It's an intractable problem: Ahwatukee Foothills businesses hard hit by the economic downturn need reduced rent to stay in operation, but landlords must receive enough income to pay off the bank loans on the buildings.
In the coming months, the Ahwatukee Foothills Chamber of Commerce hopes to bring both sides together to hammer out some solutions acceptable to both sides to keep the area from becoming a warren of vacant storefronts.
Terri Kimble, chamber president, has proposed the creation of a task force - to include area business leaders, landlords, property managers and city planners - to serve as a forum for finding common ground on issues such as signage, rental rates, tenant improvements, and promoting local businesses. The tenant/landlord relationship need not be adversarial, she said.
"It's a forum to have both sides get together to open up lines of communication," Kimble said. "Instead of playing hardball on some of these things, we should be negotiating."
Alan Zell, owner of the Phoenix-based Zell Commercial Real Estate Services, which manages several properties in Ahwatukee, said it's not as simple as just reducing rent to help out businesses. Landlords must have sufficient revenue to pay off bank loans on their properties, he said.
"Every one of the property owners recognizes that the life blood of the shopping center is the tenants," Zell said. "But if we let all tenants pay rent at the level the tenants would like, the property owner is not going to have adequate revenue to pay his expenses."
If landlords can't make those payments, they could lose their properties, he said.
"Some of the properties are owned by people who made this investment at the wrong time and in most cases they have fairly high debt on the property," he said. "They need a certain level of income or they can't service the debt on the property and would stand to lose it to foreclosure."
On the other hand, the recession has made it hard for business people like Dimitri Lazarescu, who operated The CoffeeBuzz café northeast of 48th Street and Chandler Boulevard for about three years, to keep up with lease payments that were agreed to in better economic times. The CoffeeBuzz closed late last year for that reason, Lazarescu said.
"After the first year, the economy started going south, and we started experiencing loss of clientele," he said.
When he approached the building's management company, Abrams Realty & Management, he did not meet a receptive audience, Lazarescu said.
"They offered us a minimal reduction. It felt like we went to them bleeding profusely, and they gave us a little Band-Aid. They didn't extend a helping hand," he said.
Randy Parlova, an agent with Abrams, said the building owners do not have much room to negotiate.
"They'll wiggle a little bit, but they can't go down too far," he said. "We have no control. It's just like a home loan. As long as you have an obligation to a lender, what can you do?"
If the landlord lowers the rent for one tenant, other tenants will demand a break, too, he said. And by lowering the rent, landlords also lower the value of the building, he said.
Then there's the issue of property taxes. Parlova said the annual taxes on one building he manages northeast of Chandler Boulevard and 48th Street - considered one of Ahwatukee's prime commercial districts - has increased by $12,000 over the last three years.
He said landlords don't want to evict tenants, but it's a matter of financing.
"If we don't get anybody and you have a vacant building, then you have to lower the rent, but it hasn't gotten to that point," he said.
Zell said landlords prefer not to evict tenants, but some times it becomes necessary.
"There comes a point when the landlord says, ‘I have to take my chances and put somebody else in there,'" he said. "They have invested millions of dollars. They are not taking this lightly. This is a very serious situation and they're not doing things arbitrarily."
Landlords are under no obligation to renegotiate lease rates in a downturn, just as tenants are not required to renegotiate upward during a boom, he said.
Lazarescu said the task force proposal could be a positive step.
"I think it's one proposal that comes a little too late for us, but I welcome it," he said.
Lazarescu said he'd like to open another coffee shop, but likely will look elsewhere in the Valley, such as Tempe or downtown Phoenix.
"Given the history of high rents in Ahwatukee, it would not be high on my list," he said.
Kimble said many business owners are facing a similar choice.
"We're hearing that over and over," she said.
Zell said the task force proposal could work if it's framed as a forum for both sides to discuss issues of mutual concern, but not if it's aimed at interfering with a private contract between an individual tenant and a landlord.
"Every lease is a separate contract between the landlord and the tenant," he said. "To use it to negotiate with a landlord on behalf of a tenant is an intrusion into a contract that most landlords are going to object to."
Kimble said the chamber does not plan to get in the middle of private lease negotiations.
"We can't get into individual problems, but there are common problems coming up over and over again," she said.
One thing both sides can agree on, however, is that it helps if Ahwatukee residents shop locally.
"Shop in your area. Don't shop at chains. You have to support your community," Parlova said.