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From his seat at the Starbucks last week, Charles Johnson looked out the window and across the parking lot to his now-shuttered restaurant on the other side.
“It was my wife’s dream, not mine,” he said. “She has cooking in her blood.”
They opened Magnolias Authentic Southern Dining in 2004 with high hopes of bringing the Creole okra gumbos and crawfish ettouffees of their native Louisiana to southeastern San Diego. They closed the restaurant June 26, $745,000 in debt on a startup loan and years’ worth of back rent, Johnson said.
Magnolias is the latest in a string of closures of resident-owned small businesses at Market Creek Plaza, a retail center developed in southeastern San Diego’s Diamond neighborhoods with a goal of providing business opportunities to local entrepreneurs. Two months ago, El Pollo Grill shut its doors. Its owner, Victor Lopez, said he owed more than $100,000, mostly in back rent.
Several other small businesses have closed there recently, including a second Southern restaurant, a small fitness center for women, a sandwich restaurant and a craft store managed by local residents.
Only one locally owned business, a copy center, remains.
When they opened, those small businesses were the now nine-year-old development’s quiet landmarks — important symbols of what local residents could achieve with help from a nonprofit organization, the Jacobs Family Foundation, focused on revitalizing a struggling neighborhood.
Those small businesses have been replaced by national or regional chains like T-Mobile, Papa John’s Pizza, and an L&L Hawaiian Barbecue — which Jacobs administrators say are better equipped to weather economic uncertainties. Those same businesses have also chipped away at the local character originally intended for the retail center.
“There’s community concerns about where this was allegedly headed and where it’s going now,” said Eddie Price, chairman of Diamond Community Investors. The group is made up of more than 400 people who invested between $200 and $10,000 in Market Creek Plaza when the Jacobs Foundation allowed Diamond area residents to buy shares in the development.
Price and other investors are concerned over what they call a philosophical shift in the center, which was supposed to keep money in the Diamond neighborhoods.
Max Zaker, the Jacobs Foundation’s director of business development for Market Creek Plaza, said the recession was to blame for the failed small businesses. Restaurants, he said, were particularly vulnerable.
“The unfortunate thing is we’ve lost a few of our locally owned businesses, but there’s still a great interest from the business community to want to do business here,” he said. He said the Jacobs Foundation had not drifted from its objective for local ownership, evident in the more than 400 investors who hold shares in the development.
Former business owners say the Jacobs Foundation could have done more to help them succeed, considering its philanthropic motives for developing Market Creek Plaza. They say their businesses could have made it if the foundation had developed a retail and cultural center that drew customers from across the city, as they were expecting the foundation to do when they decided to open up shop.
The failure of Market Creek Plaza’s resident-owned businesses points to a stark truth surrounding commerce in the city’s poorest neighborhoods. Meals out are a special occasion, disposable income is low, and fast food restaurants compete with local outfits for business. It also underlines the difficulty facing a group like the Jacobs Foundation to successfully overcome those barriers despite their best intentions.
Market Creek Plaza was an unlikely experiment.
A decade ago, the retail center was touted as a new model in community development that could bring successful businesses to the city’s poorest neighborhoods.
It was dreamed up and developed by the Jacobs Foundation, a nonprofit that moved into southeastern San Diego in the mid-1990s with the goal of revitalizing the Diamond community, 10 neighborhoods clustered around the intersection of Market Street and Euclid Avenue, including Lincoln Park and Emerald Hills.
The plaza featured a grocery store, restaurants, a bank and a coffee shop, and retail stores. Its colorful architecture, its designers said, reflected the cultural diversity of the surrounding neighborhoods.
Best of all, Market Creek Plaza’s unconventional financing structure incorporated local residents as investors in the development. It is owned by Market Creek Partners LLC, a for-profit entity created, controlled, and initially funded by the Jacobs Foundation to build the center.
But the Jacobs Foundation had a new idea. It wanted members of the community not just to shop at this new center, but to own part of it. It sold them 20 percent of the development’s shares.
The idea: fostering a sense of resident ownership to ensure success. Residents would shop there, and encourage others to, if it meant returns on their investments.
