By Chris Barnett
SCIONS OF TWO San Francisco real estate dynasties are racing toward a costly collision on Valentine’s Day after seven months of legal jousting. The prize: the storefront on the prime northeast corner of Fillmore and Pine occupied for the last 10 years by Paolo Shoes.
The lease there is officially up on February 14 and the landlord, Webco Group LLC, wants to give the stylish handmade Italian shoe retailer the boot. The store owner claims his lease gives him an option to extend for another five years at today’s prevailing rental rate — which he is willing to pay even though a number hasn’t been put on the table. Webco insists the tenant didn’t exercise his lease option on time and in the proper manner.
The combatants are:
• Paolo Iantorno, 37, the tenant and sole owner of Paolo Shoes, who grew up in tony St. Francis Wood, graduated from prestigious St. Ignatius High School, a third generation member of an Italian family whose father, Sergio Iantorno, and grandfather, Clarence Dahlberg, run San Francisco–based companies that build custom homes throughout the Bay Area.
• Patrick Szeto, 39, the landlord’s representative, raised in San Francisco, and graduated from equally prestigious Sacred Heart Cathedral Prep, a second generation member of the large and powerful Szeto family, owners of Webco Group and American Realty & Construction Inc. led by Patrick’s father, Kwok Szeto, also known as Richard Szeto, with major commercial real estate holdings throughout the city, including 2000 Fillmore Street, home of the shoe store.
Another major player in the drama is Pamela Mendelsohn, a commercial real estate broker with the San Francisco office of Collier’s International. For years, she’s been the leasing queen of Fillmore Street, a confidante of landlords and tenants alike. Mendelsohn leased the Paolo Shoes space to Iantorno a decade ago. And in 2011, she brokered the sale of the entire classic 1928 Mediterranean Revival style building — which includes Paolo Shoes, the Grove restaurant next door, 15 apartments upstairs and parking downstairs — to Webco.
Among its other holdings, Webco also owns the six-acre, 300,000-square-foot parcel encompassing more than 200 commercial and residential units surrounding the Safeway store and bordered by Webster, Geary and Fillmore.
Some might question why Webco would want to displace a longtime tenant and Fillmore fixture willing to match the monthly rent any new tenant would pay. It is not as if Paolo Shoes is an eyesore. Two years ago, Iantorno says he poured $250,000 into a redesign of the store — and even hired a muralist in Italy for $12,000 and flew him to San Francisco to re-create the ceiling of the Sistine Chapel in his store.
But Webco’s not talking. Patrick Szeto was called seven times before he responded and then refused to be interviewed. Webco’s lawyer, David Chiappetta, a partner in the San Francisco office of Perkins Coie, an international law firm, also declined to discuss the beef, saying he needed his client’s approval to speak, then never called back.
Mendelsohn, who reportedly has been hired by Webco to locate a luxury goods tenant, also did not respond to nine calls.
Iantorno is convinced it’s all personal. He and Patrick Szeto are around the same age, both from privileged backgrounds, with families in different sectors of the same industry — real estate — and went to rival high schools. However, Iantorno also built an imported Italian handmade shoe importing and retailing business that he claims is the biggest venture of its kind in the U.S.
“I think he’s jealous of my success,” claims Iantorno. “What else could it possibly be?”
Before he changed his name to Paolo, Paul Iantorno wanted to make movies. After high school, he moved to Los Angeles to study film at Loyola Marymount University, hoping to direct. In summers and on breaks, he came home and worked for Bulo Shoes in Hayes Valley, selling handcrafted Italian shoes. “The owner had a partner in Italy who owned several shoe factories,” Iantorno says. “I really fell in love with the whole handmade process — the art and the details of design that have been lost in mass-manufactured shoes.”
Within three years, he was practicing what he was pitching. He opened the first Paolo Shoes in 1999 in a former barbershop at 1971 Sutter Street near Fillmore known to Dirty Harry buffs as the site of a shoot-out in Clint Eastwood’s The Enforcer. His first sale was eight pairs of shoes to a man in his late 30s.
“It was exhilarating,” he recalls. “It was the Internet boom, there was a lot of money in San Francisco and people were spending on things like fashion-forward shoes handmade in Italy. I’d make 25 pairs of each style and color and then break the mold — to make them exclusive.”
