High rents pressure State Street stores

BY JOHN POLLEY
Daily Staff Reporter
Published April 8, 2001

With the exception of a handful of graduate students and native Ann Arborites, Michigan students don"t remember Drake"s Sandwich Shop. For over 65 years, Drake"s facade peered out over the Diag, offering students everything from vanilla cokes to big band dances in the upstairs Walnut Room.

Paul Wong
The State Street commercial district, one of the busiest shopping districts for University students, has seen numerous stores come and go in recent years, with the Starbucks cafe being one of the newer additions.<br><br>TOM LIN/Daily

To the thousands of students who carved their names in Drake"s wooden booths or bought one of the shop"s signature footballs during the Schembechler era, the shop is remembered with a unique fondness.

When Drake"s closed its doors in 1993, the antique interior was gutted and replaced by the plastic booths and chain-store stylings of Bruegger"s Bagels. It was a sign of the times, and many other small Ann Arbor-based State Street businesses would soon follow suit.

Eight years later, the vitality of State Street continues to attract the attention of corporations such as Starbucks, Einstein Bros. and Harmony House that hope to tap into the University market.

"There"s a lot of demand for space on State Street," explained Jeff Harshe, a commercial real estate broker with Swisher Commercial.

"The question is, what kind of business can make it when rents get up in the mid-$30s (per square foot per year)? It"s going to change the character of the neighborhood," he said.

Harshe estimated monthly rent for a 1,200 square-foot business on State Street is about $3,500.

The shift in ownership of State Street buildings has been a major factor in changing the composition of the street, as rent hikes have put increasing pressure on businesses" profit margins.

"Twenty or 50 years ago, you had a lot of small retail in addition to large department stores, and families owned the buildings," says Karl Pohrt, president of the State Street Area Association and owner of Shaman Drum Bookstore. "Over the years, they sold the buildings to investment groups who don"t live here. That"s extremely dangerous for the vitality of a downtown."

Business owners have universally lamented the level of rent in the State Street area.

"In my opinion, the rents are overly inflated down here," said James Decker of Decker Drugs, whose business is in the enviable position of holding a long-term lease. A number of stores whose leases have come up for renewal in recent years Caribou Coffee and Hallmark Crown House of Gifts among them have been forced to shut down.

One of the pronounced effects of rising rents has been the increased presence of chain stores on State Street. Larger stores, taking advantage of economies of scale and stronger financial backing, have been more suited to survive rent pressure.

"They make more money per square foot," said Harshe. "They can afford higher rents."

With the entrance of chain stores, the business make-up of State Street has also become increasingly homogenous. The topic has become a concern to many State Street business owners who depend on foot traffic to drive demand.

"We need a better mix of stores down here," said Steve & Barry"s manager Dan Switzer. "We have enough coffee places and Michigan stores like this one. If you have a better mix and more restaurants, you"re going to attract more people to the downtown area and they"re going to spend more time down here."

Although soaring rents have put pressure on State Street business owners and forced a number of stores to shut down, the competitive market is not without underlying wisdom. The pressure has forced businesses that have not delivered consistent value to State Street patrons to make room for businesses who do, and the heavy competition has kept business owners in close touch with customers" needs.

In addition, for downtown stores to compete with the low rents of remotely located businesses, the stores have had an incentive to fill new customer niches: The Michigan Theater offers independent films other theaters do not, and Urban Outfitters fills a clothing niche absent at Briarwood.

In the coming months, change will accelerate in the State Street neighborhood. The Downtown Development Authority recently approved an 18-month, $5 million "State Street Area Streetscape Revitalization Project." The project, which will affect State, William, Washington, Maynard, Thompson and Liberty streets, will include new lighting, widened streets, new trees, and the conversion of some one-way streets to two-way traffic.

Adding to the downtown renovation, a number of new apartment buildings are being planned in the area.

In addition to the upcoming conversion of the former Maynard Street McDonald"s building to a multi-story and commercial apartment building, a recent proposal has been put forward to construct an eight-story apartment building in place of the vacated Olga"s Kitchen at the corner of State and Washington streets.

Although the changes promise to expand the retail presence of the State Street area and stabilize the business environment, many of the small, traditional stores of Ann Arbor will be missed. For every new Bruegger"s to arrive downtown, there is a Drake"s that will have to be closed.

"It was a great landmark," Pohrt said, recalling his own memories of the campus sandwich shop. "I once went in there and had a cup of tea with the poet Gary Snyder a friend of (Jack) Kerouac"s and Snyder suggested it be put on the national registry of landmarks," Pohrt said. "We didn"t do it, and I"m really sorry."