By allowing ads to appear on this site, you support the local businesses who, in turn, support great journalism.
Gays Mills Mercantile Center rents not meeting initial expectations
Placeholder Image

A budget shortfall this year has left the Village of Gays Mills Board making cuts to spending in a variety of ways, including staffing, funding special events and more. Part of that shortfall has come from the increased costs of the newly constructed village buildings, as well as less rent revenue from the Gays Mills Mercantile Center than had been anticipated, according to some village trustees.

The Gays Mills Mercantile Center, opened eight months ago, is the strip-mall style building that is owned by the village. Built at no cost to the village by the U.S. Department of Commerce’s Economic Development Administration, the Mercantile Center was initially projected to provide the village with $48,000 in revenue at 80-percent occupancy. With only 41-percent of its space currently paying rent, it is only bringing in $12,953 in rent annually with an additional $4,885 collected in maintenance fees.

The initial projected revenue of almost $50,000 was key in the village’s plans for paying back the low-interest loan portion of the Gays Mills Community Commerce Center, which houses the village offices, library, meeting spaces, and the Kickapoo Culinary Center.   The loan payment is $29,172 per year.

The Mercantile Center has a total rentable space of 12,055 square feet. Of that, 4,881 feet are leased by seven tenants. The rented spaces range in size from 384 to 1,288 square feet, with rents ranging from $57 per month to $223 per month.

The proposed Bistro project, which appears somewhat uncertain at this point, would occupy two spaces totaling 3,148 square feet. That’s about 26-percent of the building’s rentable space. The remaining unoccupied spaces are 394, 786, and 914 square feet respectively. Together, the five unoccupied spaces represent 43-percent of the leasable space.

Another 1,932 square feet, representing 16-percent of the total leasable space, contains the Arts Collective of the Driftless Area, an art gallery. The space was opened to the group in late September. However, Julia Henley, the Gays Mills Central Business District Manager, must first finish lease negotiations with the group before the art gallery begins to provide rent revenue for the site.

Leases show that discounted rents and other incentives offered to tenants have greatly reduced the expected revenue collected, particularly within the first year.

The lowest rental rates are $1.33 per square foot per year. The highest rental rate is $3.75 per square foot annually. All leases include a $1 per square foot per year maintenance and cleaning fee.

Excluding the lease in negotiation with the Arts Collective, rents are averaging $2.65 per square foot/per year. It’s a significant gap between expectation and realization. Projections were based upon estimates of $5 per square foot annually, derived through work with the Economic Development Administration.

In a letter to Jerry Figliulo, Construction Project Manager for the U.S. Department of Commerce Economic Development Administration, on January 28, 2010, the village outlined the parameters of their rental plan.

“The first year of occupancy will be provided with no lease costs. Tenants will be expected to pay utility costs during the first year,” the letter stated.

“After the first year of occupancy, tenants will pay a lease payment which is commensurate with their space and what they can afford. The Village is assuming the average lease will equal $5 per square foot per year, plus utilities.”

This policy was negotiated with the EDA before money was released to the village, according to Gays Mills Village President Craig Anderson.

“As far as I know, we have met their requirements,” Anderson said.

However, all subsequent leases were below the $5 per square foot/per year target, including the maintenance fee.

Both tenants and board members were not necessarily aware of the varying rental rates.

“I thought there was just one price,” said Lana Randall. “It should be in all fairness –why should it be one price for me and not for them?”

Fairness is a valid question given the EDA-funded project must comply with federal fair and equal housing standards.

“I assume Julie was offering whatever she needed to get someone into the building,” Murray said. The village trustee acknowledged that he had been unaware of the policy of varying rental rates until recently.

According to Henley, the variations are necessary to fill the space and are negotiated to reflect specific needs of tenants.

 “The target amount of $3.33 per square foot for the leasing of spaces is negotiated based on the business, perhaps starting with a slightly lower rate and ramping up to the target $3.33 rate, eventually averaging at this rate.  This strategy has proved to be an important way to secure longterm leases, and provide new business for the Mercantile,” said Henley in an e-mail.

The $3.33 per square foot/per year target rate does not include the $1 per square foot/per year maintenance fee, which is a separate item in all leases. At that rate, a 500-square-foot space would rent for $139 per month plus $42 per month in maintenance fees for total monthly rent of $181.

The maintenance fee, which effectively raises the rent paid by tenants, goes into a segregated fund. Payments for cleaning and maintenance are reconciled quarterly and any remaining balance would roll into the general fund for future use. However, it’s not working out that way yet.

“It [the maintenance fee] hasn’t balanced out,” said Gays Mills Village Clerk Dawn McCann. “It hasn’t paid for all the expenses yet.”

The 80-percent occupancy rate, initially used by Vierbicher and Associates in demonstrating revenue outcomes during the planning stages of the Mercantile Center, has not proved to be correct at this point.

In June 2010 at a Gays Mills Village Board Special Meeting focused on finances for the project, Henley said that the Mercantile
Center project was on a trajectory to meet 80-percent occupancy rate. That meeting was when the board approved the Final Project Scope and Funding Plan.

  “Clearly, fully rented is the goal, and is a strong possibility by mid-2013,” Henley said recently. “There are currently a number of businesses evaluating locating in all spaces of the Mercantile.”