Tuesday, July 22, 2008

Commercial Rent Control: Remedy for Neighborhood Stores?

There's no question that independent stores are disappearing in the neighborhoods of NYC. What to do about the trend is another matter. The current issue of City Limits focuses on the issue: "From tailored zoning regulations to special tax arrangements to bringing back an idea from the 1980s of "commercial rent control," land use analysts are examining the options. State Assemblyman Richard Gottfried, who represents the area, is one who's interested in the potential of commercial rent control. “Just as residential rents can drive people out of the community if they’re not protected by rent stabilization, the same can happen with commercial tenants,” says Gottfried. “A neighborhood can have whole blocks or avenues of stores wiped out in a very short period of time as these come due, because landlords can refuse to renew a lease or insist on any rent they can get without limitation. Without some kind of rent law in place, a landlord needs no excuse for throwing residential or commercial tenants out on the street.”

Our old friend Sung Soo Kim weighs in on the matter: "Sung Soo Kim, founder and president of the Small Business Congress of New York City, a federation of 70 trade organizations, agrees that when it comes to disappearing businesses – whether Coliseum Books or CBGB's – “Rent is the major issue.” Kim says the city averaged 6,000 commercial evictions per year under Mayor David Dinkins; this number jumped to 7,500 per year while Rudy Giuliani was in office, and has soared to more than 10,000 per year under Bloomberg. In 2006, Kim cites data that there were more than 14,000 commercial evictions in the city. While these figures are for commercial evictions, a broader category than small businesses, he’s convinced that the vast majority of the casualties are small businesses."

Not everyone sees rent control as a solution, but it is clear that local businesses are leaving our commercial strips; and along with them the vitality and color of the city. Council member Gale Brewer feels that something needs to be done: "We definitely need to address this issue,” Brewer says today. “It destroys neighborhoods; it destroys families.” She is focused on the wave of drugstores and banks that have been replacing small, local retail outlets in her district. While some argue that there is little difference between chains (sometimes referred to as formula businesses, given the generic models on which they’re constructed) and local retailers, a growing body of research contradicts such arguments."

Local business recirculate money to a much greater extent than do the national chains, something that Stacy Mitchell has written extensively about. As City Limits points out: "When Borders chain bookstore threatened to open a new store in the heart of downtown Austin, Texas, a local consulting firm called Civic Economics produced a study (commissioned by the Austin Independent Business Alliance and another organization called Livable City) that found that for every $100 in sales, Austin’s local businesses were pumping $30 back into the city. In contrast, only $9 of every $100 spent at a proposed Borders would be spent in Austin. A similar study of a Northside Chicago neighborhood by the same firm found that “for every one hundred dollars in sales, the locals generate sixty-eight dollars worth of local economic activity and the chains just forty-three dollars.”

Clearly, however, something needs to be done-and zoning remedies have been suggested: "The question is to how to target protections to save small businesses. Research by the Pratt Center suggests that given the current role of chain stores in forcing out small businesses, zoning regulations focused on particular neighborhoods may be one promising way of meeting this challenge. A measure as conceptually simple as store size caps can inoculate a neighborhood from chain stores, reducing the pressure on rents. The Pratt Center points to three cities that have adopted such caps in particular neighborhoods, and another 27 that have adopted citywide size caps."

Disagreeing, Julia Vitullo-Martin points out that there is plenty of underutilized NYCHA space (good for supermarkets as well), that could be used for local shops: "Julia Vitullo-Martin, director of the Center for Rethinking Development at the Manhattan Institute, rejects all of these approaches. The best fix for rising rents would be to increase the supply of land by "eliminating artificial restrictions," including zoning, and encouraging property owners with street frontage to rent it. Vitullo-Martin points, for example, to the opportunity provided by the Fulton Houses across the avenue, a New York City Housing Authority complex. "Of its 343 developments, NYCHA offers commercial leases in only 28," she wrote in an e-mail. "What an amazing and destructive restriction on the supply of land – not only could NYCHA reap revenues from good retail, its tenants would benefit from having the services they need – grocery store, pharmacy, bank, dry cleaner, etc."

Local stores are good for the city's economy, and are the essence of a neighborhood: "The shop owners "know exactly how we like our coffee,” says Acevedo. “What newspaper we read. If one of our kids is diabetic, they know what to sell them.” All this is at risk. “It’s just a family feeling that we have with these small businesses, and we don’t want to lose that either.” We need to do something about this alarming trend.