How Can We Protect Independent Businesses from Increasing Rents

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  1. Avatar Glyph
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    The best way of independent businesses is to stay alive is to own their building.

    My wife has come to that decision, as they decide whether to open new stores or move extant ones (she owns a small clothing boutique).

    In theory, renting can save you some $ on both the monthly payments and upkeep; in practice, they have had a hell of a time getting the landlords to actually maintain the properties (repairing expensive industrial A/C units and leaky ceilings and such), and these issues can in turn cost you business (if the A/C is out, customers won’t enter/stay/spend; water leaks have ruined some merch, and make things smell moldy, and sooner or later some customer might get hit in the head with a chunk of falling ceiling).

    And yeah, as soon as they think they can get more for the property, they jack up the rent.

    Buying puts all those expenses 100% on you with a certainty, and you’ll still have unexpected maintenance issues and costs, but you can plan for those better if you can be sure your monthly mortgage payment is always going to be the same.Report

    • Avatar aaron david in reply to Glyph
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      When I was running corporate bookstores, our leases always specified that we were responsible for maintenance. This is a good thing, as people will not shop in places that aren’t climate controlled.Report

    • Avatar Stillwater in reply to Glyph
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      My wife’s business is a good example of what you’re talking about. Our first choice was to purchase a building and the reasoning devolved from a purely economic calculus: the mortgage for many spaces was less than the lease market. In the end, we couldn’t find an appropriate space (the two issues were proximity to a hospital (otherwise location wasn’t an issue), and the schizophrenic zoning imposed by the city … grrrr) so leasing was the only realistic option. Depending on the type of business and the location-demands, purchasing might not be an option since owners (at least where I live) realize they’re sitting on a potential gold-mine of passive revenue. If it works for the business model, tho, I’m pretty convinced it makes the most sense, tho.Report

    • Avatar Michael Cain in reply to Glyph
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      When I look at Google street view, I see the toy store on the ground floor of a several-story building. I assume that it’s not a giant store filling all the floors by itself. Owning that particular building would seem to put the store owners in the model of “We’re a building management company that operates a toy store on the side,” which might not match their interests.Report

  2. Avatar Will Truman
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    I think it’s lamentable, but that proposed remedies would probably be worse.Report

  3. Avatar switters
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    As much as it appears that neighborhoods “need” these local stores to stay open, they also need Landlords willing to invest, which requires a potential to profit. While the toy store is more visible in the neighborhood than the group that owns the building they rent, they are both “local” vendors and I don’t think we should give preference to the former at the expense of the latter. Without the landlord, they’re would never have been a store.

    If the group that takes over the space previously occupied by Jefferey’s can afford the rent, its probably because the community likes the new place enough to support it to the extent required for it to pay the increased rent, and that they didn’t like Jefferey’s enough, regardless of how vigorously those lamenting this state of affairs gnash their teeth.Report

    • Avatar Stillwater in reply to switters
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      Without the landlord, they’re would never have been a store.

      Property owners are business creators! (Heh.)

      I’d say it a bit differently: Without a landlord there probably would never have been a store. 🙂

      If the group that takes over the space previously occupied by Jefferey’s can afford the rent, its probably because the community likes the new place enough to support it to the extent required for it to pay the increased rent, and that they didn’t like Jefferey’s enough, regardless of how vigorously those lamenting this state of affairs gnash their teeth.

      Exactly.Report

    • Avatar Saul Degraw in reply to switters
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      @switters

      I agree and disagree. On the overall point, I agree.

      “If the group that takes over the space previously occupied by Jefferey’s can afford the rent, its probably because the community likes the new place enough to support it to the extent required for it to pay the increased rent, and that they didn’t like Jefferey’s enough, regardless of how vigorously those lamenting this state of affairs gnash their teeth.”

      This is where I disagree. How are we defining community? In an urban environment especially in popular cities, I can people from outside the neighborhood flooding in and making a store viable to the detriment of the local community and residents. I don’t understand why this is controversial as an idea. I also don’t understand why suggesting that this is a complicated issue is a controversial idea.Report

      • Avatar Stillwater in reply to Saul Degraw
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        Well, it’s controversial for one pretty transparent reason: folks who’ve just moved to city argue against change as if you have a stake in the community. And they do. But they’re newbies, with no investment in it one way or the other.

