Back to Square One 

Jack London Square's future lies in an ambitious-but-risky proposal whose failure could turn once-public waterfront into office space.

In a windowless office on the Oakland estuary, Renato Sardo, a scion of Italy's Slow Food movement, leans against an enormous Plexiglas box. Inside is an architect's model of a future Jack London Square anchored by a foodie Utopia, a cluster of organic markets and restaurants dubbed Harvest Hall. It's essentially a larger version of San Francisco's Ferry Building Marketplace, with a similar roster of top-tier artisan food stalls and restaurants.

But despite Sardo's Slow Food credibility, the $100 million vision is off to a decidedly rocky start. Its marketing office is remarkable for its lack of activity — it remains locked most days, and the phone sits alone on the floor because there is no furniture. And after more than a year of searching for tenants, Harvest Hall's backers have not yet convinced a single merchant to ink a contract.

The Hall's prospects would appear to mirror the fortunes of the rest of Jack London Square, which has struggled mightily since local developers Jim Falaschi and Hal Ellis Jr. bought much of it from the Port of Oakland in the early part of the decade. There are at least eleven empty storefronts in its heart between Embarcadero Way and the estuary. Several once-bustling chain restaurants have shut down, including TGI Friday's, El Torito, and The Old Spaghetti Factory.

At the time of the sale, city and port officials billed Falaschi and Ellis as saviors. They were cast as deep-pocketed developers whose wealth and knowhow would finally breathe life into Jack London Square, which has long struggled to attract viable retailers.

When the two first acquired much of Jack London Square, the deal sparked fierce criticism. In November 2001, the port sold Falaschi and Ellis four buildings in the square for an extremely favorable price. When combined with several other financial sweeteners, the deal essentially allowed the developers to realize a complete return on their investment in just three years.

Then in July 2004, the Oakland City Council handed them another gift by essentially allowing them to build whatever they wanted on the site. The developers said they needed flexibility to respond to the Bay Area's changing economy, but opponents worried that their real plan was to turn the square into a giant office park. Now, if Falaschi and Ellis fail in their effort to pull off Harvest Hall, that outcome could yet come to pass.

Some current and former merchants believe Falaschi and Ellis have deliberately run off the businesses in an effort to transform the square from a middle-class, family-oriented destination to a haven for the well-to-do. Chandru Gurnani was co-owner of the square's Pizzeria Uno, which changed its name to Pizzeria SFO before closing last November after revenues tanked. The developers, he said, "have been successful ... at emptying Jack London Square."

The city and the port took a huge gamble when they sold Falaschi and Ellis key parts of the square at fire-sale prices. Yet since the square went private, it has come to resemble a ghost town. The developers say they plan to spend a total of $400 million in private funds, but if their project fails to create a destination vibrant enough to attract locals and tourists alike, Jack London Square may continue as a ghost town — one that many Oaklanders won't even be able to afford.

A Sweetheart Deal
In 1999, the port solicited bids for a master developer. The winning bidder eventually dropped out of the competition, paving the way for the runners-up, Falaschi and Ellis, who dubbed themselves Jack London Square Partners.

Falaschi has long been tight with state Senate President Don Perata, the state's most powerful Democrat. Both men are graduates of Saint Mary's College in Moraga, and in the late 1990s, Summit Medical Center in Oakland hired the senator as a "consultant" while Falaschi served as the hospital's board chairman. Falaschi also has assisted the senate boss on some of his political campaigns, and from 2000 through 2006, he and Ellis contributed at least $64,450 to Perata's various political committees and those associated with him.

Around the time that the developers became involved in the future of Jack London Square, the port came under intense pressure to jettison its waterfront property. In 2000, Perata asked the California state auditor to conduct a complete review of the port's books. The audit showed that the port's commercial real-estate division, which included the square, was losing money. Instead of hiring consultants to help turn the publicly owned square into a top tourist attraction, port officials used the audit as an excuse to privatize it.

