Small businesses dunked?

BY: TODD GUILD

Tony Yi, one of the owners of Jerry’s Donuts, shows a line of fresh doughnuts
Wednesday at the long-standing Jerry’s Donuts Coffee and Grill in Freedom
Centre.

About three decades ago, the Yi family came to Santa Cruz County after fleeing from Cambodia’s oppressive Khmer Rouge regime. At first, they lived with four other families in a cramped, one-bedroom apartment above Dunlop’s Donuts on Portola Avenue in Aptos. The family ran the shop together.

The family eventually opened Jerry’s Donuts Coffee and Grill in the Freedom Centre at 2022 Freedom Blvd., which they’ve run for about 15 years.

About a dozen tables fill the small shop, clean except for piles of newspapers leftover from the loyal morning crowd that comes in daily to catch up on news, gossip and for a daily dose of doughnuts, coffee and companionship.

Behind a glass case, several varieties of freshly made pastries wait for purchase, and all day a steady stream of customers come in to order, hurrying out with plump white paper bags tucked under their arms.

The doughnuts there are made on the spot, said baker Tony Yi, trying to conceal his pride. He took over the baking duties from his father six years ago.

“I work my own hours and do my own thing,” he said, adding that often involves 7-day work weeks and 10-hour days.Originally just a doughnut shop, the family installed a grill about five years ago. There, the Yi family whips up breakfast, several types of sandwiches and their famous breakfast burritos. The smell of freshly grilled food barely conceals the scent of the doughnuts.

A whiteboard behind the counter announces the day’s specials, and holds small framed pictures of family members.At one table, a small group of women sat happily chatting Wednesday over half-full cups of coffee and dog-eared newspapers.

“This place is wonderful,” said Gwen Souza, a regular at the shop. “The food is good, and the people are very nice.”

“This is one place you can go where you don’t have to worry about being rushed out,” said friend Marilyn Brown. “The customers have a place where their friends come in and socialize,” said Yi. “They have that camaraderie.”

For most of the time at their present location, the Yis say they had an affordable rental agreement. In June 2006, the plaza was purchased by a national real estate company, Houston-based Weingarten Realty Management Company.

“Since then, our lease has doubled,” said manager Tye Yi, whose parents own the shop.

The increase was effective for all the tenants, he added. The rent increase won’t become effective until the tenants sign a new two-year contract, and most are currently trying to negotiate with Weingarten. Until a contract is hammered out, the tenants remain on a month-to-month lease.

“In my opinion they’re trying to squeeze us out,” said Tony. “They put Starbucks on either side of us and told us we can’t make coffee drinks.”

Yi was referring to an “exclusive clause” to which all tenants in the plaza must agree — under the clause, no two businesses may sell the same primary product. A Chinese restaurant, for example, is the only business that may sell Chinese food. Jerry’s Donuts was also ordered to stop selling burgers and breakfast burritos, which worries Yi.

“That’s our profit,” he said. Gabe Hagemann, leasing executive with Weingarten, said he couldn’t comment on why the Yi family was told to stop selling coffee drinks, burgers and breakfast burritos. He also refused comment on any of the specifics of the rent increase and ongoing negotiations, citing confidentiality. But he called them important tenants.“They offer a high-quality product and we’re working to keep them in the center,” he said.

Like many “mom and pop” stores, Jerry’s Donuts could soon become an anachronism — a holdout from the days before Starbucks-laden strip malls dominated American geography, and rent was within reach of small business owners.

While the significant rent increase may seem unreasonable to some of the long-standing tenants, fair market value is whatever prospective tenants are willing to pay, say industry insiders.

“The reality is that the Freedom Centre is an excellent project that reflects the qualities we like — it’s well positioned and well anchored,” said Hagemann. “The rates we are asking are representative of current market rates that are comparable to other traditional grocery centers.”

With a new Safeway, a Rite-Aid drug store and a Ace Hardware, the center has the potential to effectively corner the market on large-scale stores in the area, said Hagemann.

“Were trying to position the center to be the premier center for daily necessities,” he said. The rent jumped from $1.80 per square foot to $2.80, said Yi. In addition, Weingarten increased the tenants’ “triplenet” fees from 25 to 60 cents per square foot. Similar to homeowners association fees, these go to facility maintenance.“Rents are changing in Watsonville,” said Daniel Hindin, sales associate with Sheldon Wiseman Commercial Real Estate of Santa Cruz. “We’re seeing rents increasing steadily, especially in strip mall centers along major corridors.”

The tenants in Freedom Centre also report that Weingarten is asking them to pay about $5,000.