New York’s Small Business Owners Have Ideas to Reduce Storefront Vacancies – Next City
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New York’s Small Business Owners Have Ideas to Reduce Storefront Vacancies

125th Street, one of the busiest streets in Harlem (Photo by Oscar Perry Abello)

The last time the City of New York studied the commercial storefront landscape of El Barrio, also known as East Harlem or Spanish Harlem, it was 2015. At the time, the city counted 778 storefronts in the neighborhood, of which 110 were vacant — a vacancy rate of 14 percent, close to three times the median ground floor storefront vacancy rate reported by business improvement districts across the city in that year.

That wasn’t for lack of foot traffic in El Barrio. Some 120,000 residents live in the neighborhood, an area of only 1.5 square miles. There’s no lack of spending power, either — even with a median household income of just $30,938, El Barrio residents collectively spend around $2.1 billion a year in goods and services from businesses in their neighborhood. Visitors to El Barrio spend at least another $240 million a year at those businesses, according to the city’s study.

For years, community organizers around the city have suspected that the major force behind the strange affliction of vacant storefronts in many neighborhoods is speculation in the city’s red hot real estate market — that landlords are hiking up rents exorbitantly or simply refusing to renew leases on the basis of wanting to cash in later after a rezoning. El Barrio is a case study: 2015 also marked the beginning of a neighborhood-wide rezoning to encourage new development. City council approved that rezoning in 2017, and the intended development boom is reportedly gearing up.

Private property owners have rights, of course, but do those rights include the right to keep ground floor retail spaces vacant for as long as they want — sometimes for years — as part of plans to cash in on new development after a rezoning? A pair of new bills recently passed in New York City Council will help bring light to that question, and perhaps shift the power balance toward the bodegas, laundromats, bakeries, barbershops, beauty salons and other small business owners that are emblematic of New York City.

“The big issue here in our minds is speculation,” says Lena Afridi, director of policy at the Association for Neighborhood and Housing Development, a coalition of nonprofit community development corporations and tenant organizing groups that has been pushing for commercial tenant protection, which helped draft the two bills.

“From what we’re seeing, landlords have been warehousing commercial units in order to charge exorbitant rents later on, and just holding on to make as much money as they could at a later time,” Afridi says.

The first of the two bills is the most controversial — it directs the city’s Department of Finance to establish and maintain a public online searchable database of all ground floor and second floor commercial spaces in the city. The database would include the street address of each space; a brief description of the type of space it is including its current use; the square footage of each space; the name, address, electronic mail address and telephone number of the landlord; whether the space is currently being leased or rented to a tenant; and the monthly rent for each space.

The new law goes into effect one year from July 23, 2019 — the date it passed. It requires the city to update the database at least quarterly. Landlords who fail to report a ground floor or second floor commercial space to the city would face a fine of up to $500 for each space not reported. It’s not the first such law in the country — San Francisco created a vacant storefront registry five years ago — but it’s the first with teeth, advocates say. San Francisco’s bill passed without a plan to enforce penalties for landlords who didn’t register; as a result, only 40 vacant storefronts were registered as of March 2018. San Francisco’s Board of Supervisors finally passed a new bill this year to add a penalty for not registering.

Once it’s up and running, the NYC “storefront tracker” would be an important first step toward a number of goals. For one, while brokers and landlords certainly keep their own data on storefront vacancy and availability, it can be expensive to access, and can still remain a source of confusion. Last year, a New York Times investigation into vacant storefronts quoted one broker saying NYC had a 20 percent storefront vacancy rate — which the broker later claimed to another outlet was a misquote.

Up until now, the city’s business improvement districts or various commercial district needs assessments have been the only public data sources available for storefront vacancy across the city. But there are only 76 business improvement districts and 20 completed commercial district needs assessments, covering important areas but not nearly the whole city. Commercial district needs assessments, the much more detailed of those two sources, have also never been conducted on a regular basis. The storefront tracker would be the first complete, publicly available source of data on commercial vacancies in the city.

The second of the two bills passed addressing commercial storefronts directs the small businesses department to perform commercial district needs assessments at least once every five years for each of the city’s 59 official community districts, as well as compile a citywide commercial needs assessment at least once every five years.

Afridi and her organization has been pushing for these and other reforms as part of the platform of United for Small Business NYC, a citywide coalition of nonprofit developers, tenant groups, and also some artists groups concerned with the displacement of artists from commercial spaces. The group’s first real victory goes back to 2016, when the city passed a bill into law that defined commercial tenant harassment for the first time.

