Gentrifying S.J. neighborhood puts in pitch for retail

By Tracey Kaplan
Mercury News
May 9, 2005

Frank Penrose would like to do at home in downtown San Jose what he does as a tourist in San Francisco -- stroll down the avenue 30 feet and sip a cup of coffee at an outdoor table.

In a busier downtown, that might be a no-brainer.

But even as Penrose's once-seedy neighborhood near St. James Park undergoes a radical face-lift, oodles of cafes and small businesses like dry cleaners or nail salons are unlikely to spring up there anytime soon.

Despite pressure from Penrose and other affluent new condo owners, the city's redevelopment agency is balking at forcing developer Barry Swenson to put ground-floor retail in two high-rise condominium towers planned for the Oasis block at First and St. James streets.

Instead, the agency is requiring Swenson, in exchange for a discount on the land, to restore a historic church on the site for use by a single business, which officials are hoping will become a destination restaurant. The ground-floor units will be two-story, live-work spaces whose owners would have the option but not be required to convert them into retail shops.

``It's very challenging to make retail work,'' said Vice Mayor Cindy Chavez, whose district includes St. James Park. ``We don't want empty storefronts. We don't want to contribute to the blight we're trying to fight.''

The city council has yet to decide the Oasis issue, but the wariness about retail is a marked departure from the old days. Traditionally, one of the cornerstones of redevelopment was requiring many developers to put in ground-floor retail ahead of the market, especially if the project was being subsidized by the agency.

Now, just when parts of downtown are gentrifying and the new residents are clamoring for stores, the irony is the agency is taking a more focused approach because of its previous mistakes

Even though the retail vacancy rate in the South Bay remains a low 2 percent to 3 percent, ``not every street is a retail street,'' said redevelopment agency Director Harry Mavrogenes.

Nationwide, so-called mixed-use projects -- which typically include high-density housing above or behind stores -- are trendy in planning circles. But developers and lenders often are leery because retail is financially risky. The location, design and signage of the space has to be spot on to attract sufficient customers. In some cases, projects have had to be ``reconstituted,'' that is, converted into offices after the stores failed.

``Developers see retail as another exaction, an amenity like a park,'' said Bill Fulton, publisher of the California Planning & Development Report. ``They often have no intention of renting it, but just put it in as a sop to planners.''

Locally, there have been some notable mixed-use successes -- and flops.

At the east end of Japantown, lines of empty storefronts on Taylor Street between Seventh and Eighth streets attest to the potential pitfalls of a mandatory approach. The stores that front the Pavona apartment complex on the north side of the street have largely been vacant since the project was built more than five years ago.

Among the problems: The shops are too narrow and also lack the depth necessary for back-room operations or storage space, and there is insufficient parking for restaurants, though the city eventually waived the rigid parking requirements in vain hopes of attracting food retailers. Now, officials have more or less given up on there ever being stores; they decided recently to allow the space to be used for doctor's offices.

Across town in South San Jose, another mixed-use project at the Ohlone-Chenowyth light-rail station silently mocks the notion that putting retail near public transit and housing is a surefire winner. The idea, promulgated by the Valley Transportation Authority in this case, was that commuters and residents from a 200-unit affordable housing development at the station, as well as from about 300 other market-rate units, would easily support about 4,500 square feet of retail space. In turn, the store rents would help support the low-income housing.

Instead, one business after another has failed there, partly because light-rail traffic is down, and also because the shops are not located close enough to a major street to attract passing motorists.

In contrast, the city considers the Avalon on The Alameda mixed-use project near Lenzen Avenue a success. Some retailers there complain that it is hard to build a regular clientele because the renters move in and out. But there is also the wealthy Rose Garden neighborhood nearby to draw from, and stores in front of the apartments include a Blockbuster and a Starbucks, as well as a European bakery, two salons, a store that specializes in running shoes and a florist.

Retail expert Randol Mackley, who worked on the project, said retail works at Avalon because there is sufficient street traffic and surface parking, either at the curb or behind stores with back entrances.

That is not the case near St. James Park, he said. Another black mark against the Swenson site is that despite the hundreds of pricey new condos that have been built recently and the hundreds more in the works, the property is located in one of the two poorest zip codes in Silicon Valley.

Penrose, president of the St. James Historic Neighborhood Association, said residents are affluent enough to support a cafe, dry cleaner and the like.

``Granted, we're in 95112,'' Penrose said, ``but it's a big area, and we qualify for homes that are half a million dollars or more.''

But a study by Swenson's firm found that it was unlikely the spot would generate sufficient traffic, Chavez said. Mackley said retailers are generally risk-averse. ``They're not much on pioneering,'' he said.

Land has probably become much too expensive for Penrose and his neighbors to try nearby Naglee Park neighborhood's solution to its lack of retail. Fed up with the rundown appearance and vacancies in a strip center at San Carlos Boulevard and Eleventh Street, five couples pooled their money and bought it in 1996 for $400,000.

They still have trouble keeping one of the stores leased, but the center is generally thriving. The way it has turned out is what's driving Penrose to keep pushing the city to install retail in his neighborhood.

``You can't go to House of Bagels,'' said co-owner Marianne Salas, ``without meeting four people you know. It's so great.''

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