A Plan Ripens for Produce District
A young Latino entrepreneur has ambitious plans to transform the bulk of Los Angeles’ bustling but run-down produce district into a festive retail mercado similar to the garment district’s Santee Alley.
Richard Meruelo has purchased and is renovating two massive industrial properties and is in talks to purchase the 7th Street Produce Market, which is considered the backbone of the wholesale district. He hopes to turn one of the city’s grittiest industrial areas into a produce-themed attraction that also includes general merchandise and some small restaurants. It could cost as much as $50 million to complete.
“All of the other districts downtown evolved from being true wholesale-type districts of markets into doing both wholesale and retail,” said Meruelo, the son of Cuban immigrants who came to Los Angeles in the 1960s. “Here’s an opportunity to provide buildings that are more friendly to the consumer with bathrooms and parking, where they can come buy for their households.”
Critics call the project grandiose and say it would be a stretch for any builder to complete, and especially difficult for novice developer Meruelo. But, if his bold experiment works, it could pay huge dividends both for Meruelo and the city.
Already, bright peach paint is appearing on Meruelo’s first purchase in the area, a 1.5-million-square-foot manufacturing and distribution complex on Alameda Avenue that he bought last year for $20 million from U.S. Food Service (formerly S.E. Rykoff).
And some construction work has begun down the street, on a huge building he purchased recently from a trucking company. Meruelo said he expects the first tenants to move in by year’s end, and eventually he hopes to persuade the Community Redevelopment Agency to help him secure grant money for a large parking structure on the site.
To be sure, it’s an ambitious project. Most wholesalers already work from 1 to 10 a.m. and many say they can’t be bothered with breaking up pallets and boxes to sell to individual customers.
“It’s not worth it,” Ernesto Oregel, owner of J & S Produce, said about staying open to sell to individuals. “It’s too much work and you wind up throwing away a lot of merchandise.”
Frank Fan of Sun Year Produce also has reservations.
“We cannot provide the same one-stop shopping like a Vons or Lucky’s,” he said. “It’s not going to work.”
Furthermore, luring customers down to the shopworn stretch between Alameda and Central avenues will be difficult, analysts say. While many people are willing to drive miles for a good buy on a suit or even a toy, they are less likely to inconvenience themselves for fresh fruits and vegetables. And few consumers are willing to buy produce by the case.
“This is completely different [from the Fashion District],” said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. “If you walk through that, it’s an interesting, dynamic area with lively booths selling all kinds of merchandise. This is a pretty heavy industrial area.”
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But some industry analysts say Meruelo’s bold play isn’t so farfetched, particularly if the produce industry continues to grow at the same feverish pace it has in recent years.
In Los Angeles County, fresh fruit and vegetable sales have surged 54% in the last eight years--from $2.73 million in 1990 to $4.2 million last year. The number of jobs in the industry also has swelled 20% since 1990, according to the Economic Development Corp.
City officials speculate that an attractive open-air market might even be a tourist draw. “That would bring a very vibrant mix to a part of L.A. few people know about,” Deputy Mayor Rocky Delgadillo said. “It’s something we’ve discussed for a long time, combining flowers, produce and toys in a sort of farmers’ market.”
But industry onlookers say such a project would be a substantial challenge even for an experienced real estate developer. Meruelo’s primary business is the manufacture of executive desks.
“The vision is very romantic, but I don’t know if he’s going to be able to attract the numbers of people that he needs for this to make sense,” said Douglas M. Hinchliffe, a principal with Lowe Enterprises Inc., which owns the Alameda Trade Center across the street from the former Rykoff property.
If Meruelo buys the massive 7th Street Produce Market, he would become something of a produce mogul, controlling the bulk of the district’s property--and its parking. That’s worth more than most people think, real estate brokers say. Although the stalls in the produce markets don’t look expensive, they command rents similar to many downtown office buildings.
Wholesalers in the 7th Street market, for example, pay between $1.50 and $2 per square foot monthly for space to sell their boxes of oranges, cherries and bell peppers, said Jim Kinetz, a downtown industrial broker with CB Richard Ellis. And even at that price, he said, many who want to expand can’t find enough room.
“There seems to be no end to the demand for small space,” Kinetz said. Even if Meruelo’s bold mercado scheme doesn’t work, he could at least draw some cash-and-carry shops over from Olympic Boulevard, probably enough to make his properties profitable, Kinetz said.
Meruelo said he believes his plan will work because he has a deposit for every bottom-floor stall in the two former Rykoff buildings that he is rehabilitating at a cost of $2 million. But others aren’t as optimistic.
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When he initially purchased the $20-million property, he received an $8-million second loan from the Los Angeles Community Development Bank in exchange for agreeing to move his 300-employee firm TechSystems Group Inc. there from Chino.
Now, 10 months later, and just a couple of weeks after the first of the four large buildings reopened, Meruelo says he plans to keep the bulk of his desk manufacturing business in Pomona, where he redeveloped a former Navy facility and signed a 10-year lease. If he had then moved TechSystems downtown, says bank Chief Executive Robert Kemp, it would have been a case of stealing jobs from another depressed area.
“We said he had to create the jobs another way,” Kemp said. The bank has since signed off on Meruelo’s new development plans.
Meruelo has leased space in the buildings that his firm was going to occupy to a unit of U.S. Food Service, a few produce wholesalers and another furniture firm called Infinity International. Altogether, these firms provide about 100 jobs, he said--far less than the 230 jobs his company would have provided, but just a fragment of the jobs he plans to bring to the area with the new produce development.
“We will be more than able to satisfy the jobs requirement,” he said.
He blames his firm’s manufacturing about-face on a disagreement with U.S. Food Service on the terms of the property sale--a dispute that took about a year and a half and litigation to resolve. The suit was later dismissed.
“We had already committed selling our Chino building and there was some uncertainty as to whether we could even buy this building.” The incident caused some eyebrows to be raised in real estate circles. Some saw the loan as a case of a developer getting public funds for a speculative real estate deal, rather than getting funds for bringing in new jobs. Even Meruelo admits the property, which was selling for half of what Rykoff purchased it for in 1991, was a steal.
“We thought downtown was on a comeback and this was a tremendous real estate investment more than anything else.”