In November 2001, the port revealed that it planned to sell Falaschi and Ellis four buildings in the heart of the square for $17.2 million. The developers agreed to pay the port $510,000 a year to lease several more properties. The port also said it would pay them $1.1 million a year to manage the square, and provide $10 million to help construct a parking garage, build a small public park, and extend the San Francisco Bay Trail. Finally, the developers would immediately start collecting rent from the square's tenants, which at that time totaled $5.5 million annually.

Some developers and activists immediately labeled the plan a sweetheart deal. As if to confirm their assertion, one month later, another development team offered the port $21 million for the same four buildings. And then a representative of original winning bidder LCOR-WDG Ventures revealed that it had planned to pay $44 million for the four buildings, plus one more, which penciled out to $127 per square foot, nearly 60 percent more than Falaschi and Ellis had offered.

Port officials went ahead with the deal anyway. In March 2002, Falaschi and Ellis assumed ownership of 70 Washington Street, home to the former TGI Friday's and Pizzeria Uno; 98 Broadway, which houses Barnes & Noble; 66 Franklin, which included the former El Torito and Old Spaghetti Factory restaurants; and 401-449 Water Street, a series of retail outlets fronting the estuary. The developers also leased three parking lots, the plaza in front of Barnes & Noble, the green in front of the ferry terminal, and the former Jack London Square Village.

The state objected to the council's blank-check approval and later forced Falaschi and Ellis to commit to a more visitor-friendly plan. Generally, the law prohibits office buildings and housing but allows restaurants and small retail shops, especially if they promote water-related activities. However, the State Lands Commission and Perata's good friend, then-state Attorney General Bill Lockyer, provided Falaschi and Ellis with an out. Under the terms of a legal settlement filed in Alameda County Superior Court, the developers can still use a significant portion of their buildings and land for office space as long as they make "reasonable" attempts to find restaurant and retail tenants. Lockyer and the commission also let the developers buy two parking lots from the port for $6.2 million, and said they could build whatever they wanted on them.

Ultimately, it also turned out that the developers didn't have such deep pockets after all.

Records show that Falaschi and Ellis used their four new buildings as collateral to obtain a $13.2 million loan. And eighteen months after buying Jack London Square for less than it was worth, they cried poor. They said they couldn't afford the $240,000 in city permits needed for their development, and threatened to scuttle the entire deal if the port didn't foot the bill. "People think that developers have big pockets and can pay for anything," the Oakland Tribune quoted Falaschi as saying in December 2003. "There are limits and there are budgets."

However, new property records show that the original deal with the port was even sweeter than its critics realized. In May, the developers remortgaged the four buildings they bought in 2002 for $37.2 million. Then last month, they took out a $107.5 million loan against the lease value of four of the parcels still owned by the port, including the Harvest Hall space. In other words, the buildings and a portion of the leases that cost Falaschi and Ellis less than $20 million have shot up in value to $144.7 million in five short years, an increase of more than 600 percent. And that's not all. The developers can still borrow against three more leases they have on port property.

Falaschi did not return phone calls seeking comment for this story, and Ellis answered questions for only a few minutes before growing agitated and hanging up the phone. Ellis refused to talk about why he and Falaschi chose three years ago not to renew the leases of TGI Friday's, El Torito, and The Old Spaghetti Factory.

The developer denied that the staggering jump in the square's value indicated the port had sold and leased its properties at far-below-market rates. "They were fairly valued in 2002," Ellis said. "We've remodeled; we've done a lot of things." He also said he and his partners are investing "a significant amount" into the square, but would not say how much.

While it's true Falaschi and Ellis have made several upgrades, particularly to 66 Franklin, it's also true that the square today has far fewer visitors and shoppers than five years ago.

Starving the Square?
Chandru Gurnani's dream of co-owning Pizzeria Uno in Jack London Square turned into a nightmare. Throughout the 1980s and '90s, the Fremont resident managed a string of fast-food joints — Burger King, Jack in the Box, Taco Bell. Then in 1996, he bought a stake in Uno's. After Falaschi and Ellis took control of the square, Gurnani realized he had made a huge mistake. Sales nosedived. "By the time we closed, about 65 to 70 percent of sales were gone ... a major, major, major decline," he said.

