October 22, 2004

Beshoff MotorCars: The Midas Touch

Yet efforts to secure restaurant tenant slow

By Mariecar Mendoza
Staff Writer

It’s been two years since Beshoff MotorCars opened for business in the Evergreen area of San Jose to sell Mercedes-Benz automobiles. The October 2002 launch was the most successful of any new dealership in Mercedes-Benz history, raising the bar for a business community anxious to emulate the success of owner Ray Beshoff, who also owns dealerships in Southern California.

Today, the vibrant landmark at the corner of East Capitol Expressway and Tully Road holds more than 300 new and used Mercedes-Benz cars, one of the largest inventories in the United States. It employs more than 100 people and generates excellent tax revenues for San Jose.

“Beshoff [MotorCars] is a very good generator for the city,” agrees Nanci Kline, the city of San Jose’s manager of corporate outreach for the economic development department. “From the city’s point of view, it’s a fantastic contributor, not only because of the beautiful building, but because of the amount of tax revenues it provides for the city.”

Beshoff MotorCars has failed to provide its community with just one thing: a sit-down restaurant.
According to a resolution by the Planning Commission of the city of San Jose, the development plan for the property entitled “Tully Road/Capitol Expressway Commercial Site” was introduced Dec. 12, 2001. Under a conditional land use permit, the site was approved for a few businesses, including a Krispy Kreme Doughnuts shop and a restaurant, which was speculated to be Chevy’s.

Eventually the initial developers pulled out of the project, the land became vacant and Beshoff MotorCars came in to take up the lot. The development plan was revised Jan. 15, 2002 to accommodate the new tenant, and a resolution for the conditional use permit was passed Jan. 23 of that year.

(From left) Beshoff MotorCars General Manager Steve McCarthy and owner Ray Beshoff.

The permit was “for the purpose of allowing a 64,395-square-foot automobile dealership and a 4,700-square-foot restaurant.” The approximate one-acre site designated for the restaurant, according to the resolution, “shall only be used for a sit-down restaurant” and may operate 24 hours a day or past midnight.

Due to the high demand for a sit-down restaurant in the Evergreen community, a provision was put into the resolution that states, “the applicant shall make every effort reasonably possible to secure a tenant for the sit-down restaurant component of the project.”

In addition, Beshoff must meet annually with the director of Planning, Building and Code Enforcement, Stephan Haase, or his designee—in this case Deputy Director Joseph Horwedel—to discuss the status of his search for a sit-down restaurant tenant.

“Typically, the city does not try to dictate what kind of uses can go into a given site,” said John Baty, the project manager for the Beshoff MotorCars conditional use permit. “But the city, in this case, did condition that this particular site be dedicated for restaurant use only, and even went a step beyond that by only allowing it to be a sit-down kind of restaurant; not a fast food type restaurant. And that was a response to something that the community was desirous of.”

The permit expires one year after the approval of the resolution and may be revoked, suspended or modified under three conditions: if the applicant violates conditions of the conditional use permit or violates any city ordinance or state law, or if the use of the land presents a nuisance to the community.

According to Baty and Haase, Beshoff has not violated any of the three conditions.

“Most of our permits include the standard permit expiration language, which says that if you don’t commence the construction of the building or its intended uses within the given time frame, then the permit would expire,” said Baty.

“In this case,” he continued, “they did commence the construction of the building and they have started the use within the given time frame. There is no need to extend the permit because of this, and from our perspective, the conditional use permit is valid. The restaurant was only a small portion of the larger permit.”

Baty adds that Beshoff must eventually secure a tenant; however, he is under no immediate pressure to do so.

“He’s not obliged to do anything more than what it looks likes he’s doing so far, and that’s his best effort to try and secure a restaurant tenant,” said Baty. “I don’t know what could be done to speed up the process. We can’t force him to secure a restaurant tenant for that site. It’s going to be up to the restaurants and Beshoff.”

City Councilmember Dave Cortese, who was a key figure in making sure a sit-down restaurant was stipulated within the permit, is also at a loss for suggestions about expediting the process. Cortese is simply disappointed that his support for the dealership to be built on this site has yet to produce his intended sit-down restaurant for the community.

