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Since 2008's recession, downtown Chapel Hill has been plagued by numerous high-profile closings among its small businesses. Yet some say there's a renaissance to come.

Franklin Street at a crossroads 

Post-recession, what's next for downtown Chapel Hill?

A woman walks past the ruins of the Rathskeller.

Photo by Justin Cook

A woman walks past the ruins of the Rathskeller.

Come inside for drugs," reads the scrawled graffiti in Franklin Street's Amber Alley.

The graffiti artist is unlikely to find many takers. Few people traverse the alley today, a cave-like passageway below the street level of East Franklin. It's July, so many of UNC-Chapel Hill's 30,000 students have left town. The drizzly weather doesn't help. Nearby, Bandido's, a low-slung Mexican restaurant, will sell you a burrito the size of a dachshund. It is prime lunch hours on a Saturday, but the restaurant is closed.

A few doors down is what's left of the Ramshead Rathskeller, a subterranean Chapel Hill restaurant that closed in late 2007. Its former owner, an Austrian immigrant named Ted Danziger, died in 1965, but the Rathskeller—affectionately dubbed "the Rat"—survived him for another four decades. Today though, empty soda bottles and caution tape guard its dirty windows. Inside, the floor is chewed concrete, the once-claustrophobic passageways cleared to make a wide, tomblike cellar. Pipes hang like exposed organs.

The Rat, Pepper's Pizza, Schoolkids Records, Carolina Pride sportswear, all staples of this waxy-nostalgic college town, are all gone. Since 2008's recession, downtown Chapel Hill has been plagued by numerous high-profile closings among its small businesses. While the town does not keep an official list, an INDY Week review identifies at least two dozen businesses shuttered in the last five years, a tally that likely excludes smaller, lesser-known establishments.

And in a town with a reputation for single-mindedness—Republicans and Libertarians make up just 14 percent of the town's registered population—there seems a yawning disconnect between business owners and town government leaders.

"You wouldn't be able to print what I have to say," says John Woodard, owner and pharmacist of Sutton's Drug Store on East Franklin. "They would come and get me for it."

Woodard's 90-year-old drug store and grill is known for its hot dogs, hamburgers and starstudded visits from UNC athletes, but he—like numerous business owners on this street—says limited parking, dwindling street traffic and persistent, aggressive panhandling is squeezing out Franklin Street business owners.

Woodard's interview with the INDY echoes an April 2010 UNC-Chapel Hill consultant's report on small business barriers, in which local business owners had "few, if any positive" things to say about town government.

In the report, local business owners blame high taxes, steep rent, panhandling and a Byzantine permitting process for local business woes. The report also noted the town does not keep a comprehensive list of business openings and closings, limiting researchers' ability to gauge business performance.

And while downtown occupancy rates consistently hover above 90 percent, new and old businesses alike are struggling to survive. In the space of 12 months, multiple small businesses may inhabit the same downtown storefront, even as chains such as Panera Bread, McAlister's Deli and Noodles & Company endure.

"Years ago, Chapel Hill had a brand," says Will Raymond, a longtime Chapel Hill resident and former Town Council hopeful. "Now we're replacing it with Anywhere, U.S.A. I can literally go anywhere to find Anywhere, U.S.A."

Yet some say there's a "renaissance" to come for downtown Chapel Hill. Meg McGurk, the relentlessly cheerful executive director of the nonprofit Downtown Chapel Hill Partnership, a group charged with leading the revitalization effort, says pending mixed-use projects will boost yearlong residency and shore up ailing businesses.

From her Rosemary Street office, McGurk can see the hulking backside of 140 West, a condo project at the corner of West Franklin and Church streets. From here, it seems, you can see Franklin's past and its future.

"I want to go back in the archives in the Chapel Hill News," she says. "I'm going to find copies that show you that, every year, someone is saying Franklin Street isn't what it used to be."

It's 2 p.m., and Daisy Maness slouches into a booth at the rear of Ye Olde Waffle Shoppe, a 40-year-old Chapel Hill eatery on East Franklin Street. The mustard-yellow diner—like its food—is simple but effective. It's a fixture for Chapel Hill's breakfast devotees.