        The other is that the landholders who want to maximize ROI are part of the community (having bought land there and all) and there interests matter in the equation.

        THe other other is that the conservative desire to preserve things as they are – especially oughta some sense of egalitarian sentimentality – is a losing battle in the face of change, in particular economic change. I mean, political change is one thing, but economic change isn’t a “system” or an “ideology”. It’s just people doing what they do. And for better or worse, people tend to like more money rather than less.Report

      • Avatar Mo in reply to Saul Degraw
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        “In an urban environment especially in popular cities, I can people from outside the neighborhood flooding in and making a store viable to the detriment of the local community and residents.”

        Those outsiders were making Jeffrey’s viable in the first place, seeing as they drove half of the traffic to the store. So are tourists good when they keep a local store in business, but bad when their tastes lead to something else coming in?Report

      • Avatar Brandon Berg in reply to Saul Degraw
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        In an urban environment especially in popular cities, I can people from outside the neighborhood flooding in and making a store viable to the detriment of the local community and residents.

        This is a classic reductio ad absurdum for free-traders. “Well, if free trade with with foreign countries is so terrible, why isn’t free trade with other states bad? Or other cities?”

        But you just bit right down on that bullet, didn’t you? Now I got nothin’.Report

      • Avatar switters in reply to Saul Degraw
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        Saul, My thinking on your point of disagreement is that people who want to live in urban areas understand this is part of the deal. I wouldn’t get an apartment near times square, or anywhere in manhattan for that matter, and then expect the local market place to cater to my needs vice the needs of the tourists. People visit for the same reason i live there, because its a cool place to be. But that means I need to understand the marketplace is going to reflect the actual community (which includes locals and tourists and whoever else in this land of freedom who wishes to show up), rather than a community limited to residents who live within x blocks.Report

  4. Avatar j r
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    I do believe that a neighborhood is a tricky and potentially impossible balancing act between the rights of property owners and the needs and concerns of local residents.

    Eh. It’s not that tricky at all.

    Certainly I support enough in the way of zoning and regulation to make sure that someone who doesn’t buy a house on a quiet suburban street doesn’t wake up one morning to find themselves living next to a noxious factory or a rowdy biker bar. But the “needs and concerns” of everyone else in the community is a tricky thing. What do we think about the needs and concerns of an all white neighborhood who objects to a private property owner selling their house to a black family or the needs and concerns of a community of bigots who objects to the construction of a mosque in place of a abandoned church?

    Communities shouldn’t have the right to impress their tastes and preferences on private property owners. This for instance, is pretty funny to me:

    San Francisco has an anti-chain store law but this hasn’t prevented chains from moving in. The difference is the chains that move in. Instead of the Gap and Banana Republic, San Francisco neighborhoods have smaller and more expensive chains like Rag & Bone, Steven Alan, Sandro, and GNAT Rugger.

    If the law works the way that you say it works, how is it anything other than snobbery?Report

  5. Avatar Stillwater
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    Boulder Mall has changed from a diversity of stores to primarily “upscale” ones. One way to look at this is that increasing rent rates drove out a whole economic segment of store-fronts. Another way to view it is that all folks tended to not shop at those stores (for whatever reason!) but did shop at the marginally more uspcale ones.

    My guess is that rent rates on the Mall track consumer spending habits. (Not a radical view, I know.) So, it seems to me that the desire for a diversity of storefronts needs to be expressed as spending at those stores. But it aint. Between the idea and the reality falls the shadow.Report

  6. Avatar Kolohe
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    You’d figure after 60 years they could have put some of the revenue stream towards the purchase of their property, or a property, rather than leasing for 720 months.

    this story from last year contains a somewhat ironic quote. ‘”We avoid electronic toys. Radio Shack and others would eat our lunch,” he said.’