The next step after the commercial storefront registry would be a commercial vacancy tax, which would require state legislation in New York. The tax would apply to commercial spaces kept vacant beyond a certain length of time. The commercial vacancy registry would help advance that goal by providing data to help determine what might be an acceptable length of vacant time in order to allow for natural turnover of tenants while penalizing those landlords who are holding out for speculative reasons.

There would of course be constitutionality questions to consider around a commercial vacancy tax, but Afridi believes there are other considerations that are just as, if not more important.

“Think about quality of life,” Afridi says. “If we’re going to fine street vendors for quality of life issues, why can’t we fine a landlord for holding a storefront vacant for 15 years. To me that’s more of a quality of life violation than somebody trying to make a living as a street vendor.”

The holy grail would be true commercial rent stabilization. It’s not currently on the platform of United for Small Business NYC, but others in the city have been pushing for some type of commercial rent regulation.

One proposal, the Small Business Jobs Survival Act, has often been billed as commercial rent control. First introduced into New York City Council in the 1980s, the bill’s core principles have been largely the same since — starting with the right to a ten-year lease renewal for commercial tenants. If the tenant believes a landlord has asked for an unreasonable rent increase, the tenant would also have the right to trigger a binding third-party arbitration to settle the dispute. Each side would make their case to the third-party arbitrator in a hearing on the public record, using whatever they can find in terms of relevant market data, and the parties would have to live with the arbitrator’s decision.

The Real Estate Board of New York, the main real estate industry lobbying group in New York, has long bitterly opposed the Small Business Jobs Survival Act. Afridi isn’t strictly opposed to it, but she’s convinced it wouldn’t help the small business owners who are most vulnerable to the speculative whims of the market.

“The Small Business Jobs Survival Act assumes power dynamics between a tenant and a landlord that do not exist for the people that we work with,” she says. “It’s making the assumption that people are going to speak English, they’re going to feel empowered to talk to their landlords, they’re not going to be afraid of retaliation, that their landlord is not going to rip out electric work just for starting arbitration. You’re also making the assumption that the landlord is not going to call ICE or threaten to call ICE.”

In her alternative vision of commercial rent stabilization, Afridi makes more parallels with the residential tenant protection framework in New York City. On the residential side, the NYC Rent Guidelines Board sets annual rent increases for residential tenants in rent-stabilized housing. That board has annual housing supply reports and other research it uses to inform its decision-making. The commercial storefront registry and ongoing commercial district needs assessments would provide corresponding data for a commercial equivalent of the Rent Guidelines Board.

“The context for protecting residential tenants is deeply flawed and needs to be stronger, yet we are ten steps back from that on the commercial tenant side,” Afridi says. “It’s not enough just to say you have the right to live here and that’s all you get. We want our neighborhoods to be serving our communities, to continue to serve the people who have been there for decades and generations, who made those spaces what they are.”

Immigrant-owned small businesses comprise 48 percent of New York City’s roughly 220,000 small businesses, employing nearly half a million New Yorkers and contributing $195 billion to the city’s economy every year, according to a report the Association for Neighborhood and Housing Development published earlier this year. Also counting native-born business owners of color, that’s a healthy majority of all businesses in New York City. Afridi maintains the importance of recognizing the United for Small Business NYC platform as one that is rooted in the lived experience of immigrant-owned and person-of-color-owned small businesses.

If there ever is to be true commercial rent regulation in New York City, Afridi would like it to come in a form that will work for everyone, not just those who can afford the time, risk and legal fees that go along with taking a landlord to arbitration.

“The reason this platform including these pieces of legislation is different is that it explicitly centers people who have never been centered before as tenants,” Afridi says. “People who might not speak English, people who might have a family-run business and a handshake agreement with their landlord, people who don’t want to go to court because they might be undocumented.”

Of course, one of the big reasons many landlords could speculate with commercial tenants is because, until this year, it was reasonable to assume rent-stabilized tenants in any New York City neighborhood could be displaced with market-rate tenants who would want different things from different businesses. With the biggest loopholes in New York’s rent regulations closed — much to the chagrin of many large landlords — that assumption is no longer a safe bet.

But it’s hard to say at this point whether those landlords might shift some of the rent burden onto commercial tenants, putting even more upward pressure on commercial rents — or whether shutting down the rent-stabilized residential tenant displacement machine means less incentive to speculate on potential new commercial tenants. With these two new laws in place, at least there will be some public data to start that conversation.

EDITOR’S NOTE: This story originally misstated the city department that is charged with creating a public storefront vacancy database. We’ve corrected the error.

This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our Bottom Line newsletter. The Bottom Line is made possible with support from Citi Community Development.

Oscar is Next City's senior economics correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.

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