Falaschi and Ellis had no interest in helping the pizzeria survive, Gurnani said. "If I was asking for time to pay the rent or whatever, they just did not entertain anything," he said. "Any time we got any response from them, it was from their attorney.... They would do things such as send us a notice on Friday at 4 or 5 p.m., telling us we had three days to evacuate, and the three days ended on Monday. Not business days, but Saturday and Sunday. By 11 a.m. on Monday, I'd be worried that the sheriff would be there and lock us out. All the managers, the employees, they would be in tears because they were frightened."

Then, thirteen months ago, Falaschi and Ellis sued Gurnani for failure to pay $32,153 in back rent and demanded that the court evict the pizzeria. Court documents revealed that the developers were charging him about $216,000 a year in rent, including $976 a month for "advertising and promotion of the square." Gurnani and other merchants said these monthly payments were a waste because the square is empty.

Cocina Poblana, an upscale Mexican restaurant based in Emeryville, has leased the former Uno spot, but Gurnani said he doubts the new tenant knows how far business in Jack London Square has tumbled. "You stand on the corner out in front of there on a Friday or on a Saturday or Sunday afternoon and there's nobody," he said. "It's not what it used to be. It's haunted."

Across the square, Keith and Tammy Miller, owners of California Canoe & Kayak, now regret advocating for Falaschi and Ellis in 2001. Back then, the Millers supported the port's decision to sell, but they said their business has declined in the years since and the developers keep demanding rent increases. "I supported the sale to the port and the city council," Keith Miller said, "and then the first thing they try to do is triple our rent."

Even though theirs is the only business in the square that perfectly fits the lands commission's definition of an appropriate waterfront store, the Millers said Falaschi and Ellis refuse to give them anything more than a one-year lease. "They feel we're not paying enough rent," Tammy Miller explained.

Keith Miller said his landlords now make him sign a document each year stating that his shop's rent is "below-market," even though Falaschi and Ellis have failed to find tenants to pay "market" rates throughout the square. In fact, the old TGI Friday's space, across from Barnes & Noble, has displayed For Lease signs in its windows since it closed three years ago.

Ellis said he and his partner really haven't been trying to rent spaces the past five years, despite the nearly $1,000 a month in advertising fees he charged Gurnani. "We have deliberately delayed the launching of our marketing program until we are under construction," he said, referring to the building of Harvest Hall, which he said is scheduled to begin in January or February.

Several current and former Jack London Square merchants believe Falaschi and Ellis have starved the square not only to gentrify it, but also to gobble up more property cheaply. Last month, for example, the port approved a deal that would allow the two developers and their partners to purchase the Waterfront Plaza Hotel and Jack's Bistro from another private entity for a mere $22 million. Occupancy rates at the once-venerable 144-room hotel dipped last year to just 56 percent.

The Sell
At a breakfast meeting near Oakland International Airport in late June, Falaschi guided a banquet room full of engineers and commercial builders through a slide show of handsome 3D renderings. For the developer, it was a chance to stir up a little preconstruction interest in Harvest Hall six months before its steel girders are likely to be visible.

Dressed in a crisp suit, the towering Falaschi appeared affable and upbeat as images of the future square flashed on a projection screen above his head. He described a scene bustling with activity, like the teeming center of a European capital. "This is one of our drivers," he said, "the Harvest Hall, one of the things that will bring people into Jack London Square for everyday activities. Continuous, daily activities." He paused to let the audience take it all in: a soaring, multilevel contemporary structure with a tower and deep roofs like awnings.

Falaschi and Ellis originally proposed Harvest Hall in 2002. Their plans actually call for two buildings: a five-story structure facing the estuary and a three-story building fronting Embarcadero Way. Connecting them will be the so-called Fresh Market, a cluster of produce stalls covered by a high atrium. Falaschi bragged that the Fresh Market alone would rival the Saturday Ferry Plaza farmers' market across the bay — named by The New York Times as one of the nation's best.

"We'll have more day tables," he said, pointing to an overview of the Fresh Market, without mentioning that the project had yet to sign any tenants. "More stone fruits, seasonal offerings. ... Over here, separate, will be a meat hall ... a number of fishermen from Half Moon Bay who'll wholesale in the morning before it opens to the public and then start selling to the general public."