    The only lunch Radio Shack is eating is from the day old thrift bakery. If a business owner thinks that Radio Shack in 2014 was the dominant force, in well, anything, maybe there’s bigger problems than a rent increase.Report

    • Avatar Oscar Gordon in reply to Kolohe
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      Although those pics obviously don’t tell the whole story, the story I do see is a store that hasn’t bothered to take care of it’s curb appeal very much. Which tells me that they aren’t turning over a lot of inventory, which means perhaps it’s time for the store to close shop.Report

    • Avatar LeeEsq in reply to Kolohe
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      I wouldn’t put too much into the Radio Shack quote, the owner might have been thinking fast rather than reflectively and just used Radio Shack as an example that came to his mind first. Needing an example or reference but not using the best one because your thinking off the top of your head isn’t that uncommon.

      As to buying land, your assuming that there was a price the landlord was willing to sell for or that the land was parcelled in such a way that Jefferson’s stores could just buy the land they directly on top of rather than to buy some or a lot of adjacent land as well. Jefferson’s Toys’ landlord might have thought it would be more profitable to continually own the land and collect rent rather than sell it to Jefferson’s Toys. If Jefferson’s Toys was a consistently profitable business and always paid the rent on time than why lose a steady stream of income by selling the land to them? Deciding to want a decent sized chunk of money at regular intervals in near perpetuity over one large chunk of money at one time is a perfectly legitimate and rational decision.Report

    • Avatar greginak in reply to Kolohe
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      The owner said 50% of his revenue comes from tourists. Well tourists can as easily buy from amazon for a toy or get a souvenir someplace else. A small local business depending on tourists doesn’t have enough of a local following to survive.Report

      • Avatar Lyle in reply to greginak
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        So by the owners comment its a tourist store with a toy business on the side. If it were truly a pure toy store it could relocate to a suburb, and go on the net. Indeed for truly speciality businesses where in the past unless you lived in one of the top 5 to 10 cities you would have to travel to one of these cities, the business can now market in small towns as well. But you have to provide something that Amazon can not to make a go of it (unless you affiliate with amazon and are selling something they don’t)Report

      • Avatar LeeEsq in reply to greginak
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        Lyle, that isn’t simply true. For some institution-businesses the location is just as important for their economic success as what they do. If they move than they could very well close because the associations with that business disappear.Report

      • Avatar Alan Scott in reply to greginak
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        That’s nonsense. There’s plenty of retail that depends significantly on tourism–I don’t know SF, but my hometown is known for it’s shopping district, attracting folks who come for the nearby beach or the university.

        Toy stores especially are in a position to do well from tourist traffic because such traffic depends on creating an immediate positive experience for walk-in customers, and it’s actually pretty easy to create a positive experience for families with children when your shop is full of toys.Report

  7. Avatar Jaybird
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    Maybe we could help by increasing the minimum wage? Since big box stores hire more people, this would squeeze them more.Report

  8. Avatar greginak
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    We shouldn’t really be doing much to protect independent businesses. If people don’t shop at them enough to keep them afloat that might be a shame but that is the fate of most small businesses. Large chains succeed because they often do things we like even if we don’t’ like their aesthetic. For most of us the aesthetic of a cool local shop isn’t that important. Oh it might be nice.

    I buy almost all my outdoor gear from REI. We have a small local outdoor gear shop, AMH ( we don’t’ need to use complete words here) but it is almost always more expensive. I’m more likly to get a really knowledgeable clerk at AMH but i almost never need one.

    Small businesses have always been a risky and hard proposition. My parents owned their own luncheonette for years but got pushed out by the landlord. Sucks but that is business and life. I completely understand not wanting to see the same chains every damn place. Most of america is becoming generic in terms of the same stores and signs across the country. But i’m used to feeling like a bit of an outsider so i expect for my tastes to be less then mainstream. You really can’t be cool and hip and on the edge and have your preferences met all the time.Report

    • Avatar Stillwater in reply to greginak
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      ( we don’t’ need to use complete words here)

      IKWYM. We used to have the BAS but since REI and OLB from places like AMZN it’s now RIP.Report

    • Avatar Oscar Gordon in reply to greginak
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      No business is forever. Even the nearly immortal corporation can die if not cared for properly. Larger businesses often just have the advantage of being able to keep a losing location afloat to see if it can turn a profit, while independant stores can’t.

