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Old Posted Dec 14, 2017, 12:19 AM
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Retail Industry Isn't Entirely To Blame For Vacant Storefronts In Many Cities

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aka The San Francisco Case: Why Mandating Ground-Floor Retail Fails
December 13, 2017 Julie Littman, Bisnow Bay Area

A growing problem is emerging in many thriving metro areas that have had significant mixed-use, office and residential development. While many projects are delivering offices or apartments fully or nearly leased, their ground-floor retail often remains vacant. And it is not exactly the fault of the troubled retail industry.

“There [have] been 10 years of approving mixed-use without understanding retail and forcing retail on the bottom of a project where it doesn’t really belong,” JLL Senior Vice President Christine Firstenberg said. The empty storefronts are creating blight across San Francisco, Oakland and San Jose. Developers are delivering physically obsolete space that is too small, with ceiling heights that are too low or is in a bad location with not enough foot traffic, according to Firstenberg. Cities are starting to reconsider how they approve mixed-use development and some are thinking of charging a fee to building owners with spaces that remain vacant too long. But there is no easy fix, Firstenberg said. The problem with ground-floor retail is most apparent on Market Street in San Francisco. Crescent Heights planned to bring in a restaurant in 2013 to its Nema luxury apartment project, but the restaurateur pulled out due to complications and ongoing delays. Since then, the 13,500 SF ground-floor retail space has remained vacant, according to the San Francisco Chronicle. Nema is not alone. The Chronicle reviewed 20 housing developments on or near Market Street and found 17 vacant storefronts as of late November.

Cities continue to pursue ground-floor retail development because it is a large tax generator, according to Christina Briggs, City of Fremont deputy director of economic development/assistant to the city manager. Cities want to create as many opportunities as possible for revenue generators, especially with brick-and-mortar sales revenue declining with the expansion of online shopping, Briggs said. Retail also allows cities to activate neighbhorhoods. Activating streets can be a long and arduous process . . . .
Please read the rest of this lengthy piece at https://www.bisnow.com/san-francisco...n-francisco-re
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Old Posted Dec 14, 2017, 1:37 AM
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Originally Posted by Pedestrian View Post
Please read the rest of this lengthy piece at https://www.bisnow.com/san-francisco...n-francisco-re
I love liberal governments. Can't find a tenant for your for lease space? Losing thousands every month from not having a tenant? We have an idea, lets FINE you.

People with zero to lose are always the ones ready to screw over people who have everything to lose.
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Old Posted Dec 14, 2017, 2:16 AM
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Why not just let the market determine how much ground floor retail there is? Is that so hard to figure out? If someone wants to build a highrise condo with no retail, go ahead. If enough developers pass on it, then there won't be enough ground floor retail space, and demand will increase enough that there will be an incentive for future developers to incorporate it into their building.

I wonder how many times these failing retail spaces where there is no foot traffic were not even wanted by the developers.
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Old Posted Dec 14, 2017, 3:34 AM
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This is a big problem in Seattle too.

Retail is required because people think building retail space translates to interesting streets, and have little clue abou the economics. It doesn't work for a number of reasons...most fundamentally, most buildings add far too few customers to justify their net increase of retail space. Americans use 40 sf of retail per capita, a fraction of which is non-grocery neighborhood retail, let's say 10 sf. But instead of building 2,000 sf for a 200-person apartment building, the city might require 10,000 sf. That might be fine on the neighborhood's top retail street if 20% of buildings have that requirement, but it's a disaster if required on every street. It creates empty retail and poorly-used retail, while also taking customers away from the main retail street.

The ceiling height and depth points are important too. In Seattle the requirement is about frontage. Rents won't cover costs and ground-level space is needed for other things, so developers minimize the square footage by only putting it in front. So you get retail lite. The low ceilings are often due to height limits...a 40' building height means you can fit three residential levels above one retail level, if the retail is maybe 11' max, minus the ceiling-to-floor for a celing of 10' or so, and exposed mechanical systems below that. It's better to lose money on the retail than drop a level from the building so your retail will be a little less crappy.
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Old Posted Dec 14, 2017, 3:38 AM
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Originally Posted by jtown,man View Post
I love liberal governments. Can't find a tenant for your for lease space? Losing thousands every month from not having a tenant? We have an idea, lets FINE you.

