In Prince William, a Triple Pinch

Credit, Housing Troubles, Political Crackdown Hurt Immigrant Businesses

Along the Route 28 corridor into Manassas, with its mix of small shops, Hispanic groceries and car lots, immigrant business owners Harry and Raquel Medina have watched the impact of the housing crisis play out like falling dominos at their sign-making store.

First it was the subcontractors, who stopped ordering placards for their trucks as home construction around the Washington region ground to a halt. Then went the real estate agents, who ordered fewer For Sale signs until they stopped buying them altogether last month. Other small business customers followed suit, cutting back as the economy turned more uncertain.

Now the Bolivian natives, who opened their first business three years ago, are barely able to make their rent. Sales at their Manassas shop have dropped by half in the past few months.

It has been a precipitous turnaround for some small business owners, particularly those in the immigrant community, since the housing crunch hit. Across the region, those who hitched their wagons to the boom -- tapping their home equity for cash or building businesses tied to new construction -- are finding it difficult to keep pace.

The Medinas opened their shop in 2004 with $30,000 they had saved since they immigrated in 1989, and it provided modest stability after years of getting by on freelance design work and Raquel's job as a nurse.

"It seemed like the right time to be here. This place was really ready to grow," said Harry, standing in the shop along Route 28 one evening, surrounded by samples of signs he's made for travel agencies, restaurants and accountants.

Now they are trying to minimize their losses. As they approach the end of their lease next month, they are thinking of moving their shop to another location -- probably outside Prince William County -- where they hope the effects of the housing and economic slump will be less pronounced.

Other immigrant business owners are feeling the pinch, too. Yong-jae Park, a loan officer at Hanmi Bank in Annandale, said that of the 80 commercial business loans he's made to Korean immigrants in the last two years, eight have gone delinquent since October -- that's up from about two delinquent payments for all of last year.

Park said that between 2000 and 2005, he saw many immigrants -- Hispanics, Vietnamese, and Koreans among others -- take out home equity lines of credit for down payments on new businesses. Others used their lines of credit to buy more homes as investment properties.

"Now they are seeing they don't have any equity in their homes and the cash flow from their businesses are going down. Those are the people who are really having a tough time. They are broke, with no net worth," Park said.

Some people made big bets to climb the economic ladder.

In Woodbridge, for example, the rapid residential expansion in the eastern portion of Prince William County looked like a relatively untapped opportunity to Manuel Arbaiza, who owned two small beauty salons, in the District and Langley Park. The population of Prince William has grown about 27 percent since 2000, with the largest number of Hispanics in the region. So in 2001, Arbaiza used $400,000 in savings and loans to open El Portal, a tablecloth Salvadoran restaurant with live mariachi performances every Friday night. Showing his optimism in the business climate, he signed a 10-year lease for the property, located in a large strip mall off Route 1.

The restaurant was an instant hit. Then in mid-July, the business began to decline as a weak economy and housing slump reverberated in the area. He and other business owners say a crackdown on illegal immigrants in the county exacerbated economic woes, prompting many of their customers to leave Prince William in recent months.

"July was a turning point. It was like everything came together at once -- the housing market, the economy and the immigration resolution," Arbaiza said.

Some days he brings in only $180, compared with more than $2,000 a day earlier this year. He has reduced hours for a cook and a bartender. The other day, after serving just a few meals during lunch, he sent one of two cooks home before the dinner hour.

"It costs $300 just to run this place. It's really depressing to come all the way down there and only make a couple hundred dollars," said Arbaiza, who commutes each day from Silver Spring.

The same optimism that infected Arbaiza could be felt across the county, along the Route 28 corridor in recent years. One by one, the empty storefronts and auto parts and sales outlets were replaced by new retail such as Latino baker Panaderia El Molino and Panamericana Travel. Shoppers Food & Pharmacy opened its first Hispanic supermarket, El Primero Mercado, as an anchor of a large strip mall. Manassas entrepreneur Felix Vargas launched his own small indoor mall with a western wear store, photo studio and beauty salon in 2000. He also started a restaurant in 2003 and Spanish-language radio station, La Campeona 1420 AM, in 2004. A private equity firm bought a 2.1-acre parcel in Manassas to redevelop into a shopping center with a CVS drug store.

These days, Vargas and other businesses owners are watching businesses close and properties go up for sale with unease. The redevelopment project by the private equity firm was scrapped a couple months ago as cash dried in the credit markets. The property is now up for sale for $3.2 million.

"A few months ago, a property like that would have gone off the shelves like hotcakes. Now, investors are on the sidelines because of the credit crunch," said Ahmad Ashkar, the commercial real estate broker selling the property.

On a recent afternoon at Joyeria Western Wear, in the Mexico Lindo Plaza, owned by Vargas, loud mariachi music blared through the empty shop. Typically, the shop is packed before Christmas as Hispanic customers stock up on bull-hide hats, stark white Levis 501s and other presents to bring home to Mexico, El Salvador and other Central American countries.

Guadalupe Vargas, Felix's niece, sat behind a glass counter filled with gold jewelry and ornate belt buckles and said only a few people had come by throughout the day. In total, sales at his Hispanic-aimed businesses dropped in half, Felix said.

Yet many entrepreneurs plan to bide the downturn and wait for what they hope will be a cyclical economic rebound in a couple years.

"What can you do?," Arbaiza said. "You have to look forward."