Sales and development enjoyed a brisk business in the Northern California city of Stockton during the real estate boom, but signs of leveling out are starting to show. Broker Scott Crowle notes that the first commercial real estate sectors to soften in the nationwide downturn were class-B and class-C products in tertiary markets, “which is basically Stockton in a nutshell,” he says.

The effect on retailers is all too clear. “I've had more tenants in tears as I deliver the message in the past 18 months than ever before,” says Crowle, who is associate director of the national retail group for Marcus & Millichap in Sacramento. The reaction comes when Crowle breaks the news that tenants' leases require them to pay tax increases when the shopping centers they occupy change hands. Many of these mom-and-pops are already in the red, he says.

Tenants around the country face difficult situations, but unique to Stockton, Crowle says, is the concentration of tenants who don't speak English as a first language. Many are of Southeast Asian descent. Some live outside of Stockton and run several businesses. No one ever explained to them the terms of their leases, and the tenants are simply unaware that they'll be stuck with the tax bills. “They feel they're being taken advantage of,” he says. As a result, some default on their deals, but landlords are also lowering rents.

One broker who works with national tenants takes a more optimistic view. “Some tenants want to be there no matter what's going on,” says Tom Power, managing partner for the Northwest region with Staubach Retail. “They know that long term, it's going to be a good play for them,” says Power.

With activity strong in Stockton during the boom, barriers to entry into the market were higher. Now, retailers see it as an opportunity. “I don't see that anyone's saying, ‘No, we won't go to the Central Valley at all,' ” Power says.

STOCKTON, CALIF.

Population: 290,141

Foreclosure rate: 4.866%

Median household income: $45,615

Median value of owner-occupied homes: $384,000

Sources: Population: U.S. Census Bureau Population Estimates Program, July 1, 2006

Foreclosure rates: RealtyTrac totals for 2007

Home values and household incomes: U.S. Census Bureau American Community Survey, 2006