People with zero to lose are always the ones ready to screw over people who have everything to lose.
Article just said "considering". You act like it was a tax cut for billionaires and gutting social security or something.
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Old Posted Dec 14, 2017, 4:27 AM
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Article just said "considering". You act like it was a tax cut for billionaires and gutting social security or something.
Either the concept is being considered seriously enough to warrant mention in the article, or the writer is bringing it up to point out how ridiculous it is. Either way, it is a seriously misguided idea for building owners who may have been trying to placate city demands in the first place.
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Old Posted Dec 14, 2017, 5:44 AM
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Let's say 10% of the building is unwanted retail. Eventually it goes to nail shops and an insurance guy (if considered "retail" enough by code) for half the price needed to justify building it. So what, right? The developer knew that would happen.

But that means the 5% has to be made up by the residential rents. Or said differently, they won't build unless the market is tight enough that they predict rents will be high enough. It's effectively a 5% increase in all local apartment rents.

People contend that this is helpful for retail, and opens the door for other retailers. But mostly it seems to be the nail salons (which can operate with nearly zero overhead) and equivalents. A 50% rent cut might be a 10-20% drop in overhead...great except being on a side street might mean 50% less business.

As for that potential to fine landlords...there's another reason not to build housing until rents rise due to lack of supply...in other words, holding out until the added rents make the bet worthwhile.
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Old Posted Dec 14, 2017, 2:31 PM
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Problem here in Miami too but I think the main problem is so many developers half-ass the retail portion. As the article states, they deliver spaces that are too small, with too low ceiling heights etc. The developers make their profit off the condo sales with the retail being a huge after thought just thrown in to satisfy zoning requirements.
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Old Posted Dec 14, 2017, 4:51 PM
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In spite of the fact this article singles out San Francisco for criticism, in one of the city's newest neighborhoods they seem to be doing a better job. In Rincon Hill and vicinity, partly on land formerly taken up by freeway ramps leading to the Embarcadero Freeway that has been torn down, they are building high rise housing everywhere but they have designated a single street--Folsom St.--as the "shopping" (or "high") street of the new neighborhood and requiring round floor retail only there. Seems a better approach.

This is the neighborhood as it was maybe 12-18 months ago. In the center is the intersection of Folsom, the designated shopping street, and the Embarcadero. More towers are now partly constructed on the right side of Folsom in this view (you can see a bit of dirt on the sites peeking through).


https://www.google.com/search?q=Rinc...hWyu1ppgWamoM:

Here is a diagram. Folsom is shown in black. Pretty much all the proposed towers shown here are built or under construction:


http://www.sfgate.com/news/article/R...ng-3301994.php
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Old Posted Dec 14, 2017, 5:38 PM
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Quote:
Originally Posted by xzmattzx View Post
Either the concept is being considered seriously enough to warrant mention in the article, or the writer is bringing it up to point out how ridiculous it is. Either way, it is a seriously misguided idea for building owners who may have been trying to placate city demands in the first place.
The city and county of San Francisco is considering an inactivation fine, and we will probably pass it if it goes to the ballot. The underlying data in the article shows the developers build to satisfy city code, without considering limitations created by the overall building. We already beat up our developers and they still keep coming, so we are more than happy to continue to beat them up. If the threat of fines forces them to be smarter about the retail 'shell' component, then we are winning.
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Old Posted Dec 14, 2017, 5:57 PM
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Quote:
Originally Posted by xzmattzx View Post
Why not just let the market determine how much ground floor retail there is? Is that so hard to figure out? If someone wants to build a highrise condo with no retail, go ahead. If enough developers pass on it, then there won't be enough ground floor retail space, and demand will increase enough that there will be an incentive for future developers to incorporate it into their building.

While I agree that there is far too much unsuitable retail space being built, not sure this is the answer either. Even in areas with more than sufficient foot traffic condo developers may often wish to forgo retail that would be profitable as it simply adds extra complications to the ownership model. Also there areas which may have sufficient demand in the future but won't for some time. Once the building is passed over to the condo corporation though the original developer doesn't really care (not a slight, why would they?).

