Empty space: Why some downtown Santa Cruz storefronts stay dark for years

When legacy institutions such as Palace Art & Office Supply and Logos Books & Records closed their doors on Pacific Avenue, they left gaping holes in the fabric of downtown Santa Cruz. But what has become more perplexing over the years for anyone who walks past the dark windows and locked doors is why those spaces, once so full of life, have remained empty for years.

New businesses continue to open downtown – the city reported that 14 have opened since December – but long-term commercial vacancies spanning several years in high-profile locations plague the area. City staff, during a recent public presentation, reported only 19 vacancies in the downtown core, yet, the reality for visitors and residents is closer to double that number. The city chose to not count empty storefronts it said has some degree of interest or commitment from a prospective tenant, which left out addresses such as the old Logos building, Joe’s Pizza & Subs and the former Peet’s Coffee.

The types of locations sitting empty in the heart of the city’s business district include spacious restaurants and former coffee shops – exactly the kind of businesses that city leaders say would do well in an era where demand for retail space is declining nationwide. 

From the outside looking in, it’s hard to understand why locations like the one in the middle of Pacific Avenue that once held Peet’s Coffee & Tea could still be available. The property sits next door to a popular breakfast spot, Mad Yolks, which opened after the coffee shop closed in 2021.

The circumstances around each vacancy defy broad brushstrokes, but when taking them as a whole, some themes appear: the difficulties in matching businesses with properties, especially in an era where retail and restaurant owners prefer smaller, more versatile space, and a lack of support for business owners to navigate the city’s permitting process and make renovations that are affordable and timely.  

Finding commercial tenants can be an enormous hurdle, especially if a business wants to make upgrades to the building. When Bill Kempf, the architect behind many restaurant projects in the downtown area, interviews restaurant owners looking to make renovations, the first thing he asks them is if they own the building. “If you put a million dollars in upgrades, and your business goes under, at least you get to keep all this infrastructure you can use,” he said. 

The price tag to open a new business is already extremely high due to construction costs, and the city’s permit process can stretch the opening timeline by months, or even years. Max Turigliatto, who reopened former Westside Santa Cruz dive bar the Watering Hole as neighborhood pub Mission West in 2020, signed a lease for the former The Poet & The Patriot Irish pub on Cedar Street in January 2023. He aimed to renovate the dated interior into a cocktail lounge with a New Orleans vibe called the Alley Oop that would complement the Kuumbwa Jazz Center next door. 

Originally, Turigliatto had hoped to welcome guests in early 2024. But battles with the city over upgrades to the building have pushed his opening day by more than a year and a half, and added more than $400,000 to his original budget in construction costs, forcing him to search for additional financing. 

Collecting required permits is challenging and can be unpredictable, and taking on that stress to create a new business is a big deterrent, especially in the downtown areas where rents can be higher and many of the buildings are older, said Turigliatto. “It’s a very painful road to getting open. You’d be lucky to open up in a year and a half if there’s any sort of remodel that needs to happen, likely two years or more,” he said. 

Just because a storefront looks empty doesn’t mean it’s not occupied. Vacant storefronts can conceal a business on the lease trying to get open, or be the result of a business that closed before the lease expired, said Kempf. “A lot of businesses go in and sign a five-year lease. If they’re losing their business, it’s sometimes easier to lock the door, close up and keep paying rent,” he said, sometimes for years, although they’re no longer using the space. “There’s no incentive for property owners to find a new tenant, even though there’s no one operating in the building.”

Physical challenges and expensive upgrades

Some vacancies are outside of the owner’s control, said William Ow, a fourth-generation Santa Cruz County real estate investor and broker, whose family owns dozens of commercial properties in the county and throughout the Bay Area. In a standard relationship, property owners are motivated to lease their spaces to reliable operators that are financially secure enough to pay regular rent. But sometimes it’s difficult to match the space with the needs of the business; some are too large, too small, or are physically limited in some other way. 

The former Palace location, at almost 9,000 square feet, is too large for smaller retailers and too small for national chains, which would typically prefer at least 12,000 square feet. It’s also too deep for the size of the space, and needs more front-facing windows to catch people’s attention as they’re walking by. “If you have 12,000 square feet, your facade should be massive, as big as CVS or Walgreens, which have the same square footage,” Ow said. 

Shallow spaces that are 30 to 40 feet deep are ideal in a downtown area, said Ow. But the former Palace space can’t be subdivided. Any attempts to make it more shallow results in an unusable area in the back of the space that can’t be easily accessed for storage or other purposes. 

But even lowering the rent to below market rate doesn’t always immediately result in a tenant partnership. “Even if they offer free rent, the overhead of payroll and everything else to have it operational may cost way more. The business owner might still say, this doesn’t serve my needs,” Ow said. 

If the empty property isn’t the owner’s sole means of income, or if it’s part of a portfolio of real estate properties, there might be less urgency to find a tenant for the space. In some cases, property owners might choose to wait for their perfect match rather than settle for lower rent or other less satisfying terms. “You usually have to have a lot of financial pull to make those decisions, because if you have a vacant space that you haven’t rented for five, 10 years, that’s a lot of money lost,” said Ow. 

This wait-and-see approach is easier if the owner doesn’t have a mortgage, loans or other significant costs associated with the space. There are no tax benefits or write-offs to keeping a commercial property vacant, but the overall cost to keep a building “as is” could still be very low. 

“You’ll see vacancies where ownership might have had it for years or maybe generations. If they have a piece of real estate that has long been paid off, incidentals like downtown fees and property taxes are their only costs, which is a fraction of what it is to new construction,” said Ow. 

