Mall econ: Is downtown café space handed out fairly?

With spring just around the corner, it's time again for an annual tradition on the Downtown Mall: arguing about outdoor café space. City planners have proposed a revised ordinance to settle the issue, but some say it gives a handful of restaurants a competitive advantage.

Back in the 1970s and '80s, when the City was begging folks to open restaurants on the Downtown Mall, there was less at stake. But now that 30 downtown eateries have outdoor patios, size matters.

During the $7.5 million re-bricking project in 2009, city planners came up with what they thought would be a simple plan: reducing all café spaces to 800 square feet, a limit that had already been in place for several years.

At the time, Miller's, Sal's, Rapture, Hamilton's, and The Blue Light Grill had been operating with more than 800 square feet. The owners of Zocalo, too, managed to secure more square footage directly from former City Manager Gary O'Connell, who stepped in after the owners complained about getting less space than Blue Light.

It was time, planners explained, to create a more level playing field.

The reaction was immediate. In the midst of a recession, and with the Mall under construction, a thousand signatures were collected in a petition calling for a halt to the re-bricking project, and arguing that it was unfair to limit cafés and penalize restaurants that had pioneered outdoor dining on the Mall.

"You're talking about something that is going to hurt our business," complained a then-manager at the Blue Light Grill during a packed public meeting. "The priority should not be on fairness, but on making sure that restaurants thrive," said another manager.

So much for that simple plan. The push-back caused the the city to back down, and those restaurants with over-the-ordinance spaces were allowed to keep them.

Blue Light: 1,300
Zocalo: 1,200
Hamilton's: 1,000
Rapture: 1,000
Sal's: 1,070
Miller's: 1,350

However, the issue erupted again in November when several downtown building owners seeking café space were told there was none available.

Downtown property owner Joan Fenton sought space for a prospective tenant for her building at 114 West Main Street. Trouble was it's in the block where Cinema Taco, Ten, and the Blue Light Grill– all owned by music mogul Coran Capshaw– had taken all the space, a situation that Fenton calls unfair.

"Any restaurant with a café space has a huge economic advantage," she says. "And any restaurant that can't secure a café space will most likely fail."

The issue sparked debate during the February 22 City Council meeting where chief planner Jim Tolbert unveiled a revised café ordinance, created after input from downtown business owners. Again, the six over-sized cafés would be allowed to keep the terrain, but only until the businesses fail or get sold.

Mayor Dave Norris echoed Fenton's concerns, pointing out that some see this as a perceived monopoly of public space, especially around Central Place, where Zocalo and Petit Pois consume nearly all the area north of the fountain.

"Is there any relief for the tenant in that situation?" Norris asked planning director Jim Tolbert, who convened a study group.

"No, sir," responded Tolbert. "It was the consensus of the group– how to say this– that that's just the breaks you get."

"Allowing one restaurant to operate with a patio of more than 800 square feet while denying another the same opportunity is fundamentally unfair," says Maya restaurant owner Peter Castiglione. "The whole idea of grandfathering older businesses runs counter to a free market and fair trade."

However, not everyone sees it that way.

"Why hurt restaurants that are succeeding by taking away their café space?" asks Mike Rodi, manager of Rapture. "New restaurants often fail, but if you take away space from existing restaurants, you could have two places going out of business instead of one."

Councilor Satyendra Huja pointed out that there's really no competition on Central Place because one owner, Ludwig Kuttner's Monticello Associates, controls the property there. Just to the west, Capshaw controls the block. It would appear that O'Connell, when he stepped in for Zocalo, had been referee the dispute between the two titans.

As Fenton suggests, property owners have a great stake in the issue, as café space can mean the difference between leased space and an empty storefront. Interestingly, of the six oversized cafés, three pay rent to out-of-state property owners, and two are owned by well-known multi-millionaires. Sal's is the only café whose day-to-day operator also owns the building.

Suprisingly, it was Kuttner who made the sole public statement at Tuesday's Council meeting, bemoaning restrictions and reminding Councilors that such restrictions were absent when many of the Mall's restaurants were first launched.

Cafe leases seem to be a sweet deal, as the public space includes amenities like free lighting, tree trimming, and wi-fi. And although chilly weather renders cafés unusable for at least four months a year, the City's rent of just $3 per square foot plus a bi-annual fee of $125 is considerably less than restaurants pay indoors, which can run between $12 and $23 a square foot, according to advertised real estate listings.

Others argue that leveling the playing field runs counter to the idea of getting in early to stake a claim.

"Splitting the pie further doesn’t make sense," says Mas chef/owner Tomas Rahal. "Long term, this would have the effect of erasing any competitive advantage those who got there first would have."

Indeed. What a conundrum.