Real Estate Industry, De Blasio Align Against Commercial Rent Control Proposal
A political battle is brewing over a City Council plan to remedy New York City’s empty storefront crisis by capping commercial rents, with the real estate industry and business interests aligning in opposition, and Mayor Bill de Blasio also expressing skepticism about the legislation.
On Thursday, Brooklyn Councilmember Stephen Levin introduced a bill that would create a system equivalent to that of the city’s residential rent regulation. The proposal seeks to create a mayoral-appointed seven-member Commercial Rent Guidelines Board that would regulate rents on retail spaces 10,000 square feet or less, manufacturing spaces of 25,000 square feet or less, and professional services or other office spaces of 10,000 square feet or less.
In a statement, Levin described the legislation as helping to “establish basic rights for commercial tenants.”
But at a press conference on Thursday, de Blasio said the legislation would never survive a legal challenge.
“Every time that I’ve been in a conversation over years, on commercial rent control, I can’t find a legal way to do it,” he said. “I’m sympathetic to the idea, l’d love to find every tool.”
He later added: “But to date I have not seen a commercial rent control plan that actually legally works.”
Going back to the early 1980s, commercial rent control has been a lightning rod issue that has been described by the real estate industry as a drastic form of government interference that would have unintended effects on the city’s small business economy. The latest measure comes on the heels of a landmark overhaul of the state’s housing rent laws, which has invigorated activists. Led by a coalition called United for Small Business NYC, merchant advocates argue that the retail crisis, hand-in-hand with gentrification, has exacted a disproportionate toll on immigrants and communities of color.
A recent study by New York City comptroller Scott Stringer reported that vacant retail space in the city roughly doubled over a decade, up to 11.8 million square feet in 2017 from 5.6 million square feet in 2007. Within this period, retail rents rose by 22 percent on average across the city. In some neighborhoods, average rent increases were as much 50 percent.
But within the real estate industry, the bill is viewed as yet another misguided attack on landlords.
“It’s not our goal to put businesses out of business,” said Jared Epstein, of Aurora Capital Associates, which develops and owns commercial space in the Meatpacking district and Soho.
He and others argued that the real problem in the industry was the “seismic” changes brought on by Amazon and other e-commerce businesses that have reshaped the way people shop. “E-commerce has dramatically shifted consumer spending online,” he said. “At the end of the day, we need less brick and mortar.”
He also maintained that some retail turnover, for reasons like poor management or a changing market, is necessary. The bill, he said, would only hurt entrepreneurs by allowing some small businesses to stay in place for generations.
“All types of real estate have a way of correcting themselves,” he said. “They don’t need government intervention to be corrected.”
On the same day the bill was introduced, the Real Estate Board of New York (REBNY), the lobbying arm of the city’s real estate industry, issued a press release that included statements of a list of business interests, including the Brooklyn, Queens and Manhattan business chambers, who are against the bill.
“This proposal fails to address the increasing burdens facing small businesses and will force successful ones to flee the city,” said James Whelan, the president of REBNY. “In fact, data shows that retail vacancy rates are driven by rising property taxes, longer wait times for government approvals, e-commerce and various other factors.”
Steven Soutendijk, a retail broker at Cushman & Wakefield, described the plan as “a hammer in search of a nail.”
Referring to the comptroller’s report, which cited the citywide retail vacancy rate of 5.8 percent, he added: “I’m not totally convinced we have a retail vacancy problem.”
Soutendijk said the perception that greedy landlords are to blame for empty storefronts was wrong. “People don’t realize that it’s not like renting apartments.” Having negotiated on behalf of landlords, he said they were more willing than ever to offer discounts on rent as well as other concessions.
“It isn’t like there is a deep pool of tenants,” he said. “This bill presupposes that.”
He also said that the way the legislation is currently worded, it protects chains like Starbucks and Citibank the same way it does local hardware stores. “I don’t think that’s the intent of the bill,” he said.
It is too early to tell whether the plan will muster sufficient support. In addition to Levin, nine other councilmembers have signed on to support the bill.
But as a sign of the obstacles it faces, the Small Business Jobs Survival Act (SBJSA), a bill that has been likened to commercial rent control, has languished without a vote since the late 1980s. The proposal, which was originally proposed by then-Councilmember Ruth Messinger, seeks to give tenants the right to a 10-year lease renewal and force landlords and tenants to go to arbitration if they cannot agree on a rent increase.
After initially expressing support for the SBJSA, Council Speaker Corey Johnson said a hearing on the plan raised some red flags. “I’m not against the SBJA,” he said during an interview on The Brian Lehrer Show in August. “I want to make sure it gets done in a targeted way.”
Asked about Levin’s bill, Johnson said Thursday, “It has to go through the legislative process. I do think we have a commercial vacancy crisis. I think there are a variety of factors of why that crisis exists.”
He added: “We want to craft a policy that looks at the entirety of the city.”
While stories of spiraling rents forcing longtime and beloved business to close are myriad, many small business owners have pointed to a host of other factors, ranging from the city’s raise of the minimum wage to the lack of affordable financing.
“It’s easy to blame it on rent,” said Sara Dima, who, along with her partner Ilene Rosen, runs R&D Foods, a specialty market in Prospect Heights. But rattling off a list of costs besides rent, she explained, “This is a game of economics.”
Still, rent will almost certainly determine the fate of their business. The shop has been located on Vanderbilt Avenue since 2014. Over that time, the neighborhood has boomed with an influx of new residents.
Rosen said their choice of location showed how prescient they were.
But for small business owners, being in a increasingly desirable neighborhood comes with risks as well. Their building was sold about a year and a half ago. Although they still have several years on their lease, Dima said, “We are uncertain what will happen to us when our lease is up because this is not the landlord we got into bed with.”