By the same token simply requiring retail space in every building leads to unsuitable spaces that can end up vacant. I think the answer is a mix of oply requiring retail spaces fronting main / designated retail streets / areas and ensuring they meet a minimum specification (frontage, clear height, etc.). In other areas you can leave it up to the developer.

I'm pretty much talking about condo development only - the same is not necessarily true for managed large scale rental apartment or office buildings owned by a REIT or investment group. Retail can become a lot more desirable then.
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  #12  
Old Posted Dec 14, 2017, 6:01 PM
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Originally Posted by coyotetrickster View Post
The city and county of San Francisco is considering an inactivation fine, and we will probably pass it if it goes to the ballot. The underlying data in the article shows the developers build to satisfy city code, without considering limitations created by the overall building. We already beat up our developers and they still keep coming, so we are more than happy to continue to beat them up. If the threat of fines forces them to be smarter about the retail 'shell' component, then we are winning.
Sure, if you don't mind screwing every apartment renter in town by jacking up costs for new supply.
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Old Posted Dec 14, 2017, 7:12 PM
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As mhays points out, that's treating ground floor retail like social housing (legally imposing something that's money-losing); obviously the costs will be passed on to the residential buyers.

However, maybe it does make sense to impose it -- the arguments would be pretty similar to the ones used to force a % of social housing in new developments ("makes the neighborhood more interesting and less sterile, and if we don't force it the free market just won't do it; residential buyers are rich enough that they'll still come anyway, even if it makes their units a bit pricier").

I haven't yet taken the time to evaluate where my own position would be on this issue... except that I'm 100% sure not every street needs to have retail; it's perfectly fine to have residential neighborhoods. In areas that are already known for ground level retail and who would likely drift away from that due to market pressure, that's where I'm on the fence and see arguments for both sides.
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Old Posted Dec 14, 2017, 7:21 PM
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Originally Posted by niwell View Post
While I agree that there is far too much unsuitable retail space being built, not sure this is the answer either. Even in areas with more than sufficient foot traffic condo developers may often wish to forgo retail that would be profitable as it simply adds extra complications to the ownership model. Also there areas which may have sufficient demand in the future but won't for some time. Once the building is passed over to the condo corporation though the original developer doesn't really care (not a slight, why would they?).

By the same token simply requiring retail space in every building leads to unsuitable spaces that can end up vacant. I think the answer is a mix of oply requiring retail spaces fronting main / designated retail streets / areas and ensuring they meet a minimum specification (frontage, clear height, etc.). In other areas you can leave it up to the developer.

I'm pretty much talking about condo development only - the same is not necessarily true for managed large scale rental apartment or office buildings owned by a REIT or investment group. Retail can become a lot more desirable then.
That's a case of the classic scenario "if you can get away with it while others can't, it's good for you, and the effect isn't very noticeable in the grand scheme of things, but if everyone can do it, then it's going to be bad for everyone in the long term."

I can think of at least two main streets in my hometown where ground level retail -- every building in those areas had it -- has had a hard time when the automobile became popular (segments of streets that used to be very busy, and where nearly everyone now drives past the buildings on their way to somewhere else) and now it's nearly all converted to residential. It's a self-reinforcing loop obviously. There are barely any pedestrians to be seen in those areas anymore and it's been the case for at least a couple generations (and likely more). Pretty sterile and uninviting. To top it off, the ex-retail street level apartments' windows are often mirror-tinted for privacy and/or have bars like jailcell windows for safety.
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Old Posted Dec 15, 2017, 4:44 AM
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Originally Posted by coyotetrickster View Post
The city and county of San Francisco is considering an inactivation fine, and we will probably pass it if it goes to the ballot. The underlying data in the article shows the developers build to satisfy city code, without considering limitations created by the overall building. We already beat up our developers and they still keep coming, so we are more than happy to continue to beat them up. If the threat of fines forces them to be smarter about the retail 'shell' component, then we are winning.
If the developers sit on vacant space the blame lies with them. They can hire a property manager, who can reach out to potential tenants and make offers like lease reductions in exchange for building alterations. It's negotiation, not "we built it, you move in under our terms" But too many building owners run the numbers and are perfectly fine with letting spaces sit vacant in hopes of getting those gold-standard tenants.
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Old Posted Dec 15, 2017, 5:58 AM
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They're paying attention to the economics. Most buildings are built by businesses.

