Possible Empty Storefront Fine shows you how Out of Touch San Francisco Government is with its Business Community
Aug 24, 2010
Just when you think you have heard it all from our great city of San Francisco leaders - comes a new proposed fine - this time on vacant storefronts. Kathleen Dooley is a member of the Small Business Commission, working with neighborhood business owners and residents dealing with the 36 vacancies that exist in the North Beach area of San Francisco. Working with David Chiu, their district supervisor and current President of the Board of Supervisors, these leaders of our community believe that landlords are leaving their spaces vacant because they want to enjoy the write offs they get from taking vacant space at a loss, rather than lease the space to a retailer.
Dooley is quoted in a recent San Francisco Examiner article, Fed up Merchants Pitch Empty Storefronts Fine, "We realize so many spaces are vacant, which causes owners to ask for way higher rents than the norm and that doesn't help anyone," she said "it seems its time to take up tax credits for filled stores." Other local business people and Supervisor Chiu have another idea, they want to create legislation that would fine landlords with vacant storefronts, as an incentive to bring businesses into their vacant shops. Are these people quickly lacking in any knowledge of economics? Large vacancies mean that landlords will ask for higher rents?? So their solution is to punish the landlords by taxing them for their vacancies.
Still others want to direct what goes into these vacant shops. For instance, some would like to cut back on restaurant growth and seek grocery and hardware stores to open in these vacant spaces. YOU HAVE 36 VACANCIES!!
Is there anyone in City Hall that knows anything about business?
First, the reason North Beach has 36 empty stores is because these very people helped pass an 11-store rule, that essentially eliminates all retailers from entering North Beach except independent retailers. The 11-store rule says that if a vendor has 11 stores or more anywhere in the world they have to go through a special review process. This process can take up to a year simply to find out if the vendor will be allowed into a particular store. Most recently PETCO was rejected in their attempts to take over a vacant blockbuster because the neighborhood felt that it would have a negative impact on two small independent pet shops a mile away from this location. Next, there is virtually no bank today that will lend to a start up independent retailer. On average a small store of 1,500 square feet takes between $250,000 and $500,000 at a minimum to build out a store and merchandise it. Who today has that kind of money to open a small retail store?
The neighborhood wants a hardware store or a grocery store. They have wanted that for years — if it made economic sense don't you think that a retailer with vision would have wanted to open this type of store already?
Our leaders think that landlords want to remain vacant so that they can enjoy a tax incentive? Landlords own real estate to collect rent. To maximize a building value any lender looks at net income to determine the value of the building, not vacancy. These landlords I assure you are struggling to keep their buildings. Most have rent controlled residential above their vacant stores — so most do not enjoy positive cash flow. Yet, the city counts on having these buildings hit their highest property values, so that the city can enjoy the highest property tax benefit. Without property taxes you have no money for city services, don't our city leaders understand that? Obviously not.
If San Francisco truly wants to fill these vacant storefronts throughout the city, they first need to remove restrictions on chains from going into neighborhoods. It's a great idea to have local neighborhood shops, however, without chains you do not generate the necessary foot traffic to survive. These smaller businesses feel that they will go out of business with these big shops and rents will skyrocket. The reality is that they will be out of business anyway soon if this economy keeps going south — they need chains to get traffic flow going. If rents go up, it's because sales are up. If rents go down, it's because there is no business.
Next, San Francisco should expedite the building permit process and zoning issues should be resolved quickly. To wait for zoning hearings or meetings with the community to decide what store should go into their neighborhood or not, has created nothing but a bureaucracy that kills anyone from attempting to open a store in this city.
An example, I represented a building owner in the Sunset that had a vacant store for over a year. We had couple (a police officer and his wife) that wanted to open a taqueria. This was to be their first restaurant. This would require a change of use since that last tenant was a video store. They hired an architect at a cost of $6000 to find out that it would take 6-9 months to go through the review process just to find out if the city would allow such a use in 1,200 square feet. Of course the tenant disappeared and the landlord remains vacant. Now the city wants to tax this landlord like it's his fault.
If the city really wants to be proactive they should also consider a low interest loan program to assist small businesses in opening up businesses. This could be paid back by city sales tax revenue from these newly opened stores.
I realize San Francisco is a progressive city and believes more in social rights than individual rights, but as a city we need to rethink our policies quickly — or blight throughout our neighborhoods will become more of the norm than the exception. If a business wants to go into a vacant store — let them. If the neighborhood does not want them there, they don't have to patronize that store and it will go out of business, but let that storeowner have the right to open a store and let the landlord have a right to collect his rent. Get government and these restrictive Merchants Associations that are controlled by these naysayers out of the decision making process and storefronts will start filling up again.
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Written by: Hans Hansson
Hans Hansson is President of Starboard TCN Worldwide Real Estate Services as well as a member of the Board of Directors for TCN Worldwide Real Estate. Hans has been an active broker for over 25 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email firstname.lastname@example.org or call him at (415) 765-6897. You may also check out his website, http://www.commercialspacefinder.com/.