"Franklin Street Pizza & Pasta. Pepper's Pizza," Maness says. "Between us and Sutton's, I sometimes feel like we're the only ones left. We're the old business on the street."

The day's work done, Waffle Shoppe employees lug cleaning supplies. Maness sits beneath a photo of Ye Olde Waffle Shoppe's late owner, Jimmy Chris, who is famously etched on the diner's souvenir T-shirts, spatula in hand. Now Maness runs the business.

Aside from sluggish midweek traffic, she says Ye Olde Waffle Shoppe is getting by—Waffle House be damned. The ubiquitous national breakfast chain opened a half-block west a few days ago. "We're totally different from Waffle House," Maness says. "I know what we do and we do it well."

These days, Maness' confidence seems a rarity on Franklin. Pepper's Pizza, an East Franklin mainstay revered for its eccentric toppings and neopunk snark, closed in March after 26 years. A longtime Pepper's competitor, Franklin Street Pizza & Pasta, was sold in February 2012. Its replacement, the pizzeria chain Tomato Jake's, did not last a year.

Schoolkids Records, known for pushing college-radio favorites, closed in March 2008, the victim of plunging record sales as computer-savvy listeners turned to digital music. It has been replaced by a single Bank of America ATM.

Carolina Pride closed in June 2013. Irish pub Kildare's closed in March 2013. Arts and craft store Toots & Magoo moved to University Mall in August 2011. Penang closed in summer 2011. PT's Grille in January 2011. Ham's in summer 2010. The list goes on.

In sum, the closings are disturbing, Mayor Mark Kleinschmidt says, but context is key. When one business closes, he says, another takes its place.

"You say 30 businesses have closed and you'd think it's a ghost town down there," he says. "It's not. There's hardly a week where there isn't something new, a new place to visit or a new experience to have in downtown Chapel Hill that is quintessentially Chapel Hill."

Kleinschmidt, a fresh-faced Chapel Hill attorney and former Town Council member, won the mayor's post in 2009 with the campaign pledge to push a yearlong economy in this revered college town. Slow summers drain entrepreneurs without the reserves to weather the loss of customers. It's a persistent problem for Chapel Hill.

To that end, leaders pushed projects such as 140 West, Greenbridge and the redevelopment of West Franklin's aging University Square, all mixed-use developments with substantial residential components. Including 140 West, downtown Chapel Hill had planned almost 400 new condos and 72,000 square feet of retail space, according to a May 2012 retail analysis prepared for McGurk's office.

To McGurk and many local government leaders, Franklin Street is not failing. It is merely evolving. "I would call it adolescence; we are in an awkward phase," says Kristen Smith, vice president for advocacy and engagement at the Chapel Hill-Carrboro Chamber of Commerce.

But if Chapel Hill is an adolescent, its braces may be showing. Like many North Carolina towns after the 2008 economic crash, a smattering of local business closings indicate growing pains. The reasons may be myriad.

Last year's retail analysis reported a glut of restaurants in downtown Chapel Hill.

According to the report, locals could demand roughly $16.9 million annually in restaurant sales downtown, but the available supply approaches $49 million. Residents demand about $2.3 million annually in bars, but downtown merchants offer twice that. Downtown could support a grocery, department store and furniture store, the report said.

Raymond says Chapel Hill lacks the "ecosystem" of places like neighboring Carrboro, where a pharmacy, grocery store, hardware store and restaurants are all within walking distance.

"Where do you go if you're in Chapel Hill?" he asks. "If you're in 140 West, you're getting in your car and driving to the grocery store or to Lowe's."

For many business owners, there's too much expense and too little payoff. "Everybody up here is trying to get a little bit of the pie," Woodard says. "And the pie is just getting smaller and smaller."

In a widely circulated News & Observer opinion piece this April, former U.S. Treasury official and UNC business professor Michael Jacobs assailed town and county leadership, accusing leaders of leeching diversity, racially and economically, through high taxes.

