Saving Small Businesses in the Cities

Interesting piece on one of the less discussed problems with the incredible expansion of capital in the cities and thus rapidly rising prices for residents, which is the eviction of small businesses and their replacement in new developments by chains. With every other building in New York becoming a Duane Reade and my New York friends constantly bemoaning all the great restaurants, bars, bookstores, music clubs, local joints, etc., that are closing because of huge rent increases, doing something about this is something that should be part of our vision for future cities. There are concrete responses floated about already.

One strategy is to broaden ownership. Salt Lake City is considering a fund to help local businesses purchase their spaces. Mitchell also points out that small business development groups, even those that are developing cooperative businesses, should consider including the acquisition of a business’s space as part of its business plan. Broadening ownership also includes models for cooperative or community-ownership of spaces, such as the Northeast Investment Cooperative in Minneapolis, cited in the report.

Zoning or regulating for a local business environment is another strategy. San Francisco’s formula business ordinance, first enacted in 2004, requires business with more than 11 locations worldwide to apply for a special use permit in order to locate in the city’s neighborhood commercial districts. One of the criteria for such a permit is how many businesses of that type are already in the district, and whether the applicant business would add something that the neighborhood doesn’t already have. Between 2005 and 2013, according to ISLR, San Francisco received 104 applications to open formula retail stores and restaurants, rejecting about a quarter of them.

Another strategy is to address power dynamics, which are widely overlooked. “There’s a perception that businesses somehow have relatively equal power to landlords, but really there’s this incredible power imbalance between landlords and business tenants,” says Mitchell.

In 2014, NYC Councilwoman Annabel Palma, representing parts of the Bronx, reintroduced the Small Business Jobs Survival Act (SBJSA), which has been introduced to no avail multiple times by multiple council members since at least 1984, according to ISLR’s report.

SBJSA aims to balance the power dynamics between landlords and business tenants. Among other measures, it mandates binding arbitration to settle cases where landlords justifiably must up rent by a certain amount to cover higher property taxes or maintenance costs, but tenants oppose exorbitant rent increases that may reflect irrational speculation as opposed to the economics of a given location.

To say, the New York real estate lobby is outraged by the mere suggestion of such a law. But what is the answer here? More Duane Reade’s, if we don’t do something about it.