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How D.C. Government Gave Small Business Subsidies to IHOP

Tuesday morning marked a starchy celebration on Irving Street NW in Columbia Heights: The grand opening of IHOP’s 1,500th location, complete with a dancing pancake, free short stacks of pancakes, and a Washington Monument shaped out of...you get the picture. Inside, IHOP execs visiting from California for the occasion congregated in the back room, while D.C. politicians wore royal blue IHOP cardigans and were presented with commemorative spatulas before digging into their complimentary breakfast.

It’s only fitting that IHOP should be fêting the locals. The owners are, after all, benefiting from $46.9 million in tax increment financing the city earmarked to build the DCUSA shopping complex in 2006. Developer Grid Properties agreed to set aside 15,000 square feet for small, local, minority-owned businesses, which would get an approximately 30 percent discount on rent in those spaces.

Finding those tenants was left up to the non-profit Development Corporation of Columbia Heights. Four years later, exactly two businesses have taken the deal: IHOP, and Señor Chicken, the third location of a Peruvian rotisserie place. It’s not for lack of interest; DCCH’s president and CEO Robert Moore says around 65 small businesses asked about the spaces. Usually because of financing issues, none of them worked out—the closest was another locally owned franchise of Quizno’s. (Meanwhile, some small businesses DCCH helped place in the nearby Tivoli building didn’t make it).

IHOP, on the other hand, kept cruising. Jackson Investment Company, a small residential real estate outfit that had signed a three-store deal with IHOP, first heard about the location in 2007. The partnership of a father and two brothers was an attractive candidate for a number of reasons—African American, Ward 8-based, retired police and military. But what DCCH liked most was the attribute small business incentives are typically set up to avoid: They were part of an international brand that helped the store get off the ground and will make it harder to fail.

“All the new businesses that you see are franchises,” says Moore. “That’s a stronger way, and it’s a safer way for people to invest.”

IHOP Gets Small Business Subsidies in Columbia Heights

One morning last week, franchise owner Tyoka Jackson ambles out onto the restaurant floor in a track suit—a habit left over from 12 years in the National Football League—and lowers his considerable bulk onto a cushioned bench. He’d spent most of his time at the Columbia Heights location over the last few weeks, overseeing build-out and training, and was anxious to know how the new store is perceived.

“What’s the buzz?” he asks. “People are saying it’s gonna bring an ‘element.’” Jackson reads the local blogs, which have been pretty much split down the middle on the prospect of a downmarket diner on Irving Street. “When did IHOP become a hot spot for gang members and criminals?” he wonders.

That’s the thing about being a franchise, for better and for worse: People bring their own impressions to it, and for many, it’s just another chain in a complex already bursting with brands. In some ways, the Jacksons’ IHOP enterprise is a small business. They’ve put in the $1 million for construction, made hiring decisions, and will be the ones to lose their shirts if the place fails.

But the Jacksons have a few advantages an independent business could never claim. They get expert business consulting courtesy of the mothership, pooled television advertising, and supplies from a nationwide sourcing cooperative shared with corporate sister Applebees. Recipe development and product design are outsourced to IHOP’s labs in Glendale, Calif.

The last advantage lies in not being an independent business: IHOP is a known quantity.

“Having a sign that says Jackson’s Pancakes is different from putting a sign up that says IHOP,” Jackson explains. “That is a level of comfort for some people.”

Even with all that assistance, Jackson says he couldn’t have afforded market rate rents in DCUSA. Which raises the question: When a sure-fire franchise can qualify for a mandated “small business” set-aside, why would a developer ever go for an actual independent entrepreneur? Ward 1 Councilmember Jim Graham says he’s been trying to lure IHOP since 2002, when he proposed a location at 10th and U streets NW. He doesn’t see a substantive difference between a franchise like the Jacksons’ and something homegrown, and has been entirely sanguine about other chains opening on his turf.