What Falaschi also neglected to tell his rapt audience is that the models he touted as inspiration — the San Francisco Ferry Building, Pike Place in Seattle, and Vancouver's Granville Island — operate under conditions very different from those of Jack London Square. Set in superheated tourist meccas, they benefit from their proximity to restaurants good enough to rate as destinations in their own right. But while Oakland's Piedmont Avenue, Rockridge, and Temescal are culinary hotbeds, the waterfront is decidedly a work in progress.

What Falaschi described to the audience had the outlines of a pipe dream. Just ask someone from one of the markets to which the developer likes to compare his project. "It's hard to do something like this," said Ferry Building spokeswoman Jane Connors. "It's hard to get people to buy into what's initially a concept." But unlike Jack London Square, whose Sunday farmers' market is hardly a foodie destination, the Ferry Plaza farmers' market boasted a regular weekly supply of shoppers spending serious cash on heirloom eggs or organic salad greens from West Marin even before restoration of the Ferry Building began.

It's also easy to get to. BART, Muni, Caltrain, and ferries deposit commuters — in some cases literally — right at the Ferry Building's back door. In that regard, Harvest Hall has two strikes against it: The nearest BART station is twelve blocks away, and the ferry terminal is a long hike from the opposite end of the square. Unless you live within walking distance, driving is the only feasible option, and even then, you must traverse the port's busy railway traffic.

But even if Oakland could somehow fix Jack London Square's access problems, might Harvest Hall become the thriving foodie hub pictured in Falaschi's slides? That may all be up to Renato Sardo.

Little to Show
Back in that windowless marketing office, Sardo echoes the implausible optimism of Falaschi's slide show, but in the jargon of a food lover. "If we found some good tenant who does oils from all over California," he says, pointing to an entire floor of Harvest Hall supposedly to be set aside for a teaching kitchen, "we may do courses on olive oil. Really create a system that works between the different tenants." His Italian accent packed a big dose of culinary authority, but like Falaschi's, his bird's-eye tour was short on specifics.

Sardo has been involved with Slow Food since high school; his father, Piero, was one of the movement's founders. In July of last year, Falaschi and Ellis hired Sardo as Harvest Hall's consultant, and since then, he's worked at translating Slow Food theory into tenant guidelines. But despite a charm offensive aimed at potential renters, Sardo has had little to show for his year here. "Oakland is still not a super marketing name," he admits with a laugh.

Then again, the 38-year-old in fashionably chunky glasses seems an unlikely choice to cheerlead for the waterfront. Not only because he's lived in the Bay Area for only two years — a stint too brief to have built up much credibility in the local food scene — but also because of his very connections to Slow Food.

Spawned in Italy in 1989, the international movement's mission calls for shoring up small farmers and artisan food producers through local chapters, including four in Oakland and Berkeley alone. But Slow Food has become fashionable, and carries an elite aura. Members tend to be educated, affluent, and white — an unlikely fit for Jack London Square, which traditionally has drawn ordinary middle-class families, many of them African American.

No surprise, then, that a Sardo-shaped Harvest Hall suggested it wasn't open to national restaurant chains. Last December, the San Francisco Business Times reported that Sardo's recommendations included discouraging the kinds of business that previously have driven traffic to the square. Sardo acknowledged the report's accuracy but refused to talk in absolutes — or to even say whether the developers would rule out a supermarket, the antithesis of the Euro-style public market the hall aspires to emulate. "If in six months we don't tenant to anyone," he said with an anxious-sounding laugh, 'then at that point I really don't think, you know ..." He trailed off.

Deborah Perry, a senior vice president for real-estate giant Colliers who started searching for tenants a year and a half ago, six months before Sardo was in the picture, said she isn't opposed to chains, but ruled out a development with the flavor of a mall such as Bay Street. She made it clear that the Emeryville mall's mix of family-friendly chains — national outlets such as California Pizza Kitchen alongside smaller local chains such as Asqew Grill — wasn't upscale enough.

