STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of June 13, 2023
TO: Members of the City Council
VIA: Dante Hall, City Manager
SUBMITTED BY: Tim Rood, Community Development Director
SUBJECT: Business Attraction Grant Program
RECOMMENDED ACTION:
Staff recommends that the City Council approve a resolution approving the establishment of a pilot business attraction grant program and approving the business attraction program guidelines.
BACKGROUND:
The Council’s Economic Development Committee received a report on the proposed Business Attraction program on April 4, 2023 and recommended it be brought to the full Council for consideration.
Councilmembers have inquired the how the City could assist certain types of desired new retail businesses with move-in costs associated with occupying vacant storefront spaces in Hercules. Sit-down restaurants and other eating and drinking establishments that provide gathering space have been a particular focus.
There are currently vacant ground-floor commercial spaces at the Creekside Center, the Willow Avenue Center, Sycamore Place, The Aventine, and The Exchange. While they are being actively marketed through commercial brokers, some have remained vacant for months or years.
Commercial landlords typically provide a fixed cost per square foot allowance for tenant improvements (build-out of the interior of a commercial space to suit the needs of a particular tenant). In many cases, actual construction costs are significantly higher than the allowance, with the portion above the allowance paid by the business moving in. Businesses offering food and beverage service also have significant costs for furnishings, fixtures and equipment, such as commercial appliances, point of sale systems, furniture and tableware. By assisting with these costs, the City could lower the bar for entry of desired types of new businesses, which could lead to higher sales tax revenues.
Available Spaces
As of May 2023, listing brokers indicated that Hercules has approximately 23,000 total square feet of vacant ground floor commercial space, located in shopping centers as well as newer mixed-use buildings.
At Creekside Center, one 1,770-square foot suite is available. This suite was previously leased as a deli/sandwich shop, but that business did not complete its tenant improvements or open due to the Covid-19 pandemic, and the partially built-out space became available early in 2023. At the Willow Avenue Center, two adjacent suites totaling 1,350 square feet (formerly used as a nail salon) are available. Sycamore Place has one approximately 4,000 square foot standalone building, the former Century21 realty office, available for lease.
The Aventine has three noncontiguous retail spaces available, ranging from 556 to 1,530 square feet, for a total of 3,201 square feet. The Exchange has nine commercial suites available, ranging from 502 square feet to 2,478 square feet, for a total of 10,563 square feet available. The largest suite can accommodate venting for a full-service restaurant. This and the three adjacent spaces could be combined into a single suite of 5,918 square feet, which would be the largest available retail space currently available in Hercules.
Retail Sectors with Growth Potential
In 2022, the City’s economic development consultant, HdL ECONSolutions, prepared a Community Profile and a void analysis that identified “leakage” of Herculeans’ retail dollars to other jurisdictions for specific types of purchases. This analysis was presented to the Economic Development Subcommittee on August 16, 2022.
Many of the types of retail showing significant leakage out of Hercules are sectors that tend to occupy much larger spaces than those currently available in Hercules, such as auto dealers, grocery stores, department stores and furniture stores, which can be 50,000 to 100,000 square feet or more. New chain groceries such as the Hercules Safeway are 50,000 square feet or more, and even smaller-format specialty groceries such as Trader Joe’s are typically around 12,000 to 18,000 square feet.
Health care/personal services businesses, which also show some leakage, are typically 15,000 to 20,000 square feet. The Sycamore Crossing development is planned to include a standalone 13,111 square foot “pad” building with a drive-through lane that is suitable for a pharmacy tenant.
ANALYSIS:
Staff recommends that the City funding be used to establish pilot Business Attraction matching grant program to incentive desired types of business to move into existing, vacant retail spaces. Given the relatively small size of the available retail spaces in Hercules, staff recommends that the Business Attraction grant program be targeted to eating/drinking establishments.
The proposed program guidelines are as follows:
Business Attraction Grant Budget
A total of $100,000 (allocated from the General Fund) with a maximum grant amount per business of $25,000 (and a minimum grant amount of $5,000). Grant amount must be matched by the applicant.
Grant Program Eligibility
The business is a brick-and-mortar, for-profit, sales tax-generating businesses in one of the following categories:
Restaurant/Café
Brewpub/Micro-Distillery
Wine Bar/Cafe
The business must lease/rent their commercial property directly from a landlord.
The space must be vacant and available for lease as of the start date of the program.
The business is either independently owned/operated or a locally owned franchisee (i.e., local outlets of chains or franchises that are headquartered outside of the nine-county Bay Area and/or have more than six locations are not eligible) The business must provide a matching move-in expenditure equal to or greater than the grant amount.
Submittal Requirements
Signed Lease or Letter of Intent (LOI) for a vacant (as of the grant program start date) tenant space in Hercules.
Pro-forma detailing all construction and move-in expenses required to open the business.
Grant amount requested and verification by the pro-forma that the grant amount will not exceed 50% of all construction and move-in expenses.
Complete and signed online application which will include:
Verification that the business is within one of the eligible categories.
Verification that the business is either independently owned/operated or a locally owned chain (as defined under eligibility requirements) Use of Funds
Tenant improvements (construction costs)
Signage
City, County or Utility permitting and connection fees
Mechanical, Appliance and Equipment Costs
Furniture and Furnishings
Computer and Software Costs
Grant payments (up to the amount requested and awarded) will be upon submittal of receipts and/or invoices to HdL every 30 days. Business shall obtain a City Business license prior to final reimbursement payment.
If approved, the grant program will begin on July 1, 2023.
FISCAL IMPACT:
There would be no fiscal impact to this proposal. The draft FY 23-24 budget includes an appropriation of $100,000 for this program in order to allow up to four grants for the maximum $25,000.
ATTCHMENTS:
Attachment 1 - Resolution