Newer commercial spaces – like those that line the ground floors of all of the fresh and forthcoming apartment buildings in the downtown area – are likely to be vastly more motivated to find tenants. Building those towers is expensive, and the property owner or developer almost certainly took out loans to do so. Now, they need revenue from commercial tenants paying rent to help pay back their lenders. 

Some long-term commercial vacancies in downtown Santa Cruz need critical upgrades to bring them up to code before they can be occupied, but construction costs have skyrocketed since the pandemic. The price of new construction has jumped 40% since 2020 due to increased costs of materials such as steel and wood, and new tariffs are likely to push them even higher, leaving both property owners and potential tenants hesitant or unable to make expensive renovations. 

Fixing individual issues with each space to bring them up to code or give them broader appeal is expensive, ranging from tens of thousands to hundreds of thousands of dollars. For example, the spacious, nearly 4,000-square-foot restaurant space at 1110 Pacific Ave. operated as Assembly in 2016 to 2018, and briefly as Alderwood Pacific for six months in 2023, and features tall ceilings, a large dining room and kitchen, and a small courtyard. But in order for a new tenant to open any kind of business, the space needs a new heating, ventilation and air conditioning (HVAC) system, which could cost hundreds of thousands of dollars, said city economic development manager Rebecca Unitt. 

That’s in addition to the rent, which at $27 per square foot per year translates into nearly $9,000 a month for the entire space, according to the property’s listing. The rent is listed as “triple net,” which means the tenant is responsible for all the costs associated with the share of the building that they occupy.

Construction is a “very real cost” that often comes up when making improvements for spaces that haven’t been occupied for five or more years. “The building code changes so much. There’s likely to be things that need to be updated, and so those costs will kick in,” said Unitt. The city doesn’t have any programs to help business or property owners with these costs, aside from offering traditional loans. 

Property owners and managers behind closed doors

Determining who owns a building and reaching them to clarify the status of their properties is difficult. Many protect their privacy behind limited liability companies. Several landlords of vacant buildings and their real estate brokers either did not respond to requests for comment from Lookout or declined to be interviewed.

The Econic Company, which manages 1407 and 1409 Pacific Ave. – the former Palace Art & Office Supply and Peet’s Coffee, respectively – did not return several calls and emails requesting information. Sheldon Wiseman Commercial Real Estate declined an interview and did not reply to an email asking to confirm if the former Alderwood Pacific building needed a new HVAC system, as the city claimed, or whether Santa Cruz Sky, Alderwood Pacific’s parent company, remained on the lease for any length of time after the closure. 

Lookout did not hear back from Sherman & Boone Real Estate, the property manager for 1207 Pacific Ave., the former Joe’s Pizza & Subs, and 1335 Pacific Ave., previously a Starbucks. Although that location was recently home to Rock N Roll Donuts, it has been operative for only 11 months out of the past five years. 

In November, broker Nicholas Greenup, a senior associate with Cushman & Wakefield, told Lookout that finding a tenant for the unusual space that was previously home to Logos Books & Records was challenging because there’s a ground-floor level of about 7,000 to 8,000 square feet, with stairs that go down to a lower level of about 3,500 square feet. That lower level can’t be leased separately, said Greenup, adding that the building’s owner is willing to be flexible in terms of lease length, build-out, etc.

Logos owner John Livingston did not return several phone calls requesting more information about his search for a tenant. Property manager Greenup declined an interview. 

Incentives and ordinances to fill long-term vacancies

Empty for more than seven years, the former Logos could finally welcome a new tenant later this year. The building is being finalized for a temporary police substation as part of an effort to increase law enforcement presence in the neighborhood.

Empty spaces are a draw on the community, and leaving buildings empty for long periods of time can cause wear and bring the value down even more, said Ow. “Vacant spaces in general tend to deteriorate and fall apart. They cost property owners more money, and then they look more dilapidated,” he said. “They become less and less attractive, to the point where they’re ignored.”

The city is attempting to encourage property owners to lease long-empty spaces with a new stimulus measure. In April, the Santa Cruz City Council voted to motivate property owners to find tenants by giving the thumbs-up to a proposed downtown vibrancy ordinance. If it passes later this month, owners of commercial properties that have been vacant for more than two years would need to pay to register the vacancy with the city, provide a plan for upkeep while it’s empty, retain a local property manager and meet annually with the city government to discuss its leasing status and maintenance issues. Failure to comply could result in the property being declared a public nuisance, which is punishable by a $1,000 fine or up to six months in jail. 

The city is open to creative solutions for some of these spaces, like a pickleball court in the former Palace or a wine bar in the former Rock N Roll Donuts spot, said Unitt. It’s able to help bring new tenants in through Downtown Pops!, a program in which the city enters a master lease with a downtown commercial property owner, provides a guaranteed minimum rent, and then sub-leases these spaces to pop-up tenants for a six-month term. Lease terms are set at a percentage of monthly sales. “We’re also actively working on ways that we can streamline the permitting process to reduce timelines and costs so that we can get these spaces filled,” said Unitt. 

If the city’s downtown vibrancy ordinance passes, Kempf hopes it will incentivize apathetic landlords and those who might have kept tenants with shuttered businesses on a lease. “I think the city is on to something with the vibrancy ordinance to force the hand of some of these people,” he said.  

Turigliatto said supporting business owners and maintaining downtown so that it’s inviting for visitors and encourages foot traffic, rather than punishing property owners, would bring more businesses to the area. “What works is keeping the street clean and keeping businesses accountable,” he said “Landlords want to rent out their spaces. But there’s just nobody who wants to deal with Santa Cruz.” 

— Christopher Neely contributed to this report.

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FOR THE RECORD: This story was updated to correct Nicholas Greenup’s role with Cushman & Wakefield. He is a broker.

FOR THE RECORD: A comment by Max Turigliatto was clarified.

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