With business booming, he opened a second store in Hayes Valley in 2002 and two years later went bigger time, taking over the 1,000-square-foot corner space at Fillmore and Pine where the quirky and beloved Brown Bag stationers had been ensconced for decades. Iantorno signed a 10-year lease with an option to renew for another five years with the building’s owners, William and Louise Osada. Rent was reasonable: $3 a square foot from 2004 to 2005, escalating to $4 per foot from 2005 to 2008, $4.50 a foot for the next three years and $5 a foot from 2011 to the end of the lease: Valentine’s Day 2014.
Iantorno claims he’s always paid on time. “I was never, ever late with a rent payment. In fact, with Mr. Osada, I would make out 12 rent checks at the start of the year and pay in advance.”
But the lease specified that to exercise the option to renew, Iantorno would have to notify Osada in writing not more than 12 months or less than 180 days before it expired. That lease was transferred to the new owners when Webco Group bought the building two years ago.
The drama started last July when Iantorno says he delivered his $5,800 rent check for the month along with a one-paragraph “notice of exercise of option.” Iantorno says he heard nothing from Webco and went off to Italy on business for most of August. When he returned at the end of the month and found no response, he says he called and asked for a meeting to discuss the option.
Webco referred Iantorno to Patrick Szeto, whom he had never met. “When the Szetos bought the building from the Osadas, I had little interaction with them,” he says. When he called Patrick Szeto to arrange a face-to-face meeting, Iantorno says he was told the option period had expired on August 14, and that he was calling 15 days late. Webco, he was told, never received his written request to exercise the option.
“We did meet on September 12,” says Iantorno, “and Patrick said, ‘You went to St. Ignatius and Sacred Heart would call you cherries [rich, stuck-up kids]. You’re a cherry.’ And then he laughed. At that point, I presented him with my letter of intent to extend my lease for 10 years and asked him what kind of rent was he thinking about. He was friendly and said he would discuss it with his team and get back to me. He never did.”
When Webco did not respond, Iantorno says he wrote Patrick Szeto three emails, called him five times and dropped into the Webco office near the Safeway twice, but Szeto wasn’t in. He said that in October, he sent Szeto a letter asking why he hadn’t responded to the emails, phone calls or visits and expressed hope about working out the details of a new lease.
“I heard nothing from him,” Iantorno says.
On November 27, Iantorno says he wrote Szeto another email asking if there was a reason he had not responded to any of his queries and urging that they determine a “fair market value” rental rate by December 16. “I prefer to make it a friendly agreement between ourselves rather than go to arbitration, as the lease specifies, to determine the fair market value,” he wrote.
Iantorno’s email triggered a response — not from Szeto, but from David Chiappetta, Webco’s lawyer, who reiterated what the landlord told his tenant: “The last day for you to exercise the option to renew was August 14, 2013. Landlord did not receive any written notice from tenant exercising the option to renew. Options to renew are strictly interpreted, and . . . must be exercised in the manner provided in the lease. . . . The lease will expire on February 14, 2014. You should make plans to relocate your store prior to that date.”
Iantorno maintains that Webco simply chose not to acknowledge his July 1 letter.
The same day he received the letter from Chiappetta — December, 2, 2013 — Iantorno says he ran into Patrick Szeto at a Christmas party. “Patrick was talking to two people when I approached him and asked him why he had his attorneys send me the letter terminating my lease,” he recalls. “Szeto, a drink in his hand, turned to me and said, ‘Because this is my trophy building and I have somebody more suitable for the neighborhood.’ ”
Feeling snubbed, Iantorno says he decided to turn the situation over to his attorney, Richard Beckman of Beckman Blair LLP in San Francisco and focus his energy on selling shoes during the holiday season.
On January 22, three weeks before Valentine’s Day, when the lease officially expires, Webco turned up the heat. Chiappetta sent a blistering letter to Beckman, Iantorno’s attorney, pointing out the name of the company had been changed without notification or consent, which would allow Webcor to terminate the lease.
Iantorno claims he simply changed the name and structure of his company from an LLC to a corporation for tax purposes and that Osada was the owner at that time. “We did things very informally between us,” he says.
The Webco attorney’s letter asks Iantorno to produce written proof that the notice to exercise the option was sent by August 14, 2013, by certified mail, return receipt requested, as the lease requires.
Iantorno doesn’t dispute that he did not send a certified notice with a return receipt requested. “Mr. Osada and I just handed things to each other,” he says. “We had a relationship of trust.”
The Paolo Shoes founder-proprietor says he cannot understand why Webco is nitpicking and arguing technicalities.
“I’ll match anybody,” he says. “If I’m willing to pay what the highest bidder pays and I’ve been an excellent tenant for 10 years, why wouldn’t they leave the space in my possession? It doesn’t make sense. Landlords are not that unreasonable.”