What do you think: Cities punish landlords of vacant storefronts

[Pedestrian]

Fed Up With Vacant Storefronts, Residents Force Cities To Punish Retail Landlords
August 12, 2018 By Cameron Sperance and Joseph Pimentel

. . . Local governments, wary of landlords who choose to keep their properties empty — sometimes for months and years in the hopes of landing a deep-pocketed tenant — are now responding by exacting financial penalties against these proprietors. “There was uproar from residents over what these [landlords] were doing and how they were getting away with murder,” said Ali Carter, the economic development coordinator for Arlington, Massachusetts. “Residents just see a vacant storefront and wish it was a coffee shop or bookstore. They’re peeved.” Arlington began its measure in early 2017. It requires landlords to register with the city and charges them $400 annually for each vacant storefront. When the fees were first levied, there were 17 empty storefronts in Arlington Center. Only six remained by the end of the year. Larger cities, like New York and Boston, are mulling similar measures. Retail vacancies in Manhattan’s West Village neighborhood were up to 11.3% in June — and some parts of SoHo have even hit 20%. In Boston, vacancy rates on the city’s high street of shopping, Newbury Street, were around 10% at the end of 2017. A retail vacancy rate of 5% is generally accepted as the industry standard for a healthy market, according to brokers . . . .

Other cities are hoping to replicate Arlington’s visible success . . . . New York City Mayor Bill de Blasio has proposed a fee or tax to penalize landlords with vacant retail space . . . .

(San Francisco) Supervisors Aaron Peskin and Jane Kim are leading the fight for a vacancy tax. Kim told hyperlocal news site Hoodline the Mayor’s Office of Economic Development and small business commission should do more to fill vacant spaces. She would consider a vacancy tax “to encourage landlords to rent out these spaces.” Peskin and his staff told Bisnow he is working on a draft to include a vacancy tax on a future ballot.

Boston City Councilor Matt O’Malley is pursuing vacancy penalties in his city, inspired by Arlington . . . .

Read more at: https://www.bisnow.com/national/news...medium=Browser

[skyscraperpage17]

Good.

[mhays]

Some cities don't have enough retail space. New York and San Francisco are probably poster children for this in some neighborhoods.

But many cities have too much. Retail space is required in new buildings when it's not warranted. We have that problem in Seattle. Most retail outside of certain core districts rents for less than it costs to build, with much staying vacant.

In our case, a fee would help a few gray area type businesses get leases. Some will be interesting places, like that combination used bookstore and kambucha bar with questionable funding. But mostly it would just be another cost that has to be subsidized by the residents upstairs, whether it's more under-market leases and risky leases or simply baking the fees into the cost of developing.

[lio45]

Originally Posted by Pedestrian

Local governments, wary of landlords who choose to keep their properties empty — sometimes for months and years in the hopes of landing a deep-pocketed tenant

I really don't get this at all.

I'm finally at 8 rented commercial storefronts out of 8 (that's in my portfolio downtown in a Canadian city of 200,000) and it required lowering rents until I found takers.

I always let my commercial leases expire (after 1 year) and then I let them continue to operate without increases. This way, in case a deep-pocketed tenant shows up, I have a good bargaining position - I could actually kick the occupying tenant out legally, though I never do this - and I've ended up helping existing tenants relocate to clear the place for higher-paying ones.

For a true deep-pocketed tenant, an existing tenant would be an obstacle at all.

I can't conceive that people could believe they're better off with empty units... basic math says otherwise. And I certainly didn't need any financial incentive other than incoming rents to ensure I'm not sitting on empty storefronts that have income potential.

[Pedestrian]

^^Might be a difference in tax law. In the US, most costs while the property isn't rented are deductible business expenses and can be rolled over if there's no profit against which to deduct them in a given year. I don't know if that's true in Canada.

Also, the law in some cities like NY and SF is very tenant friendly and landlord hostile. I know you can't just kick out a residential tenant. I bet there are difficulties even with commercial tenants. We have a case in my condo. One commercial space has been occupied by a small art theater for 30 years. The landlord (not the HOA--there's a separate owner of the commercial space) wants to raise the rent and they can't (or won't) pay it. The landlord also wants to change the types of businesses he can rent to because no arts/entertainment tenant will pay the new rent. That requires a zoning change and lots of locals have protested any change to the zoning board. The landlord may not get the change he wants.