Because owners of many food businesses in southeastern San Diego are national chains, money spent in the community often doesn’t stay there.
“The dollar bounces once in southeastern San Diego,” said the Reverend Ikenna Kokayi, director of the United African American Ministerial Action Council, a local social service group.
Market Creek Plaza was envisioned as a first step in solving that problem, which has long stifled the development of southeastern San Diego’s business environment.
“I invested, my wife invested, and my son invested,” Price said. “I didn’t invest necessarily for any financial gain or return. It was more of a social investment. I did it so my son would see I owned part of the community.”
To foster that sense, the Jacobs Foundation said it wanted to focus on recruiting locally owned businesses. In a poor community where traditional financing is often out of reach for potential business owners, Jacobs loaned $1 million to the California Southern Small Business Development Corp. to provide loans to potential Market Creek business owners.
Traditional business financing asks owners to invest as much as 20 to 30 percent of startup costs upfront, said Mike McCraw, Cal Southern’s president. With Jacobs’ investment, Cal Southern created a loan that waived that requirement.
“You’re lending to individuals that do not have strong net worth,” McCraw said. “We were able to create a loan product that would work given the demographics and the desire not to rule out a promising resident entrepreneur locating there.”
In interviews, two former business owners said they were assured when they took a risk on Market Creek Plaza that the Jacobs Foundation would do all it could to ensure their businesses succeeded.
That commitment, they said, was exemplified in an unusual pact called a “Spirit of Community Partnership Agreement” businesses sign when they lease retail space at Market Creek Plaza. It commits the Jacobs Foundation and the businesses to work toward making the retail center successful by promoting community and creating an “environment of mutual support.”
“They made the whole picture look beautiful,” said Lopez, who owned the El Pollo Grill.
But business owners said the center never developed as Jacobs had said it would. A movie theater that was the subject of early discussions, for example, never materialized. They said Market Creek Plaza did not become a destination that attracts customers from other parts of the city, as they had expected.
It remained plagued by worries over the neighborhood’s safety, and it was a “ghost town” in the evening hours after Jacobs employees and local lunch crowds left the neighborhood, Lopez said.
Businesses relied on the Jacobs Foundation to cater from them, they said, but when the foundation built a new headquarters next door to Market Creek Plaza in 2006, it also built a kitchen and events venue. The venue directly competed with the businesses, Lopez and Johnson said, and their sales to the Jacobs Foundation dropped off.
Zaker said the venue didn’t directly compete with Market Creek Plaza restaurants because events there usually required more food than small businesses like Magnolias or El Pollo Grill had the capacity to produce.
But he acknowledged that Jacobs had not created as bustling a shopping center as it had hoped when Market Creek Plaza was first built.
“These types of developments are moving targets. You can never say with certainty how long it’s going to take,” Zaker said. “It takes a long time.”
But the Jacobs Foundation is no longer making money available to the lending company for the small business loans. That does not portend well for the future of small businesses there. Without that financing, potential entrepreneurs could have a harder time moving into Market Creek Plaza.
“We have not backed away from supporting small businesses, but we’ve had to change and rethink some of our strategies,” he said.
Jacobs is planning a second commercial development in the neighborhood, and Zaker said it will try to apply lessons it has learned from its first experiment, like the need for smaller retail spaces that require less investment and risk by local owners, and a focus on non-restaurant businesses.
“What we have learned is it is extremely difficult for small, community owned businesses that don’t have a lot of capital or limited experience to be able to enter the marketplace and be successful at it. It’s very competitive,” he said.
But Lopez, who owns a second, successful El Pollo Grill in Lemon Grove, not far from Market Creek Plaza, said his experience at the center was punctuated by unfulfilled expectations about what the center was supposed to become.
“They said they were going to make sure we succeeded. That was their goal. That was our goal,” he said.
Price, of the investors’ group, said he and others in the group still wanted to see the Jacobs Foundation follow through with its founding vision.
“The investors would much rather see the original concept of local businesses there. Not National City businesses, but District 4 businesses,” he said.