Close call: Federal Realty boots Padow's
Two months after a Padow's Hams & Deli franchise opened in the Barracks Road Shopping Center in 1996, co-owner Desiree Dawson and her husband welcomed the birth of a baby boy. Fourteen years later, when she recently delivered the news to her son, now 13, that the eatery would be closing, the boy was stunned. "I grew up in that place," he told her.
Indeed, many of Dawson's customers also grew up, and grew old, coming to eat at the popular lunch spot. In addition to seeing young customers go through grade school and off to college, Dawson says she's also attended customers' funerals. At one recent funeral, she says, the family talked about how much eating lunch at Padow's had meant to the deceased.
"Our customers mean a lot to us," says Dawson. "They're not just dollars in the cash register; they're family, and they deserve better than this."
Today, there's a funereal air around the shop because it will be closing its doors next Tuesday, February 22. But not voluntarily. Dawson says that she and her partners– her mother, Gloria Sanders, and her brother, Michael Sanders– were blind-sided by the news.
After getting behind on the rent they pay to Federal Realty, the Maryland-based real estate development corporation that owns the shopping center, Dawson says, Padow's received an eviction notice and was given seven days to clear out.
"I understand they have the right to do it," says Dawson, "but it was the way they did it that makes me angry."
Dawson says that rent for the space had just become too expensive for the kinds of things– mostly lunch foods– they sold. She says the shop was paying $90,000 a year to Federal Realty in rent for the 2,900 square-foot space, not including other expenses. Indeed, another Baracks Road shopkeeper who wished to remain anonymous tells the Hook that base square-footage rates are $30-$40– up about 40 percent from last year. Businesses there sign what is called a triple-net lease, in which the tenants pay property taxes, insurance, and maintenance fees. And Federal Realty also takes a percentage of sales if that amounts to more than the base rent.
For example, if a business with 1,500 square feet at $35 per square-foot generates $1.8 million in sales, and 3 percent is the target percentage, the business would pay Federal $54,000, just slightly over the base amount. If the same business generated $3 million in sales, however, the business would owe Federal $90,000. And if the business generated only $500,000 in sales the owners would still have to pay the base rate of $52,500 (1,500 x $35), which would amount to over 10 percent of its sales.
The shopkeeper calls percentage rent a win-win situation when there are high sales volumes, which tends to work out best for the big box stores, as the percentage of rent from profit is less, and Federal has an incentive to make sure that businesses succeeds.
But if sales aren't so high, then the base rate alone, plus real estate taxes, utilities, marketing, and maintenance, all of which the shopkeeper pays, can be a killer for small local businesses like Padow's. Indeed, Dawson says she never came close to paying percentage-based rent, but she estimates that her base rate went up 3 percent every year.
So-called CAM charges (Common Area Maintence) can really add up too. Last year, one of the big snow storms cost the shopkeepers $100,000 for snow removal. In addition to the money Dawson says she lost during the storm shutdowns, she's still paying $59 a month for having the snow removed. In addition, real estate tax on the shopping center, based on an assessment of $87.5 million (which works out to over $800,000 a year), is paid by business owners. "Federal makes money coming and going," she says.
"We just wanted time to close down properly," says Dawson. "We owe that to our customers."
Dawson stops to compose herself.
"We put every dime we made into this business," she says, "and we are losing everything."
The Hook attempted to reach a representative of Federal Realty, but they did not respond by the time of this post.
Dawson says she understands that having to close down is ultimately their own fault, for not being able to keep up with the rent, but she's bitter about the way Federal Realty treated Padow's.
"In my opinion, they don't really care about their tenants," says Dawson, who has some thoughts about other locally owned businesses.
"Small local owned shops make Barracks Road special," she says. "Yes, it's also nice to have big box stores, but the local shops make it different from your typical mall or shopping center."
Updated 2/21/2011Read more on: padow's