      There is also the issue that a lot of small business owners need to take some business classes. Lately my wife has been watching old episodes of Hotel Impossible on Netflix, and it amazes me how many key mistakes small hotel owners can make because they are clueless, or afraid to take a risk, or refuse to adapt, or are just horrible owners. It’s honestly amazing how many small businesses survive & make money.Report

      • Avatar Damon in reply to Oscar Gordon
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        Exception..some corporations seem to live much longer than they should…thanks to influence..

        Gov’t Motors.
        Or any company that can siphon off rents….Report

      • Avatar Oscar Gordon in reply to Oscar Gordon
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        Even GM can die, although it may require an orbital strike.Report

      • Avatar Troublesome Frog in reply to Oscar Gordon
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        Restaurants are a great example as well. When people think, “I want to start a business,” they think “restaurant” way too often. On paper it’s about the worst business a novice can open. High regulatory burden, complicated staffing needs, often a largish capital investment, nasty inventory management issues, and ruthless competition / thin margins. It’s the last place a novice business owner should be mucking around, but it’s often the first place they think of.Report

      • Avatar Alan Scott in reply to Oscar Gordon
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        On the other hand, they’re one of the few businesses where you’re not dealing with serious competition from the internet.Report

      • Avatar Troublesome Frog in reply to Oscar Gordon
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        True, opening a retail space is probably not a winner either.

        I’ll say that if I was going to start a business outside of the tech industry, I’d likely be going for some sort of local service operation that’s hard to outsource, can’t be bought online, and doesn’t require enormous inventory. It seems like learning a trade and hanging a shingle might be the safest way to scratch the “be your own boss” itch.

        Being your own boss has a certain appeal, but a lot of people forget that “boss” is actually a job that requires a lot of work and stress. I’m the number two at my company and if the founder/CEO/majority shareholder offered me his stake in the company if we could just trade responsibilities, I’d tell him to forget about it. Aside from the fact that I’d crater the operation within 6 months, I couldn’t handle the stress. Running your own business is not for the faint of heart. I cringe when I see people walking into it without having the first clue what they’re in for, especially when the reason for doing it is something like, “Nobody will hire me.”Report

      • Avatar Oscar Gordon in reply to Oscar Gordon
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        Speaking of internet, Jeffrey’s toys doesn’t have much of a web presence that popped up on a Google search. Tourism today is driven a lot by people looking online for interesting things to see & do, which means the tourism dollars they are getting are curious passerby with time, rather than people seeking them as a destination.Report

      • Avatar Mo in reply to Oscar Gordon
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        @troublesome-frog Also, people think a restaurant is a food preparation business when it’s a logistics business that prepares food.Report

    • Avatar Kazzy in reply to greginak
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      @greginak

      “You really can’t be cool and hip and on the edge and have your preferences met all the time.”

      Nailed it.Report

    • Avatar aaron david in reply to greginak
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      ” I’m more likly to get a really knowledgeable clerk at AMH but i almost never need one.”

      I think this is one of the more important ideas expressed here. Many of us have hobbies, and we spend money on them. If we have been doing this for several years, our need for sales staff (knowledgeable clerks) both diminishes and moves to another level. If I need banana jacks, I can usually find them online, cheaper and better quality than any shop in the bay area stocks, because I know what I am looking at. But, if I am looking to upgrade my multimeter, and possibly move to a bench ‘scope, I will talk to every single person I can find as I am looking to spend hundred if not thousands of dollars. Most small stores either don’t have someone other than the owner there full time who can answer my questions, or can waste the shelf space on the things that only sell once a year. Most people don’t think of this, but a store pays rent on shelf space. Because floor space translates to shelf space. So small stores (very thin profit margins) cannot afford to keep the things that don’t sell as much, and big box stores can (economy of scale allows greater freedoms.)Report

      • Avatar greginak in reply to aaron david
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        Aaron, yup. The internet has also smacked the knowledgeable sales staff advantage some stores used have right in the mouth. For some things i can get tons of pixels of advice, reviews, knowledge,videos before i even go to a store. It’s certainly nice to go to a hobby store where you can chat with other people into whatever you are into. But most of us have various list servs, forums, blogs that serve the same purpose.Report

  9. Avatar Damon
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    Like was said above, I think any “fixes” would end up causing even worse market distortions. And let’s not forget that there’s another party involved. Gov’t. Soaking up all that new tax revenue since the property is worth more.

