Incubating Problems

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

By then, a new chapter had begun with new management, the nonprofit HSBDC. HUD approved the use of community development funds for a 12,000-square-foot renovation, as well as a sizable build-out for a light-manufacturing facility.

But the city seemed particularly committed to small businesses that would trigger new economic prosperity for the surrounding area. The bulk of Palm Center was renovated and renamed the Business & Technology Center. By July 1994 it had 35 offices for incubator tenants, ten of them filled with small start-up businesses paying below-market rents and enjoying a host of services -- telephone and answering services, word processing, fax and photocopying -- designed to give them a leg up on success. But two years later, the Business & Technology Center has only three more tenants than when it opened. The center's largest employer is the HSBDC itself, which has a full-time staff of 17 plus three part-time employees.

Meanwhile, the small-business owners who do lease space at Palm Center say HSBDC has done little to support their growth. In fact, they suspect the center's management has all but abandoned the incubator concept.

They point to HSBDC's slow response to such things as the tenants association's request for additional security measures, including around-the-clock armed guards. Some offices were so small that they had no closets or storage space. But when tenants offered to lease vacant offices at reduced rates, it took a surprising amount of written discussion before they were accommodated. Others tenants complained that they had no access to their offices on weekends and at night, and that the answering service, fax machine and photocopier were often unavailable.

As a result, says Ronald Russell, who has already moved his tax-consulting business to another office though two months still remain on his Palm Center lease, HSBDC has "run off so many people from there, it's pitiful. They got away real quickly from dealing with the small businesses, and my understanding was that that was their purpose."

Indeed, HSBDC's most recent accomplishments seem to have come at the expense of the incubator. For example, Palm Center's newest tenants -- a Kelsey-Seybold clinic and the U.S. General Store, a one-stop outlet for information and guidance on government contracts -- are paying little or no rent at all, according to Richard Wiltz, president of the Palm Center Tenants Association. Wiltz says that such "sweetheart deals" mean the incubator tenants are subsidizing successful, well-established enterprises, rather than the other way around.

Marlon Mitchell, executive director of HSBDC, refused a request for information about individual rents at the center, citing the pending litigation. He also declined to provide an estimate of how much revenue HSBDC collects each month from rents and services. He did, however, provide a copy of a comparison study done by HSBDC that professes to prove that, at $1.05 and $1.10 per square foot, rates at the Business & Technology Center are competitive with similar office properties.

But Mitchell's numbers are misleading: none of the six office complexes he cited in his comparison were located anywhere near the Palm Center. One was in Clear Lake, another just south of Intercontinental Airport and yet another in the Memorial area. Their average lease rate was roughly $2.50 per square foot.

The tenants challenged HSBDC's analysis with one of their own, confining it to office space in the area of Hobby Airport, just southeast of Palm Center. Rental rates there ranged between 65 cents and $1 per square foot.

Mitchell defends Palm Center's rates by pointing out that incubator tenants get much more than space for their money. "We're providing them access to services that you wouldn't normally get in an executive suite," he says. "Access to financial assistance, access to management and technical assistance, counseling, workshops and training sessions. When you look at our services and our pricing and our rent, we're still lower than an executive suite where they don't get that kind of assistance."

Apparently, however, few tenants find Palm Center's services much of a bargain. One tenant, Triple T Service & Supply Co., moved out last September after repeated complaints from customers about the center's receptionist and answering service. In a letter to Mitchell, Melissa Thibodeaux, Triple T's president, acknowledged that she had fallen behind in her rent, but pointed out that HSBDC's management "made it increasingly hard" to run a business. She complained that messages were not passed on to her by the center's receptionist and that Mitchell's staff was "too busy running the place" to provide much technical assistance.

Ronald Russell says Mitchell not only hurt his business, but insulted it. The tax consultant claimed that during his busy season, when he might service as many as 2,500 mostly blue-collar clients, Mitchell asked him to pay additional security and janitorial costs because of the increased building traffic. Russell says he was also asked to pay extra for a waiting room.

"Marlon did not like my clients coming in and out of the building, so he made it difficult for them and me," Russell says. "He tried to make me pay $10 an hour for a conference room during the tax season so that my clients would have a place to wait that would be out of sight."

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