revs up. They will complete the mall's transformation from retail to entertainment uses.

In December of last year, the evicted Pavilion tenants and other sympathetic businesses in the Pavilion appealed their plight to the City Council, which directs the Redevelopment Agency. They delivered a 5,000-signature petition asking for the city to intervene so they could stay in the mall or get relocation expenses. The city made no formal response.

Abdul Ahmedin and his fellow small businessfolk may be the last casualty in the grand civic experiment once known as Pavilion Shops. Now they are gone, and the Redevelopment Agency has little to say to them.

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From the May 23-29, 1996 issue of Metro

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