    How can you even think of denying our dear leaders more revenue to solve all those pesky social problems!Report

  10. Avatar Jaybird
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    Allow me to just say “$40,000 a month????”Report

  11. Avatar LeeEsq
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    This is a real tricky issue with no good solutions. A business should just be about profitable in the long run but many times businesses become more than businesses. They turn into institutions, part of the fabric of the city, and a place where communities and memories are formed. Lots of people would probably find New York City to have lost something if the big Macy’s on 34th Street closed. Its more than the world’s biggest store, its a landmark of New York City. On the nostalgia thread from a few months ago, I talked about how the New York dance community was sad after Dance Manhattan lost its space to google. The hardcore economic types might not want people to think like this and see businesses as only that but human nature isn’t going to allow that.

    Yet, you can’t keep these sort of institution-businesses around forver. They need to be profitable and have people interested in running them. Even if an institution-business is both profitable and have people interested in running it can still shut down because of the logic of the market.Report

    • Avatar greginak in reply to LeeEsq
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      True Lee. The “institution” thing is how sports team owners manage to make suckers out of so many cities. People love their teams and end up paying through various orifices to keep the owners happy to keep “their” team.Report

      • Avatar LeeEsq in reply to greginak
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        Professional sports teams are a perfect example of an institution-business. Many people are still angry at the Dodgers for leaving Brooklyn. It was perceived as an accute betrayal, almost like your spouse of twenty years running away with a younger lover.Report

      • Avatar LeeEsq in reply to greginak
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        Professional sports teams are a perfect example of an institution-business. Many people are still angry at the Dodgers for leaving Brooklyn. It was perceived as an accute betrayal, almost like your spouse of twenty years running away with a younger lover.Report

      • Avatar Don Zeko in reply to greginak
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        So with the Dodgers, as with the toy store. People’s aesthetic attachments and nostalgia are an excuse for someone to get paid at the expense of the public.Report

      • Avatar Mike Schilling in reply to greginak
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        Many people are still angry at the Dodgers for leaving Brooklyn

        I certainly am. Not that 3000 miles is far enough away, but it’ a start.Report

  12. Avatar Kazzy
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    We focus on the business owner, but what about the landlord? How about celebrating someone who invested in property in a middling neighborhood finally striking it rich?Report

    • Avatar Saul Degraw in reply to Kazzy
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      @kazzy

      I think plenty of people here are celebrating the landlord or defending the rights of the property owner 🙂

      I suspect the reason is that we can easily get to know business owners especially for small businesses and be on somewhat to very friendly terms with them. You get to know them. A property owner can be part of the neighborhood but they can also be a faceless out of state residency that you never see.

      Also property rights are important but I don’t hold them to the same sacrosanct as some people do.Report

  13. Avatar North
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    I have nothing to really add to the comment thread other than to observe that I agree with most of it.

    Time passes, things change. We all get older. Rage against the dying of the light etc, I understand the impulse but I don’t see any value in indulging it with action beyond inveigling.Report

  14. Avatar LeeEsq
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    I think the real ethical problem is when the landlord raises rent to an exorberate amount to kick out a tenant even though the landlord has no intention to charge the new tenant that rate. Such an action is highly problematic and unethical and should be considered an illegal eviction and ouster under the law. If a landlord of residential or commercial property is kicking out a tenant because he found one that could pay higher rent than the landlord should be made to charge the new tenant the increased rent or pay damages to the old tenant.Report

    • Avatar Jaybird in reply to LeeEsq
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      Make the government the owner of the property and make sure that only connected people and/or people who can afford to donate to politicians can rent stores.Report

      • Avatar LeeEsq in reply to Jaybird
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        There lots of places that have less of a concept of private real property than your typical common law country but are not even close to the hell hole that you described. Most parts of continental Europe. In Amsterdam, you can own the building you live or do your business in but not the land under it. That is owned by the city of Amsterdam and you pay taxes to the city for leasing the land your building is on. Amsterdam is not even close to your dystopia.Report

    • Avatar Stillwater in reply to LeeEsq
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      I think the real ethical problem is when the landlord raises rent to an exorberate amount to kick out a tenant even though the landlord has no intention to charge the new tenant that rate.