The local business community, predictably, looks at things a little differently. At an October launch party for the new website of non-profit advocacy group Think Local First D.C., Graham put himself in for an awkward moment when—right after D.C. Council Chairman-elect Kwame Brown sang the praises of independents—he talked about how great it was that IHOP would be opening in DCUSA the next month.

That didn’t impress Constantine Stavropoulos, owner of popular hangout spots Open City, Tryst, and the Diner. The successful restaurateur says he never heard of any outreach to established entrepreneurs from DCCH about the DCUSA spot—even though developers are banging down his door to put his next location in their ground-level retail space.

Neither, for that matter, did the Tivoli North Business Association, which represents small businesses north of Park Road. Nor did the Mount Pleasant Business Association. If DCCH was trying to find an excellent non-franchise tenant for that space, it was keeping a pretty good secret.

Small Business Incentives for IHOP in D.C.

One of the groups happiest about IHOP’s new location in Columbia Heights? IHOP itself. If the performance of DCUSA’s other anchor tenants is any indication, the Columbia Heights IHOP should also be a high performer, which feeds back into the corporate coffers. On top of a $40,000 franchise fee, 4.5 percent of Jackson’s net sales goes straight to Glendale (he pays another 3 percent for regional advertising).

On Monday, CEO Jean Birch sits drinking coffee at a corner booth with Patrick Lenow, communications director for IHOP’s parent company, DineEquity Inc. Corporate executives don’t always attend store openings, but the 1,500th was a special occasion.

“This is a big milestone,” Birch says. “We are the 20th largest restaurant chain in the country. It’s a big deal to us.”

Though it’s up to the franchisee to find financing for each new store, IHOP headquarters helps along the way, and signs off on each location. Birch says getting a set-aside rent discount was “fairly unique” for her franchises. It’s fairly unique for the District, too—none of the relevant government agencies could think of another instance where a franchise had received a small business incentive. Typically, franchises don’t qualify as Certified Business Enterprises, the designation that gets them preferential treatment on many government contracts and incentive programs.

To listen to everyone involved in the IHOP deal, taking a chance on an independent operator would be an insane risk for a developer. To prove it, Lenow pages through the laminated menu, pointing out some of their regional specials, the relatively low-calorie Simple & Fit menu, and the mixed beef-and-bacon burgers.

“Would an individual entrepreneur bring that same creativity?” Lenow asks, rhetorically. “Trial-and-error is very expensive.”

Got a real-estate tip? Send suggestions to ldepillis@washingtoncitypaper.com. Or call (202) 650-6928.

Photos by Darrow Montgomery

Comments

  1. #1

    Please, please, please do research into the Development Corp of Columbia Heights and its president. That's a gold mine of wasted money and wasted opportunity.

  2. #2

    You won't see me at IHOP. Last time I was there I was drunk and had the munchies in College Park. IHOP was the only place open. It was filled with guys who were potentially gang-related and/or tied to crime. Even though I have good memories of IHOP as a child, they've turned into many seedy places!

  3. #3

    An excellent article, exactly the sort of thing I like to read in the City Paper. Thank you.

  4. #4

    As much as I appreciate the point of this article, you really do a disservice to your readers by summing up the opposite perspective in a single parenthetical note:

    (Meanwhile, some small businesses DCCH helped place in the nearby Tivoli building didn’t make it).

    Rumberos and Mayorga/Nori were both exactly the kinds of places that people like you think everyone would like to have here.

    I liked Rumberos, and the latter occasionally had potential. Rumberos at least had good food and was exactly the sort of thing everyone claims they want: sit-down restuarant, non-chain, non-pizza, offering food that is intersting and unique, hell they even had live music every day.

    Guess what? That was not, apparently, what we wanted after all.

    You have to accept at some point that market forces are a much stronger driver of what businesses can succeed, then a bunch of "community leaders" who want a flower shop, a book store, and a vegan organic restaurant.