“Evergreen is short of sit-down restaurants and nothing has changed since the Planning Commission’s approval in that regard,” said Cortese. “The Beshoff location is as good as any in the Valley for a restaurant, but not if all kinds of restrictions are going to be placed on the site by the owner.”

In contrast, Deputy Director Horwedel feels Beshoff is not entirely to blame for the situation turning stagnant. According to Horwedel, Beshoff told him—in a conversation more than three months ago—that he and his commercial broker Terranomics have been talking to several restaurant operators.

“He didn’t give me anything written about who he has talked to or what kind of deals he’s making with people, but he tells me he has, and I have no reason to doubt that,” Horwedel said. “He has property that he has paid a lot of money for that is just sitting there, so I think he’s gone and talked to folks.”

Independently, Horwedel is also actively seeking a tenant for the site. So far, Horwedel has already spoken to restaurants such as Claim Jumper, Tahoe Joe’s and Applebee’s.

“They were all aware of the site and they have looked at it, but there isn’t enough parking to accommodate restaurants of that size,” he said.

Parking at the site has been a major obstacle for Beshoff and Horwedel, who found that restaurants have been reluctant to move into such a restricted area.

“When we did the approval for the car dealership, everybody’s intentions were good, but no one knew at that time how much land was needed for both the dealership and the restaurant … and it turns out that the site is just too small,” Horwedel said.

“The next question is, does it make sense to put in a smaller restaurant on that site based on the parking limitations?” added Horwedel. “Or acknowledge that it was a good idea, but it just didn’t work and put the energy into trying to get restaurants over at the Eastridge Mall?”

Beshoff echoes the same concerns.

“In my opinion, the Eastridge Mall is where we should focus all of our attention because they have so much more parking capabilities,” Beshoff said. “It’s such a huge site that we need to really work on great tenants over there, including the restaurants, because it’s a natural place for it.”

In addition, Horwedel explains that the location of the site may be deterring potential tenants because San Jose is at a “competitive disadvantage” compared to such developing areas as Folsom or Roseville.

“The land costs are certainly higher here, so [restaurants] are only really looking at A+ sites where the risk is absolutely zero,” he said. “We need to deliver them A+ sites where parking won’t be an issue and sites that are in a good location so that if you’re going to wait an hour to get into Tahoe Joe’s, you have something to do besides just sitting outside the front of the building staring at traffic.”

Horwedel added that the biggest challenge right now is trying to build a “synergy” in the Evergreen community, which he said would put new sites like Beshoff MotorCars on the radar for restaurant operators. He has already suggested to the Economic Development department that San Jose should build a string of businesses instead of focusing only on one shop or restaurant in a particular location.

“The synergy would just play off each other, which is similar to what Santana Row did. They put in a lot of restaurants that really drove the retail, which makes the investors’ expense on the architecture and the parking garages worthwhile,” Horwedel said.

However, the decision to give up on a restaurant at the Beshoff MotorCars site has yet to be determined. In the meantime, Beshoff and Horwedel will continue their search for a restaurant tenant.

“Obviously, as a good businessman, I’m looking at the kind of restaurant that will fit with the dealership, that has the same principles we do; therefore, not every deal is going to work,” said Beshoff.

Until then, Evergreen residents who are hoping the one-acre piece of land will someday house a sit-down restaurant will just have to settle for an empty lot.

What is a Conditional Land Use Permit?
A conditional land use permit is for certain uses of land such as entertainment establishments, drive-up businesses, drinking establishments and operations past midnight that have an impact on its surrounding community.

Who approves the permits?
An application is filed and the Planning Division makes a recommendation to the Planning Commission. The Commission then makes the decision to approve, conditionally approve or deny the permit. In order to make a sound decision, the commission listens to the concerns of the applicant and neighboring citizens, discusses the issues and votes on the proposal. The Planning Commission’s decision may be appealed directly to the City Council; the decision of the City Council is final.

Decisions are based on a number of factors—building size, noise level and traffic generation among others, with impact on the environment as one of the top priorities. This process takes about three to six months.

For more detailed information about the conditional use permit, call (408) 277-4576.

Source: City of San Jose Department of Planning, Building and Code Enforcement Conditional Use Permit Process pamphlet.