Incubating Problems

The Palm Center was supposed to give small businesses a helping hand. But some businessowners say it's only given them grief.

At first blush, the huge one-story building near the intersection of Griggs Road and Martin Luther King Boulevard looks like a good place to do business in the middle of a bad place to work.

The long facade has the only decent coat of paint for blocks. The giant parking lot is freshly paved, but save for a dozen vehicles and an armed security guard in a golf cart, it is empty. Inside is another rent-a-cop, 64 offices, two conference rooms, a computer center and an art-deco design that invites ambition -- even if the grit and disorder of the surrounding neighborhood doesn't.

Quiet and squeaky clean, there is nonetheless something ominous about Palm Center, a city-owned office complex in southeast Houston. It is a feeling that arises in the presence of failure, which is about all this former shopping mall has known since the city acquired it in the mid-1980s.

That was supposed to change four years ago. In the wake of a federal audit that identified nearly a decade of tax-subsidized waste, City Council replaced the private contractor that had managed Palm Center with the Houston Small Business Development Corporation, a publicly funded nonprofit. At the same time, the city began investing roughly $1.5 million a year in federal community development block grants to nurture small businesses at Palm Center. It's called "incubation," and by offering inexpensive office space, equity loans and other tools to local female and minority entrepreneurs, the city hoped that more jobs and more businesses, big and small, would come and lift the area out of its despair.

"I just knew within three or four years, it would become the top center of its kind in the country," says Ronald Russell, an accountant who opened his small tax consulting business at the Palm Center in 1990. "They had those kinds of resources and support behind it."

Unfortunately, it wasn't enough resources and support, or perhaps just the wrong kind. Whichever, the old Palm Center has little to show for its efforts other than unrealized potential. Only 13 of 54 offices are leased at the so-called Business & Technology Center, a 140,000-square-foot section of Palm Center that's been set aside for "incubator" businesses.

And the vacancy rate appears destined to grow. Russell, for one, will move to an office less than a mile away from the center when his lease expires on November 30. Others are thinking of doing the same. And in the kind of logic that only government can contribute to private enterprise, three incubator tenants who want to stay have been served eviction notices by Marlon Mitchell, executive director of the Houston Small Business Development Corporation.

One of the ousted three, Danny Perkins, a construction contractor, has sued Mitchell, the HSBDC and the city. Richard Wiltz, a small-business financier, joined Perkins' lawsuit after receiving notice that HSBDC had decided not to renew his lease as well.

Meanwhile, Wiltz and a third tenant, Dora Fannon, received notice on September 23 that they had three days to vacate their offices. Fannon hasn't decided whether to join Wiltz and Perkins in court. But like them, she doesn't want to leave Palm Center. Nor does she understand how an enterprise begging for paying tenants could justify tossing out those it has.

"I love what the center stands for," says Fannon, who has watched with dismay as the neighborhoods around Palm Center slowly disintegrated. "I feel it should be a business hub for this community. But there are a lot of inequities, and a lot of things that have to be changed if it's going to survive."

The question of survival has dogged Palm Center since 1980, when urban decay claimed the sprawling 1960s-era structure that at one time had been a suburban mall.

Conversion of the abandoned center began in 1987 with federally funded loans issued through the city's Target of Opportunity program, which aimed to spur private investment in blighted areas and create jobs for low- and moderate-income Houstonians. The city program, which was discontinued a few years ago after an independent audit criticized its lending guidelines, was also used to fund another public-private venture, El Mercado del Sol, a $3.1 million ethnic marketplace in east Houston that failed in 1987 and is now scheduled to be demolished.

A failure of embarrassing proportions -- the city actually acquired the former mattress factory twice in the hopes of spurring economic development on the east side -- El Mercado has been the subject of three lawsuits by former tenants who, so far, have been awarded damages totaling $27.5 million to compensate for their failed businesses.

Certainly more was expected of Palm Center when it reopened as a small-business incubator in 1989. But in 1992, the federal Department of Housing and Urban Development issued a report that ripped the city's handling of the redevelopment. HUD identified $1.8 million in unsupported costs, including more than $1 million in overpayments to the private development team that had renovated the center.

HUD also criticized management for inaccurately reporting expenditures and overstating the number of jobs created for low- and moderate-income people. In the fall of 1993, the city closed that chapter of the Palm Center's history by agreeing to pay $572,000 in penalties.

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