[Obadno]

This just seems counter productive, good way to drive retail owners out of the market.

"Oh you cant find anyone to rent your storefront at a profitiable price? WELL LETS MAKE IT WORSE?!?!?"

Its like Louis CK's joke form years back about having negative money and the bank then charging you 30$ when you are already negative in your account

[ardecila]

Originally Posted by mhays

Some cities don't have enough retail space. New York and San Francisco are probably poster children for this in some neighborhoods.

But many cities have too much. Retail space is required in new buildings when it's not warranted.

This is yet another problem caused by the ridiculous micromanagement of zoning codes. Every new regulation causes unintended consequences so they layer more regulations on, and when that doesn't work they just slap direct taxes on.

My two cents: ground floor residential should be allowed as an option in all non-industrial classifications. If the demand is there for retail, the landlord will outfit the space for retail instead of residential. If the demand materializes later, the space can be converted - a commercial tenant will likely pay more than a residential tenant would. The building codes for such a conversion should not be too onerous, historic neighborhoods are full of old houses and apartments that have been converted into little shops and coffeehouses, usually pretty quaint and pleasant even to the most hardcore NIMBY. Not sure why the zoning codes view this as problematic, although I will admit the historic retrofits often have ADA problems since ground floor residential is usually a 1/2 story above or below grade. But there's no reason a retail space needs a 14' ceiling height, despite what Chicago Building Code says.

That has to go hand-in-hand with on-site parking reductions, the whole reason zoning codes mandate retail in the first place is basically to avoid ground-floor parking with blank walls - but again, even ground floor parking can be easily converted to retail if the zoning code does not require that parking to be provided in the first place.

[skyscraperpage17]

Originally Posted by Obadno

This just seems counter productive, good way to drive retail owners out of the market.


"Oh you cant find anyone to rent your storefront at a profitiable price? WELL LETS MAKE IT WORSE?!?!?"

Its like Louis CK's joke form years back about having negative money and the bank then charging you 30$ when you are already negative in your account

And that's fine too. It's not like the owners are trying to do anything useful with the property any way.

When a community is trying to present itself to taxpaying customers and businesses who will actually be good stewards by maintaining their properties (I.E. keeping them occupied) or creating jobs, seeing a ton of vacant buildings when they first come into town would turn them off in a hurry and reflect very poorly on said community.

[Jasoncw]

I agree with this. It forces them to accept the market value of their space, and it forces them to be engaged with their properties. I'd combine it with some other things though:

- A special category of tenant with looser regulations, and with the mutual understanding that it's temporary. I don't know if this already exists. Something that would let you have less commitment, more flexibility, and make it easier to have a lot of different tenants over time.

- A time-based definition of occupied (like a certain number of hours a month). For example a local group or club or something could hold public events on weekend afternoons, but not during the week. This way more types of groups would be able to use the space. There are only so many full time real businesses to go around.

- Cities need to only require ground floor retail in locations where it makes the most sense, and with consideration to how much retail space the area can support.

[Mikemike]

Originally Posted by lio45

I really don't get this at all.

I'm finally at 8 rented commercial storefronts out of 8 (that's in my portfolio downtown in a Canadian city of 200,000) and it required lowering rents until I found takers.

I always let my commercial leases expire (after 1 year) and then I let them continue to operate without increases. This way, in case a deep-pocketed tenant shows up, I have a good bargaining position - I could actually kick the occupying tenant out legally, though I never do this - and I've ended up helping existing tenants relocate to clear the place for higher-paying ones.

For a true deep-pocketed tenant, an existing tenant would be an obstacle at all.

I can't conceive that people could believe they're better off with empty units... basic math says otherwise. And I certainly didn't need any financial incentive other than incoming rents to ensure I'm not sitting on empty storefronts that have income potential.

Strong Towns did some stuff on this - for new-ish space the issue is that for highly leveraged buildings to reduce the rent will also reduce the mortgagable value. So if they owe $1,000,000 on their ground floor retail they can't lease at a rate that would put the valuation below what they owe, and their bankers won't understand that it's just a temporary tenant on a long-term investment.