Walking through sawdust-strewn aisles at downtown's Grand Central Market, Ralph Penilla Jr. stops and looks around his childhood playground. At 42, Penilla can recall countless afternoons spent playing and working alongside his father at the family-owned eatery. “I grew up in this market,” he says. “It's like home. This place was so full of people. It was packed. You couldn't walk through here without bumping into people.”
Nearly 45 years after Penilla's father first opened Roast To Go and began selling roasted chicken and sheepshead to the shoppers who flocked to the Broadway location, life at Grand Central Market has changed. The crowds are gone. Banners advertising rental space hang in front of empty stalls. Instead of waiting on customers, merchants stand around asking what ever happened to an ambitious plan to use $44 million in public funds to breathe new life into the market. The question pits merchants against the developer who promised to save the market, and spotlights two local agencies that are spending millions to bail out the troubled project.
Opened in 1917, Grand Central Market has long been called the “breadbasket” in the heart of downtown's historic core. In its earliest days, it was a chic place where rich Bunker Hill families came to buy groceries. Later, as its wealthy clientele left for the suburbs, the market survived by transforming itself into a place where new immigrants could get good deals on fresh produce, meats and spices.
In the late 1980s, developer Ira Yellin became interested in the possibility of renovating the historic market, along with the adjacent Million Dollar Theater building. Known for his beautiful restoration of the landmark Bradbury Building, Yellin was a successful downtown developer with political ties and a keen interest in historic preservation. He was able to generate $22 million from a handful of private investors, but that was just enough to buy the land. Banks expressed little interest in financing a renovation, but in 1993, Yellin persuaded the Community Redevelopment Agency and the Metropolitan Transportation Authority to bankroll the plan. His message was simple: Save the market and you can save the northern tip of the historic corridor that runs along Broadway.
In exchange for a $44 million loan, Yellin promised to fix the market, convert two empty offices above it into 121 apartments, renovate the adjacent Million Dollar Theater building and construct a parking structure. “What sold us on the deal was the rehabilitation and continued operation of the market, because it's a landmark,” said Don Spivack, CRA deputy administrator. For its part, the MTA saw the deal as a way to increase ridership on the Red Line while also generating an “annual, steady source of revenues for the Authority to finance rail-transit-system development and operations,” according to a 1993 report.
The CRA and the MTA agreed to split the $44 million cost of the project. They would raise the money by issuing bonds, on which the two agencies agreed to pay interest upfront and allow Yellin to reimburse them over time.
CRA officials admit the deal was risky. In 1993, CRA commissioner Dennis Luna told the Downtown News he feared that the deal would go sour and that the agency would be left “like a cat in a bag struggling to get out.” The CRA board, however, ultimately approved the deal. A few months earlier, the CRA had agreed to pay Yellin $11 million to purchase air rights above the market. The CRA could then sell those rights to developers wanting to construct buildings taller than city height limits.
Now, nearly four years after Yellin first approached the two agencies with his plan, the renovations are complete, but the market itself appears to be languishing. Critics – including the merchants who operate the produce and restaurant stalls – are beginning to wonder whether Yellin's vision to save the place may result in the demise of Grand Central Market.
Problems became apparent last June when Yellin's company announced it was almost $1 million short on its loan payment. The MTA and CRA quickly moved to rescue the project, saying it was cheaper to do so than to foreclose. The agencies agreed to continue to cover the bond payments for up to 17 years, as well as forgive $300,000 a year in annual handling fees, until the project became profitable. In exchange, Yellin's partnership would continue to pay as much of the annual $2.4 million it owed on the bond debt as revenues allowed. The CRA and MTA would use a reserve fund to cover any shortfalls.
So what happened to the rosy picture Yellin once drew?
The developer's restoration efforts are obvious from blocks away. The market is a shiny version of its former self. The beautifully ornate facade, including the massive columns that hang from high atop the Million Dollar Theater building, is in stark contrast to the old, rundown buildings that surround it. The stacks of produce crates and boxes once piled along the Broadway entrance are gone. Deliveries are now neatly stacked out of plain view, on a newly constructed loading dock.
But while the market looks good from the street, its financial picture is less attractive. CRA documents show the entire project, despite gross revenues of $4.4 million in 1997, could not make, after expenses, the full $2.4 million bond debt payment due the MTA and CRA.
According to CRA records, the problems stem from overoptimistic predictions of how much rent the apartments would generate, coupled with artificially low operating-cost projections. Yellin blames the shortfall on the state's five-year recession, which sent downtown real estate prices plummeting and kept potential renters away. “When we first were getting things started,” he says, “I remember getting a call from a major brokerage firm offering to pay top price, which at the time was about $100, for the parking stalls. By the time we were online and running, we were lucky to get $60 a month for those spaces.”
The project is expected to post losses again this year despite the real estate market's recovery. Yellin says the city's gritty downtown is still in trouble. “Look, the reality is what comes in, and that's not what we expected. In 1992 and 1993, when this deal was being structured, nobody expected this thing would last as long and go as deep as it did.”
Yellin is less forthcoming, however, when it comes to explaining why operating costs ran nearly $1 million over what was originally anticipated. The CRA projected the developer would pay out $1.2 million in 1997. Actual costs were more than $2.1 million. The bulk of that money was apparently spent on taxes, utilities, insurance and security.
“I'm not going to get into any more details about my books,” Yellin said when asked about the moneys. “I don't believe it's appropriate for me to start going into the books with you.”
Standing in the afternoon sunlight that streams in from the skylights above the food bazaar, Ralph Penilla Jr. says life for the merchants hasn't improved since Yellin launched the market renovation. “I don't know what he did here except put in some ceiling fans, add a coat of paint and open up those skylights,” says Penilla. Yellin says that much of the $11 million spent on the market went to fix up crumbling infrastructure and convert the offices above it into apartments.
But for Penilla, who recently took over the day-to-day operation of his family's business, the explanation isn't enough. “All I know is that [Yellin] keeps charging us more money to pay for the common areas and stuff, and we aren't making as much,” Penilla says as he combs through a stack of accounting records that detail losses of more than $9,000 in the first three months of 1997. He now pays $7,000 a month for his 400-square-foot stall, plus storage. A third of that money goes toward rent, and the rest for maintenance and utility fees.
Similar complaints are repeated throughout the market. “No one can afford to pay these kinds of prices,” says one merchant, who pays about $5,000 a month for a 250-square-foot stand. “Just look at all the 'For Rent' signs. I don't see who is going to want to move in with what he's charging.” Three nearby stands are empty; overall, nearly half the market, including a large stretch of the basement level, remains vacant.
Complaints of escalating costs are backed by record keepers who say their clients' rents have increased by 5 percent annually. But the biggest increases have been in the fees merchants are charged for common areas – according to sources, those have climbed as much as 8 percent each year since 1996.
Yellin doesn't dispute that rents are high, but says the market has always drawn top dollar because of the high foot traffic – an estimated 75,000 visitors per week. He denies raising common fees, and says he's tried to work with merchants by freezing or lowering rents. That was until this January, when most rents went up. “We felt that now that the economy was improving, it was fair to raise these costs,” he says.
In January, merchants at Grand Central joined together to form an association. They hope to negotiate fee reductions and an accounting of how much is spent on utilities, maintenance of the common areas, including vacant stalls and the basement, and security.
Yellin says that fees should decrease as the market continues to attract new tenants. But merchants fear the high rents will discourage new tenants at a market known for low-priced meats and produce. “It's not like we can start charging people a lot more,” said another vendor.