The Business Rents Are Too Damn High. What to Do?

As some asshole with a blog has noted many times, many cities are facing a real estate crisis that’s less heralded than their housing crises, but still important: the business rents are too damn high. Last week, D.C. held hearings on this very issue (boldface mine):

A well-attended public hearing in the D.C. Council sent a clear message to lawmakers: Small and minority-owned businesses need help staying afloat.

Dozens of witnesses testified before members of the Business and Economic Development committee Wednesday on a trio of bills introduced by committee chairman Kenyan McDuffie (D-Ward 5) and member Charles Allen (D-Ward 6) that would offer financial assistance to small and “legacy” businesses facing high rents and intense competition from national retailers.

Proprietors, local business advocates, ANC commissioners and others described a crush of challenges facing small business owners in the District, including rent-gouging landlords, high property taxes, excessive regulations and a lack of small commercial spaces, in addition to larger forces like consumers’ migration to big box stores and online shopping.

Some of those challenges are visibly impacting commercial corridors like lower Georgia Avenue, testified Jennifer Kuiper, neighborhood director of the area’s Main Street program. Despite its prime location near U Street and Howard University, the neighborhood has a 20% commercial vacancy rate, she said — something she attributes to property owners’ unrealistic rent expectations.

“We are right now looking at losing a business that’s been [here] almost 10 years because their lease is up for renewal, and it’s going up from $6,000 to $10,000,” Kuiper said during an exchange with Council member Allen. “The current owner asserts that this is market-rate, because he’s convinced two other less experienced businesses to move in at that rate. And both of those businesses are at risk of closing.

Council Members Allen (Ward 6) and McDuffie (Ward 5) are proposing three pieces of legislation:

      The “Protecting Local Area Commercial Enterprises (PLACE) Amendment Act,” introduced by Council member Kenyan McDuffie, would establish a Legacy Business Program to issue grants to longstanding, financially healthy businesses that “would be likely to continue operating but for rising rent.”
      The “Small and Local Business Assistance Amendment Act,” introduced by Council member Charles Allen, offers a tax credit to eligible local businesses to offset rent and property taxes. It would also guarantee rent payments to landlords if qualifying tenants become unable to pay, which could encourage landlords to lease to local businesses instead of national chains.
      The “Longtime Resident Business Preservation Amendment Act,” also introduced by Allen, would offer longstanding local businesses grants and low-interest loans to pay for capital improvements and operating expenses. It also would supplement rents — up to 10% — paid to landlords who sign long-term leases with longtime resident businesses.

These are good, but the meeting attendees had better solutions:

Raj Aggarwal with Think Local First D.C. and BBQ Bus owner Che Ruddell-Tabisola both floated the idea of an inclusionary zoning-type program for commercial property, similar to what the city already has in place for new residential development.

We require developers building these condos and things to put aside some affordable housing,” Ruddell-Tabisola said. “What would it look like if we required them to put [aside] some affordable retail space?

…Other ideas raised in testimony included a commercial real-estate version of the city’s Home Purchase Assistance Program (HPAP), which gives financial assistance to eligible homebuyers; a new zoning category for small retailers; and, ambitiously, an overhaul of the way the District assesses commercial properties.

One other proposal I would add is that Area Neighborhood Councils (ANCs) can–and need to–play a role here. If a mixed use or entirely commercial building isn’t providing enough small store spaces, the kind of spaces beginning businesses need, then oppose the building. Because Allen’s and McDuffie’s bills don’t do enough to address the structural problems small businesses face, such as an inadequate number of properties suitable for small businesses. For example, on 14th Street NW, the building that replaced the old Walt Whitman clinic was a missed opportunity, since most of the ground floor is taken up by a huge Sephora store (and if it goes under can only be replaced by other huge stores). That space could have supported four or five smaller stores. The issue isn’t just total commercial real estate space but how that space is leased (or sold).

Allen’s and McDuffie’s bills aren’t bad, but we need much more, and some of that ‘much more’ has to come from citizens. We can determine what our communities should be like–and for whom they should be.

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2 Responses to The Business Rents Are Too Damn High. What to Do?

  1. Johnny Hobbs says:

    Wealthy property owners raise rents to make money with no regard for consequences. I don’t think giving these same wealthy property owners tax moneys, whether directly or to the renter to give them, is the correct message at all. What kind of solution encourages the bad behavior it purports to remedy?

    • Ougaseon says:

      I thought the same thing. I’ve often wondered if a “vacancy tax” would be a good remedy. A gradually increasing tax on vacant commercial properties may encourage development of more retail spaces appropriate for small business and significantly increase the financial risk of raising rents to levels that force out existing businesses.

      I think it also has broader moral and economic dimensions, since unproductive land owned by absent developers doesn’t affect their daily lives but has massive implications for people who actually, you know, live there. If they want to leave it that way, that’s fine, but they should pay the community for the opportunity cost.

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