Jacobs pointed out the average Chapel Hill resident pays about 30 percent more in county and town property taxes than anyone else in the state. The county's sales tax rate is also the highest in the state, he wrote.

"Businesspeople think rationally about financial matters," Jacobs says. "And conducting business in a location that has both the highest taxes and highest utility rates in the state is not rational unless there is an overwhelming reason to do so."

Add to that the refurbishing and upkeep costs of downtown Chapel Hill's aging structures, particularly on the East Franklin side.

According to real estate data provided by the town, Chapel Hill's $175,000 cost per acre for land improvements far surpasses Raleigh and Durham, where the cost is about $100,000 and $50,000, respectively.

Wilmington's Diane Fountain once planned to reopen the Rathskeller in its Amber Alley location on East Franklin, but she says the mounting costs nixed those plans. Landlords should offer first-year rental rates, she says, allowing new businesses to recoup the cost of their investment.

"They need to buy in emotionally," she says. "And, in a sense, financially, to the business."

Rent, according to last year's retail analysis, plays a key role too. The average downtown rent spiked to $30 per square foot in the economic collapse of 2008. It has ticked downward in the years since, but as of late 2011, it was still roughly $8 cheaper in Durham County and about $5 cheaper in Wake County.

"It's all relative," says Craig Samuels, the former owner of Franklin Street Pizza & Pasta. "It's only too expensive if you don't have enough sales."

And sales, according to multiple business owners who spoke with the INDY, aren't what they used to be. The town does not have benchmark data to compare downtown foot traffic, but business owners say students are increasingly looking elsewhere for shopping and dining options.

"Thousands of people are missing," says David "Pepper" Harvey, the former owner of Pepper's Pizza. "You used to walk out on Franklin Street and it was like a New York City street. You go out there now and you can shoot a cannon off and not hit anybody."

Ted Zoller, director of the UNC-Chapel Hill Center for Entrepreneurial Studies, says it's the students who have changed. "Students are a lot more fickle than they used to be," he says. "In the old days, you had a lot fewer choices and you just took what was there."

Declining sales played a key role in Schoolkids' demise in 2008, according to Stephen Judge, owner of the record store's Raleigh location. Judge purchased his store from former owner Mike Phillips last spring, but he chose not to buy the Chapel Hill location before it closed in March 2008.

"Five years ago, Mike told me, 'Stephen, there are 28,000 students right across the street from me,'" Judge says. "'None of them are buying records from me. And for the life of me, I can't figure out why.'"

Other business owners say aggressive panhandlers, squatting along the busiest portions of the street, deter shoppers. According to the 2010 small business report, one unidentified business owner who considered space in downtown Chapel Hill said he looked elsewhere because of the panhandlers.

"Somebody actually came up to me and felt my tie—I mean, came up to me physically in my space and grabbed my tie, and said, 'Nice tie, man,'" the owner said. "I thought, 'God, I can't have that with my clients.'"

Concerns over panhandling came up frequently in INDY interviews with local business owners saying they want police to enforce the town's ban on aggressive panhandling. "They're killing us down here," says Woodard. "We aren't greedy. We just want it to be a place where students can come and be safe."

And in interviews with the INDY, multiple owners complained the lack of free parking downtown steers shoppers toward suburban developments such as the Streets at Southpoint in Durham.

Combined, local entrepreneurs say the various business hurdles may ultimately steer Chapel Hill away from its decidedly local flavor.

"Waffle House doesn't care what the rent is," says Harvey. "McAlister's doesn't care. But for independent people, it's going to be a giant problem."

Once again though, if business and town leaders are speaking to each other, it's not in the same language. McGurk blames bad business planning for local closings, suggesting owners must evolve with their clientele.

"They need to realize that just opening your doors on Franklin Street is not going to bring in 28,000 students," she says. "Ten years ago, no one competed online. Now they have to. It's a changing thing."

Kleinschmidt agrees. "What has changed in the way that they've perceived the market when they put together the business plan and the short time later when they realize this isn't working?" he says. "What is it they're misreading whenever they run to sign a lease?"