  5. #5

    Interesting article, that ALMOST addresess it's Title. I love IHOP and have for decades. Great place to get a quality latenight-early morning meal. Took my step-father and my mother there for his birthday breakfast last week. We had a GREAT time. Any establishment open late will attract WHOEVER is up at those hours. @ ERIC. Yo My man..you were drunk and had the munchies? LOL! I bet everybody else in the place was looking at YOU thinking you were the TROUBLE ELEMENT. I believe IHOP has saved many lifes helping late night revelers sober a bit before driving home. Long live IHOP!!

  6. #6

    No way anybody in Columbia Heights is going to get from the IHOP formula batters what everybody in Akron can enjoy from a Wally Waffle http://wallywaffle.net/WALLY_WAFFLE_MENU.html. A smaller chain, to be sure.

    http://cleveland.metromix.com/content_image/thumbnail/4x3/180/386237

    Late bebop mix goes does great with grits in the morning.

  7. #7

    It's all a moot point! Are kidding me?
    an IHOP across from Columbia Heights metro
    Station, is just another place for these
    Crews and gangs to fight over for turf! Mark
    My words before long, there will be a shooting
    or a fight in or outside the place! It's unfornate,but
    The sad truth! I wouldn't invest in more money
    In Columbia Heights.

  8. #8

    Mr. Graham, haven't you done enough damage?

  9. #9

    I would like to ditto the request for some investigative journalism regarding DCCH. Are they taxpayer funded? How many people do they employ? What have they done in the three years since DCUSA opened? Anything at all? As a close observer of the neighborhood, I can't see any work completed at all that would justify the continued existence of the organization, at least if it does indeed receive public funding. Moreover, they are very, very unresponsive to questions from anyone in the neighborhood -- they simply refuse to (or can't) explain what is they actually DO now that DCUSA is open, and has been for years. All I know is, there are a LOT of vacancies in and around DCUSA, and a lot of local entrepeneurs who seem to have good ideas, and I can't see a thing that DCCH has done to bring together the entrepeneurs and the available space in any sort of creative way. Or in any way whatsoever, for that matter. I'd love to learn more.

  10. #10

    A friend and me enjoyed a wonderful visit to IHOP on opening day and both think it will be a great addition to the neighborhood. I spoke at some length with Ty (one of the owners) and was very impressed with his commitment to the neighborhood. They plan to have on duty security (and I suspect that given that one of the owners is a police officer that the restaurant will be a magnet for hungry cops!)to keep an eye on the riff-raff which should address any concerns about nefarious elements likely to run the place over.

    I admit to being one of those anti-chain snobs; when I first move to the hood I was a bit put-off by the idea of a Ruby Tuesdays and certainly the DC USA is all chain related stores. However, I come to realized that these type of places draw folks to the neighborhood who will then check out the other local establishments.

    It does sound like the DCCH could use some assistance in its task of getting the word out about retail opportunities in Columbia Heights.

    As for the restaurants past and present at the Tivoli; I can't speak for the predecessor as I had just moved to the hood when it closed; but highly recommend Alero. They have an incredibly friendly staff with great cooking.

  11. #11

    "Market forces" may be in play when a business fails, but those "forces" extend beyond merely the number of customers a business attracts. National chains--including franchises--have much deeper pockets than most any locally owned businesses; they can frequently afford to pay more. Rumberos might very well have been attracting precisely the customers it was designed to attract, and merely fell victim to the increasingly escalating commercial lease rates and property tax assessments endemic of most "happening" DC neighborhoods. Even with a 30% reduction in the lease rate, there's no guarantee that Rumberos could have done the volume of business needed to survive in a high rent space like the Tivoli. There is a reason that 14th Street in Columbia Heights is populated largely by commercial chains--they're the ones who can afford to be there.

  12. #12

    I'm so glad I moved out of Columbia Heights three years ago, before they put in DCUSA. If I wanted to live in a mall I'd move to Pentagon City. Columbia Heights is now no different than any other soulless, stripmall-blighted chunk of suburban America. Just the crap I moved to the city to get away from. I hope the IHOP goes out of business, and you'll never see me there, especially when there are dozens of great, actually local, breakfast or brunch places to eat.

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