The Business Press: Hospitality Lane still drawing crowd

By Chris H. Sieroty 

Contributing Writer

The center of San Bernardino’s retail and office market once was located within a vibrant downtown, but over the past two decades many retailers and companies have moved their operations to Hospitality Lane.

The pattern has transformed what was once an underdeveloped area next to Interstate 10 into the city’s hub of shopping and employment.

Within the past year, several restaurants and retailers have closed because of the recession, but interest in leasing retail space remains strong, according to several real estate brokers. The 1.2-mile stretch of Hospitality Lane between D Street and Tippecannoe Avenue has experienced an increase in hotel development, led by the $10 million upgrade to the Hilton and a new Hilton Garden Inn, which is expected to be completely built by the end of September.

Jim Morris, chief of staff to Mayor Patrick Morris, said the “strong demand” for modestly priced hotel rooms targeted to the business traveler has driven the increase in new hotels on Hospitality Lane over the past four years.

“Over the last four years three new hotels have opened,” Morris said. “A fourth is about to be completed and two other hotel projects are in the planning stages.”

The Hilton Garden Inn and Hilton Hampton Inn will be situated within a 7.3-acre development called Hospitality Courtyard that is being built by Los Angeles-based ICO Development. Messages left with ICO Development were not returned.

“A niche (hotel) market has been developed along Hospitality Lane, which is a nice complement to the retail and office that has already exists,” he said.

Once completed, the new hotels will join Fairfield Inn & Suites, La Quinta Inn, Quality Inn & Suites, Residence Inn, Best Western and Days Inn.

Along with hotels, Hospitality Lane has developed into a regional dining destination. Over the past few years, regional and national chains such as Pat & Oscar’s, BJ’s Restaurant and Brewhouse, Elephant Bar, and Ruby Tuesday have opened successful outlets.

Pat and Oscar’s, which opened in March 2005 at 690 E. Hospitality Lane, was recently sold to a franchisee. The restaurant seats more than 250 customers and is approximately 5,200 square feet. It’s located in the Tri-City Corporate Centre.

“We are excited about our acquisition of the Pat & Oscar’s in San Bernardino,” said Ron Mehrens, who owns the franchise with his two sons, Kevin and Ron Mehrens Jr. “It was the second Pat & Oscar’s franchise we purchased after acquiring an outlet in November in Palm Desert.”

Mehrens said the acquisition of the Hospitality Lane location closed on March 2 when “the economy was probably as bad as it was going to get,” but in the past five months he hasn’t seen a decline in sales. He declined to release revenue figures or the purchase price for either location.

“We are very fortunate to be located next to so many offices,” he said. “Even in tough times local offices still demand catering services. Our long-range goal is to open four more Pat & Oscar’s, but will probably have to wait a couple of years to see what happens.”

Despite the ongoing success of Pat & Oscar’s, Hospitality Lane has seen the closing of two well-known chain restaurants: Guadalaharry’s at 280 E. Hospitality Lane and Crabby Bob’s seafood restaurant at 215 E. Hospitality Lane. Both restaurants have been vacant for more than a year.

On the retail side, the former Circuit City store at 555 E. Hospitality Lane remains empty after the electronics retailer filed for bankruptcy in January and closed its 567 stores nationwide.

Both restaurant properties are listed for lease by Lee & Associates. Jeff Stanley, senior vice president with Lee & Associates Commercial Real Estate Services in Riverside, said Guadalaharry’s 9,000-square-foot, two-level building with its upstairs patio is listed for $1.75 per square foot, while the former Crabby Bob’s 6,200 square feet of space is listed at $2.20 a square foot.

“We’ve had a few offers for the former Guadalaharry’s and Crabby Bob’s locations from nightclub operators and other restaurants, but nothing has been signed,” Stanley said. “The rental rates for both properties are soft. We’ve had to talk about being flexible about rental rate reductions with the landlords to attract new tenants. The problem is rental rates are off 20 percent to 30 percent below what they were at the peak of the market at the same time last year.”

Stanley admitted that while interest in retail properties remains strong it has taken longer to close a deal because of the recession. The last restaurant deal he was involved with was Ruby Tuesday’s leasing of 5,300 square feet of ground floor space at 996 E. Hospitality Lane in August 2008.

Stanley said the Maryville, Tenn.-based chain of midpriced restaurants that features burgers, salads and sandwiches signed a 15-year lease.

“The area’s strong office market has helped increase the interest (in) retail and restaurant chains considering a move to Hospitality Lane,” he said. “We use it as a selling point. Even though the office vacancy rate is around 22 percent in San Bernardino, it’s better than other submarkets within Inland Empire.”

The area’s demographics are key to its success. Within a one-mile radius there is a total daytime work population of 11,021, according to 2008 statistics provided by CB Richard Ellis. That figure increases to 60,437 within three miles and 121,706 in the surrounding five miles.

In terms of restaurant expenditures in 2008, the real estate firm reported that $4.1 million was spent within a mile radius of Hospitality Lane, increasing to $74.2 million by consumers within three miles before dramatically rising to $223.9 million within five miles.

Attracting tenants to Hospitality Lane hasn’t been difficult, said Michael Ray, vice president with CB Richard Ellis in Ontario.

“San Bernardino is on fire,” Ray said. “For one of the smallest submarkets it’s … one of the largest amount of space in the eastern Inland Empire. Hospitality Lane is the nicest of all the options, with attractive prices, a large population of employable residents and attractive on-site amenities.”

He said the vacancy rate figure quoted by Stanley included downtown San Bernardino and that the vacancy rate for office space along Hospitality Lane was lower.

The real estate firm is in negotiations to lease 20,812 square feet of space at the Northpointe building at 1003 E. Brier Drive. The 284,000-square-foot building is anchored by Wells Fargo Bank, which signed a 10-year lease in 2006.

Ray declined to identify the company negotiating to occupy the space at Northpointe. The company has approximately 239,579 square feet of office space listed for lease in Northpointe, Tri-City Corporate Centre and other buildings adjacent to Hospitality Lane.

“Certainly Hospitality Lane is doing much better than downtown,” Stanley said. “There has been ongoing interest from possible tenants in newer retail and office properties east of Waterman Avenue.”

But after a decade of building shopping centers and office buildings, the area is built out. City officials have shifted their focus from new developments to working with existing property owners located from Waterman Avenue west to D Street in an effort to revitalize aging office buildings and retail space.

Morris said the mayor’s office was trying to pull together property owners to reinvest in their properties and reinvent the western area to take advantage of an expansion of rapid bus service that stretches north to downtown and then to the University Park area of San Bernardino. He said by repositioning the western end of Hospitality Lane it would create a new market for retailers looking to attract rapid-transit commuters and consumers from other areas of the city.

“Hospitality Lane is a critical area of the city,” Morris said. “It’s critical in terms of retail sales taxes, critical as an employment center and functions as a regional hospitality destination.”

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