A year or two of vacancy (if limited to that) can be better than building out a store that fails, or signing a six-year lease at half price.
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Old Posted Dec 15, 2017, 4:06 PM
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If the developers sit on vacant space the blame lies with them. They can hire a property manager, who can reach out to potential tenants and make offers like lease reductions in exchange for building alterations. It's negotiation, not "we built it, you move in under our terms" But too many building owners run the numbers and are perfectly fine with letting spaces sit vacant in hopes of getting those gold-standard tenants.
The rate of failure of independent retail is so high, and the cost of construction of new retail space is so great, that owners are taking a massive risk when not signing a tenant with corporate backing and/or massive lines of credit. Developer's and business owners would love to have rentable ground-floor retail as it generates a lot more money per square foot than other uses, but there is just too much unused supply and too much financial risk and legal headaches with just giving the space away.

Retail has been the defacto method for activating streets but that method has led to a glut of available space. Cities are now struggling with how to create street activity by other means and I truly think that the activity will be organic and highly specific to the city and location, so planners will not have some formulaic solution. Continuing the require retail is only going to exacerbate the problem.
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Old Posted Dec 15, 2017, 4:35 PM
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Seattle has allowed "live/work" units in some locations where it's the most clear that retail won't work. These are often two-level units (fit into 16' perhaps) set back slightly from the street, with a two-level room out front. However there's not much demand for live/works and many aren't in great locations. So they don't rent until the prices are cut substantially. And when they do, they're generally residential only. It turns out that people don't like having living room doors that open right onto commercial, semi-commercial, and/or loud streets.
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Old Posted Dec 15, 2017, 4:49 PM
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Maybe something that would work better, that doesn't require mandating things for private developers and building owners would be to build public parks/plazas that support food trucks, temporary pop up structures, markets, etc.

You could argue this is a legitimate function of local government. Creating a venue for small business activities, public gatherings, etc, that wouldn't be able to exist otherwise is one benefit. Parks and plazas are an established domain of city responsibility. It seems like the public approves of projects like these. Houston's discovery green was highly praised. And, these kinds of things can be built on parking lots or vacant land in locations which are really bad and need more activity, and then attract development on lots around them.

I don't know about a place like San Francisco or New York taking this approach since there isn't room for a plaza and there's enough activity already around busy areas. For a sprawling city in Texas or Florida or a rust belt city with a lot of vacant lots or ruined buildings downtown I believe this is a good solution for their lack of appealing urban spaces.

Also there's something democratic about a public space and the process of creating it and managing it which is different from the process of mandating the shape and function of private spaces to fulfill similar roles.
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Old Posted Dec 15, 2017, 6:09 PM
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Maybe something that would work better, that doesn't require mandating things for private developers and building owners would be to build public parks/plazas that support food trucks, temporary pop up structures, markets, etc.

You could argue this is a legitimate function of local government. Creating a venue for small business activities, public gatherings, etc, that wouldn't be able to exist otherwise is one benefit. Parks and plazas are an established domain of city responsibility. It seems like the public approves of projects like these. Houston's discovery green was highly praised. And, these kinds of things can be built on parking lots or vacant land in locations which are really bad and need more activity, and then attract development on lots around them.

I don't know about a place like San Francisco or New York taking this approach since there isn't room for a plaza and there's enough activity already around busy areas. . . . .
San Francisco not only has room for a plaza--there's a park in the Rincon Hill area I posted a photo and diagram of above--it does pretty much what you are talking about. It has a number of plazas around the city that have frequent, if not daily, farmers' and flea markets, food trucks and all sorts of that kind of thing:


https://www.yelp.com/biz_photos/ferr...qwL3BxA9bmbwlg
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