Downtown MH in Doubt

With big businesses moving in, city will have to be clever to
save its main artery
Morgan Hill – Chain stores will soon be sprouting in the Mushroom City, offering a full platter of high-end shopping and perhaps poison to the city’s downtown.

That’s what happened in Gilroy.

Before the first group of outlet stores opened east of Highway 101, Gilroy had a respectable if struggling downtown with a JCPenney and a mix of locally owned retail businesses. City center was Gilroy’s shopping district.

But after the first outlets opened in the late 1980s, the first burst of what became Gilroy’s retail explosion, downtown storefronts darkened. Boutiques and niche stores moved in, but most didn’t survive. The weathered statue of famed rodeo cowboy Casey Tibbs atop the shuttered Hall’s Western Wear is a constant reminder that downtown Gilroy is nothing like it used to be.

“We’re just now digging out from under the outlets after 15 years,” local developer Gary Walton said. Walton is president of the Morgan Hill Downtown Association and owns about 100,00 square feet of commercial space in downtown Gilroy and Morgan Hill combined. “But one of the strengths of downtown is that we’re not a mall, and the strength of any ecosystem is its diversity.”

There’s little question that the 650,000 square-foot shopping center planned for Cochrane Road, east of 101 will change Morgan Hill. What’s less clear is what the center will do for business downtown.

The center’s developers, a limited partnership between Oakland and San Jose developers and noted Morgan Hill vintners, the Guglielmo family, are arguing against the conventional wisdom that says downtown will suffer. They say the new shopping center will turn Morgan Hill into a “retail destination,” lifting up the existing plaza west of the highway and drawing a crowd of shoppers that can’t help but spill into downtown.

“The true economic impact,” lead developer Darryl Browman told the Morgan Hill City Council Wednesday night, “is that you retain tenants and create synergies.”

That point of view contradicts the accepted retail history of the U.S., in which big box chain stores and shopping centers plunked down on the fringes of town drained the life out small cities across the country. And it’s definitely not what happened 10 miles to the south, says Gilroy City Administrator Jay Baksa.

“Downtowns throughout the nation we’re having the same problem in the ’50s and ’60s, and it came to Gilroy in the ’80s,” Baksa said. “I know it’s anecdotal, but it had a real impact.”

But like a wildfire reinvigorates dormant species, Gilroy’s 1.5 million square feet of retail east of the highway may actually prove to save downtown, just not in the way Browman expects it to work in Morgan Hill.

The free market didn’t breathe life into downtown Gilroy, it was city leaders who made conscious decisions to reward investors willing to move to the city center.

In 2003, the Gilroy City Council decided to free developers from hundreds of thousands of dollars in fees typically associated with downtown construction and removed costly parking requirements that scared builders off projects.

Those decisions were made on the tail of important public works projects – retrofitting the historic city hall building and rehabilitating the city’s dilapidated transit center – that began the renaissance of downtown Gilroy.

Thanks to the city’s generous incentive packages, downtown is rebounding. The old cannery building is being transformed into a mix-used residential and commercial space. The city is building a new arts center, and won a grant to beautify Monterey Road. Recently, two more major residential development projects are in the works. New restaurants are opening.

“No question about it, it’s the incentives,” Baksa said. “It was an odd way to go about it, but the loss of the retail center started an evolution.

Ultimately, we’ll have the outlets, the shopping centers and a very vibrant downtown with public and private investment.”

Morgan Hill has made efforts to revitalize downtown, spending redevelopment money on the Community and Cultural Center and the Morgan Hill Community Playhouse, and taking steps to encourage affordable housing and mixed-use development.

Recently, the city waived parking impact fees and is now exploring additional short-term waivers to encourage downtown development.

“We want to be able to say ‘the door’s swung wide open, now it’s time for business owners to push through,’ ” Councilman Greg Sellers said. “It’s not going to be just subsidies, but neither can we leave it alone. It’s going to take a substantial development.”

The trouble, Walton said, is that downtown business owners are often inexperienced and don’t know how to survive in a tough environment. If the city is serious about a healthy city center, he said, small business owners need some help, something along the lines of the $11.5 million in incentives won by the Cochrane Road developers.

“It would be nice if we had incentives downtown of the same magnitude,” Walton said. “The shopping center is not satisfying existing demand, but will steal demand from others and retailers don’t know how to compete. But downtown won’t perish.”

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