      Most leases are long term contracts with rent increases built in. (3%, 4%, etc. I renegotiated a contract for an old business of ours there the landlord wanted us to sign a 7 year contract at a 7% annual increase….) Once the contract is up, a landlord can simply not accept an offer to renew. No price discrimination required!Report

      • Avatar LeeEsq in reply to Stillwater
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        I have no problem with this at all. Its called a tenancy for years and is part of standard landlor-tenant law. The thing is that you have landlords that get itchy because you still have a long way to go on a tenancy agreemetn but the landlord found another tenant willing to pay a much higher rent. This is when massive rent hikes because of some loophole or technicality happen.Report

      • Avatar Stillwater in reply to Stillwater
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        That’s not a moral problem, tho, is it? It’s a contract law problem. I mean, one of the things that’s immoral in your scenario is that landlords are violating their contracts What type of law ought to be written to prevent violation of a mutually agreed upon contract? The “contracts are contracts” bill?Report

      • Avatar North in reply to Stillwater
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        Yeah that’s not immoral, Lee, it’s illegal- right now.Report

      • Avatar Don Zeko in reply to Stillwater
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        But contracts law is about business and efficiency. If the landlord comes out ahead by breaching , paying damages, and then getting higher rent from the new tenant, why shouldn’t he?Report

      • Avatar Saul Degraw in reply to Stillwater
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        @don-zeko

        As much as Judge Posner wants it, efficient breach of contract is still illegal in the Untied States.

        Judge Posner has a way of saying “I think the law should be this but it is not so I have to rule for this party….” in his majority opinions.Report

      • Avatar Stillwater in reply to Stillwater
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        I think the answer is that maximizing efficiency requires rule following (and the predictable, projectable nature those agreed upon rules entail), and one of the rules is that if a contractor and a contractee agree to terms the law backs each of em on the agreed upon commitments.

        There are other arguments against contract law, but an appeal to efficiency seems like a pretty poor one.Report

      • Avatar switters in reply to Stillwater
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        Saul – What do you mean efficient breach is still illegal? Are you saying its a criminal offense?

        Or are you just stating that breaching is breaching, and substituting “illegal” for the latter “breaching”?Report

    • Avatar Kazzy in reply to LeeEsq
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      @leeesq

      I agree with this, in general. If the ‘new rent’ for the existing tenant isn’t what the landlord would charge the new tenant, problems arise. Now, other factors should be considered… for instance, if your business is the type that requires more maintenance than another type of business — and this can be demonstrated — it doesn’t seem unreasonable to factor that into the rent.

      I also think it’d be reasonable to require more warning for greater rent hikes. This wouldn’t prevent rent hikes or the owner from capitalize on a booming market, but it’d allow the existing tenant to appropriately prepare for the shifts. So maybe a raise under 25% works within the existing lease terms (which I believe typically ask for 60 days notice by either party), a 50% raise requires 120 days, etc, etc, etc. I don’t know what the actual numbers should be, but some sort of sliding scale seems like a reasonable restraint on the market that doesn’t unfairly saddle property owners.