But if chains are off the table, boutique operators aren't necessarily convinced that they're on. Caitlin Williams, co-owner of the high-end organic patisserie Miette, wonders if her French-style macaroons are simply too fancy for the square. Williams said that the developers had been aggressively courting Miette to move its baking facility into one of the artisan spaces planned for next door at 66 Franklin. "We might completely alienate a lot of the people who are there," she mused. An experiment having a stall at the Jack London Square Sunday farmers' market turned out to be a bust: "Oakland didn't really support doing fancy desserts, and the costs that it takes to have such fine production." Nevertheless, she said, they haven't totally ruled out the square.

Curiously, despite Falaschi's boast at the June power breakfast that some high-profile culinary school might become the proposed educational kitchen's trophy tenant, neither the developer nor Sardo seems to have been serious about finding one. "Originally, we wanted to get the Culinary Institute," he told the crowd, "but it didn't seem to work in this area." A spokeswoman for the Culinary Institute of America at Greystone in St. Helena confirmed that, indeed, the developers had approached the prestigious school some four or five years ago. But the developer soon discontinued the discussion, she said.

Are Falaschi and Ellis serious about their Slow Food vision? At the breakfast meeting, Falaschi suggested that instead of hosting the Culinary Institute, they could have UC Extension offer wine and food classes at night. But that came as news to both UC Extension CEO Judah Rosenwald and humanities director Ramu Nagappan, who are responsible for developing new class venues. In fact, Rosenwald hadn't even heard of Harvest Hall until the Express contacted him for this story.

So what are the developers' real plans? Rhonda Hirata, their spokeswoman and a former Perata aide, offered a possible glimpse. Her bosses scrapped early plans for a movie theater on the parking lot at the base of Broadway after Regal Entertainment Group, the owner of Jack London Cinema, balked at relocating from its spot around the corner. Now, she said, they're considering an office building on the once-public site.

Gentrification Fears
TGI Friday's experienced its share of problems before Falaschi and Ellis killed it. The chain restaurant overflowed with customers on most nights, but on weekends, unruly patrons forced management to hire security guards. Some local merchants believe Falaschi and Ellis were worried about the younger black clientele, and how the restaurant clashed with their vision for Harvest Hall. "TGI Friday's is not the image they want to portray," one merchant said. "They want to gentrify."

Ellis declined to discuss the developers' plans for Harvest Hall, saying they intend in a few weeks to make "a major announcement." That announcement might involve the restaurant Chow, which sources familiar with negotiations said is interested in a space next door to Harvest Hall. Boasting two restaurants in San Francisco that tout sustainable ingredients, and a flagship location in Lafayette that includes an upscale food and wine market, Chow might prove a pivotal anchor tenant, a magnet for the organic faithful. "It's all about gentrification," said one merchant, who asked for anonymity for fear of angering the developers.

But gentrifying a public waterfront would effectively put it off-limits to a significant number of people who simply can't afford upscale eateries. And that raises serious questions. For starters, shouldn't Jack London Square be accessible to all? Where will low- and middle-income families, the very people who packed the square every Friday and Saturday night for years, go to eat or spend an evening?

Why should a public waterfront named for an author who hailed from a working-class family, once worked eighteen-hour days in a cannery, and spent time as a hobo be made off-limits to a good percentage of East Bay residents? Port executive director Omar Benjamin, who negotiated the original deal to sell the square, didn't return phone calls seeking comment.

And then there are questions about whether Falaschi and Ellis' plans are even viable. Ellis said he believes it will be "a roaring success," but other merchants aren't so sure. "If you were to spend money buying organic vegetables, would you have lunch for $40 at Kincaid's or Scott's?" said Gurnani, the former co-owner of Uno's, referring to two higher-priced restaurants already in the square. "If the average moviegoer would walk up to Harvest Hall, do you think they would spend money at any of those restaurants?"

One thing is for sure: Falaschi and Ellis may have picked the perfect cover. Slow Food, with its emphasis on the artisan, the sustainable, and the eco-friendly, likely guarantees positive press coverage. It also makes it palatable for liberals and progressives to overlook the fact that the developers' true intention may be not just to enhance, but to exclude.

And if they fail? Well, there's always office space.

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