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At the former home to Borders Books, a tech hub now sprouts

A patch of sidewalk on the south side of East Liberty Street, four blocks from the main University of Michigan campus, has returned from the dead with remarkable speed. At almost any hour of day, and especially at mealtimes, a mix of bargain seeking undergraduates, white collar tech workers and middle class townies weave in and out of the restaurants, coffee shop and bank that now line the corridor.

The foot traffic is almost enough to make many in this city feel lucky that the single previous occupant of this red brick low rise
building on the 600 block went bankrupt five years ago. Almost, that is, because that previous tenant was the
flagship Borders store.

“In some ways, the neighborhood is stronger and more interesting and more vibrant than it was when Borders was here,” said Susan Pollay, executive director of the Ann Arbor Downtown Development Authority. “As much as I loved Borders — and I mean, I loved it — in the evolution of this building, it’s better than it was.”

Such talk is probably still sacrilege for some local nostalgics, who remember that the store was started by a pair of brothers and Michigan graduates before it turned into an international book chain, but it is difficult to argue on a dollars and cents
basis with the transformation.

For more than 70 years, the site in this pivotal city block was occupied by a single business anchor, first a regional department store, Jacobson’s, and then, for decades, Borders. The chain’s bankruptcy — which, by 2011, was almost overdue as customers had long since turned en masse to the internet to buy books — created a once in a generation release of a large piece of real estate. Suddenly available: a 50,000 square foot former bookstore that fronts a full block of busy Liberty Street and a 45,000 square foot adjacent building that previously housed Borders’ corporate headquarters.

There were many ideas about how to use all that space, but one option was immediately taken off the table: installing another anchor tenant.

“We wanted, on purpose, to have a multipurpose building,” said Ron Hughes of Hughes Properties. “I think it’s better for the city as well.”

In early 2012, Hughes Properties acquired the long term lease rights to the bookstore building that fronts Liberty Street and engaged the commercial broker Jim Chaconas of Colliers International to populate it. Today, commercial office space inventory in Ann Arbor is at a low. Google’s decision to leave a high rise three blocks from the former Borders and move its 400 person,
four floor customer service operations to a suburban office park by next year is seen as an opportunity, rather than worrisome.

Ms. Pollay, in fact, does not mind that shift because Google employees do not fan out in the neighborhood for meals, as they have onsite food service. “They hermetically seal themselves off,” she said. “Hopefully the next tenants there won’t.”

Even before Mr. Hughes and Mr. Chaconas began deciding the fate of the main Borders building, the three story
former corporate office building was fully leased by Barracuda Networks. Barracuda, a computer storage and security company based in Campbell, Calif., had been expanding its presence in Ann Arbor since 2007 to tap fresh engineering
recruits. The company moved in with 230 employees, making it the largest private employer in downtown behind Google.

“There’s not a lot of places in the downtown area where you could put a sizable tech company,” said Rod Mathews, a Barracuda general manager. “We did care a lot about what happened in the rest of the space. We didn’t want to be an anchor tenant in a building that wasn’t occupied.”

Mr. Hughes and Mr. Chaconas figured they would populate the second floor of the old bookstore with multiple office tenants after leasing the ground floor to a retail mix. Yet before Mr. Chaconas got far, the business and media analytics firm Prime Research made an aggressive play to secure 16,000 square feet at $24 a square foot with a call from a vice president, Julie MyersBeach.

“I wasn’t planning on touching the second floor until I was done with the first floor, but the day the sign went up for leasing the building, Julie from Prime called me up and said, ‘I want it,’” Mr. Chaconas said. “I told her, ‘I’m not ready.’ She said, ‘I don’t care.’”

With Prime and Barracuda side by side, the Borders spaces suddenly became the workplace for more than 300 young computer programmers with disposable incomes, Ms. Pollay said. Combined with the Google employees two blocks away, the
area suddenly took on a tech hub vibe, whereas for decades it had primarily focused on serving the university community.

Since then, other startups and branches of tech companies have alighted in Ann Arbor’s downtown core. More than 60 companies took part in a recent job fair put on by the city’s small business incubator, Spark.

“A larger tech company can be a real asset in the sense that it creates a talent pool that is now spawning a continuous labor pool for the entire market,” said Spark’s chief executive, Paul Krutko. He noted that Barracuda had not set up an
internal food service, which encouraged employees to venture into downtown.

That is the clientele Mr. Chaconas aimed to cater to while keeping the offerings local. Just as Borders was deeply rooted in the community, so are two current tenants, Knight’s Steakhouse and Sweetwaters Coffee and Tea, both locally owned
chains. A third, the HopCat brew pub, is part of a small chain that started in Grand Rapids.

There is also Slurping Turtle, a noodle restaurant, and Pieology, a fast casual pizza place that chose a corner of the building for its first Michigan location. Mr. Hughes and Mr. Chaconas expected they would be able to get $35 to $40 a
square foot. In the end, they got $45 a square foot on average and helped push the area’s retail rental prices up, Ms. Pollay said. Within two years of Borders’ closing, the entire place was leased, and everything had opened by mid 2015.

“All downtown now is restaurants because people will go to restaurants, but people will not shop,” Mr. Chaconas said. An early success, Mr. Chaconas said, was persuading the proprietors of Knight’s, Don and Angela Knight, to move in. They already had two popular steakhouses, including one nearby.

As a longtime Ann Arbor family — their children are seventh generation, they say — they had an affinity for the location and its previous tenants. They spent more than $2 million to build out some 3,500 square feet at the southwestern corner of the building into a more modern concept than their other locations. Since opening in 2014, the 200 seat restaurant has exceeded their targets.

“They wanted a family owned, well established restaurant,” said Mrs. Knight, who noted that comfort food dishes like meatloaf that are popular at the other locations are no match in the downtown site for filet mignon sliders, pear and
arugula salads, and burgers on pretzel buns. “I think it really mattered for a building with a history like this one.”

Mr. Chaconas and Mr. Hughes assert that their approach is far healthier for both their bottom line and the city’s welfare than reliance on one tenant, as one early notion to lease the whole former bookstore space to something like a Dave &
Buster’s would have.

The subdivision of the Borders space is likely to become an example for future turnover, Mr. Chaconas said. The Urban Outfitters store across the street is, at about 10,000 square feet, one of the largest nonfood retailers in the area, which is
worrisome.

“I lose that tenant, I lose 100 percent of that income,” he said. “If they leave I may put two tenants in there, so I only lose half the income. That is a perfect example, because nobody is that big anymore.”
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