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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."
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