‘The Mercato’ takes shape: Minervini Group gives retailers a new way to pay

TRAVERSE CITY – During her lean retail months of January and March, downtown retailer Susan Ruoff must dig deep into her pockets for one hefty line item: rent.

In January, her slowest month, rent can be as high as 16 percent of her operating cost, said the owner of Venus, a makeup and beauty boutique.

Small merchants like Ruoff are accustomed to flat rent rates. However, a new model proposed by The Minervini Group, developers of The Village at Grand Traverse Commons, gives retailers a choice in how they pay when they lease space at The Mercato, 100,000 square feet of residential and commercial space that includes an interior streetscape collection adjacent to Trattoria Stella and Gallery Fifty.

The Mercato will be the largest retail development in the area in several years.

Some retailers signing their leases this spring may be able to pay a fixed monthly sum or a lower monthly base rent with the remainder being tied to sales revenue on a floating basis.

The concept is commonly employed at big-box malls, and while The Mercato is hardly a big-box structure, Raymond Minervini II says it may make sense for lessees.

"We want to make sure our retailers aren't getting socked with a high lease rate," said Minervini, partner in the firm that is rehabilitating Building 50, the 122 year-old, 380,000 square-foot building on the historic state hospital site. "It also helps that these stores are in a tax-free Renaissance Zone, which saves renters some $3-$6 per square foot."

In early May, Minervini's plans were to have every new lessee sign the fluctuating rental agreement. After consulting with his attorneys, however, they decided to make it an option for certain retailers rather than part of the standard agreement.

"The impression we were getting was that the concept might be too unusual for a smaller retailer to grasp," he said. "But we still think it's a good option to have on the table."

Ruoff agrees. Although she had never heard of a fluctuating rent structure, she says it is "brilliant."

"It's a great way to charge rent and gives people a chance for success," she said. "It blows me away that it's something that's even offered."

Indeed, the rent structure Minervini is proposing is commonplace in Michigan's 54 large malls, said Tom Scott, spokesperson for the Michigan Retailers Association.

"It's an interesting concept, that a retailer would pay a little less during certain months, but it's not unusual," he said.

Because of the "special atmosphere" developers build for tenants, Scott said that it only makes sense that retailers should share in that cost.

"If people are coming to that facility for the atmosphere and (the retailers) are benefiting from that, then the tenants need to pay for it," he said.

As part of The Mercato package, retailers would also be a part of a cooperative marketing initiative that would advertise the facility as a whole, rather than each small store owner financing ads alone.

Minervini argues that those two tools-tying gross sales percentages and marketing en masse-ensure "success for everyone."

"It ensures that we are all working together to make our retail environment better," he said.

The first phase of The Mercato, currently under construction, is 20,000 square feet of retail space that will link to Trattoria Stella via a long hallway punctuated with high arches and windows.

About 12-14 new retailers will have space ranging from 200 square feet to 2,400 square feet, with another to-be-named restaurant anchoring the north side.

Although no formal agreements have been inked yet, Minervini says things are "looking good" so far.

He hopes to make an announcement about who will be opening the next restaurant within the year.

For more on The Mercato Marketplace, please go to www.thevillagetc.com.