Councilman Lee Storrow says there are other factors out of the town's control, such as neglectful landlords. "We have an imperfect market," Storrow says. "There are some landlords who honestly don't care if there is a business in their spot or not."

Meanwhile, local Republicans thrash town and county leaders as out-of-touch liberals, chasing entrepreneurs to the borders. Steve Xavier, a Chapel Hill resident and Orange County GOP spokesman who consults for the Greater Raleigh Chamber of Commerce, says Triangle business leaders quietly savage the region as the "Orange curtain" for its anti-business politics.

"Something needs to happen, before this town goes down in flames," Xavier says. "It's a shame."

If there's a bright spot for downtown Chapel Hill, it's West Franklin Street. The section, once the forgotten, dimly lit wing of Franklin, now bustles with activity.

West Franklin boasts nationally recognized restaurants such as Elaine's on Franklin and Lantern Restaurant; rambunctious, graffiti-stained rock clubs in The Cave and Local 506; a newly opened Greek restaurant in Kipos; and in West End Wine Bar, a swank hangout for wine lovers.

"Some folks need to be reminded," says Kleinschmidt. "They need to check what their memories really were, because in a lot of ways, particularly on the west end, it's a lot better."

Leaders say the growing residential market and resurgent business on West Franklin will re-energize downtown Chapel Hill in a matter of years. East Franklin, it seems, is a longer struggle.

But Chapel Hill officials say they have learned from the past. Town leaders, along with UNC-Chapel Hill, Orange County and McGurk's office, opened LAUNCH Chapel Hill this spring. A new Rosemary Street business incubator, LAUNCH offers a low-rent, high-tech space for start-up businesses.

And Dwight Bassett, economic development officer for the town, says officials have acted on most of the recommendations in 2010's small business report, negotiating another 250 public parking spaces, streamlining permitting processes and, most importantly, pushing year-round commerce on Franklin.

Storrow, meanwhile, says he invites local business owners to meet with him during National Small Business Week to hear their struggles. He says that the town, its residents and the university all have a "vested interest" in retaining Chapel Hill's small business character.

"I would challenge Chapel Hill residents to think about where we spend our dollars," Storrow says. "There are market forces that exist, but we can impact those market forces by making smart decisions with our money."

Kleinschmidt tried his own method, pledging last summer to eat lunch at a different downtown Chapel Hill restaurant each day. He says he followed through on his pledge.

What was the point? Reminding residents that Franklin Street is still here, he says.

"We have to get used to the fact that Chapel Hill is going to change. It's really one of the only true things we can say about it."

Joel, an English soccer coach from Bath, has been in the United States for a week, residing temporarily in nearby Mebane. He carries a shopping bag on East Franklin, and while he's not comfortable giving his surname, he's not shy giving his opinion of the thoroughfare.

"This is the best street I've been on," he says. "It's young and it's lively."

Fresh eyes for a fresh season. It's late August on Franklin Street. Fall classes begin anew. The rain is gone, and today is the type of mellow, sunny day that encourages walking. Franklin Street smells of hot dogs, basil and burritos.

Packs of students, hungry for Chapel Hill, flit about like eager Pomeranians. Surviving businesses exhale. Sandwich boards welcome back students.

And there's activity in the Rat. Inside, workers load wheelbarrows with broken concrete. The floor is gone, replaced by wet brown dirt, but an old Rathskeller sign remains, leaning against a back wall.

On the street, Noam Shemer, a university student and Chapel Hill resident for eight years, has noticed the changes. Businesses come and go, she says, and the town grows increasingly reliant on university traffic to survive.

That's not such a bad thing. After all, the university isn't going anywhere. "Franklin Street will always be where people go," she says.

The rest of Shemer's thoughts are lost in the mechanical grind of a passing, powder blue bus. Up the street, it unloads a fresh crop of students—maybe seeing Franklin for the first time—who stop and point at a storefront poster bearing modified dollar bills.

George Washington is gone, usurped by UNC basketball greats Michael Jordan and Tyler Hansbrough. The students push on westward under a cloudless, soft blue sky.

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