      I’d be curious to hear @j-r ‘s thoughts on this idea.Report

      • Avatar Will Truman in reply to Kazzy
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        Commie confessions: I am kinda sorta in favor of outlawing the housing/leasing equivalent of introductory rates. Well, not exactly, but I think (barring a complete severing of the relationship) existing tenants should have the ability to match offers for incoming tenants.Report

      • Avatar j r in reply to Kazzy
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        I don’t really understand the issue here. Are we saying that landlords are kicking out existing tenants for tenants who pay less? Are landlords regularly leaving money on the table like that? If so, why?Report

      • Avatar Will Truman in reply to Kazzy
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        Back home it was a regular thing for apartments to unchange existing residents under the (correct) belief that they would rather pay it than move. Two apartment complexes I lived in did this.Report

      • Avatar j r in reply to Kazzy
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        Also, in these conversations there is a tendency to assume that the power asymmetries are much greater than they actually are. Employers, banks, landlords, all assorted classes of capitalists often have greater power over those with whom they do business, but that power is far from absolute.

        Landlords are engaged in commerce the same way that store owners are engaged in commerce. This isn’t the agrarian era when being a landlord meant just sitting back and collecting rents while the peasants do all the work. Landlords have costs to manage against revenues; they have assets to manage against liabilities. They have to pay taxes and maintenance costs and insurance and take the risk that they’re building burns down or the surrounding neighborhood goes to pot.

        More importantly, they face the same market pressures that tenants face. Has anyone here ever been a landlord? For the most part you don’t just get to charge what you want and pick from an inexhaustible list of tenants. I own an apartment in a very desirable part of DC and when I moved to NY I rented it. It took me some time to find a tenant and the rent I am getting is much lower than what I thought I could get. Ultimately, I just had to take the lower rent rather than keep looking for someone willing to pay more, because every day the place sat empty is a day that I was losing money.Report

      • Avatar LeeEsq in reply to Kazzy
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        says:

        The issue is something like this. Landlord gets 10,000 a month in market value rent from Tenant A. Landlord finds Tenant B who is willing to pay 15,000 a month for the same space. In order to kick Tenant A out, Landlord increases the rent to 40,000 a month even though Landlord has no intention of actually charging Tenant B anything close to that.Report

      • Avatar j r in reply to Kazzy
        Ignored
        says:

        Why wouldn’t the landlord just raise the rent to 15,000 and give Tenant A the chance to pay that?

        Is there a real-world situation that you are thinking of? For one thing, do landlords generally go looking for new tenants when they already have tenants? That process costs money. Generally, prospective tenants don’t just show up at an occupied space offering the landlord more money.Report

      • Avatar Oscar Gordon in reply to Kazzy
        Ignored
        says:

        I’d say that if a landlord puts it in writing that he intends to charge $40K for the property, then he can be held to that if the current lease agreement does not allow the landlord the option to decline to renew.

        I remember when I was in college, the controls Madison put on landlords was simply that landlords could not arbitrarily raise rents on a singular unit. If they owned/managed more than one 2-bedroom apartment, and they wanted to raise rents, then every 2-bedroom apartment they held had to go up by an equivalent percentage (so doubling the rent on the unit on Regent meant every other 2-bedroom unit they owned or managed would have to have the rent doubled).

        Of course, if they only had one such unit, then all’s fair.Report

      • Avatar Stillwater in reply to Kazzy
        Ignored
        says:

        I’m pretty much with j r on this, but I think I must be confused about the dynamics or the law or something. When you say

        In order to kick Tenant A out,

        do you mean in violation of the lease agreement? Or after that contract is up? I can’t quite identify the problem, hence I can’t understand what the proposed solution is.Report

      • Avatar LeeEsq in reply to Kazzy
        Ignored
        says:

        Jr, I might have been a bit off in my example numbers but you I think you get the general idea. Landlords have used exorberante rent hikes to kick out existing tenants even though they have no intention of charging new tenants the new rent. It might be more usual in residential than commercial leases but it does exist.

        I have no idea what the numbers were but Dance Manhattan was profitable dance studio that had to close in November 2014 becuase Google wanted their space for its’ New York offices. They were supposed to be out in August 2014 but Google needed some more time to move in so Dance Manhattan did get a temporary extension.Report

      • Avatar Will Truman in reply to Kazzy
        Ignored
        says:

        FTR, Lee and I are talking about two different things. With what I’m talking about, the goal is to get the tenants to stay and pay (marginally) more. Which, if the difference isn’t enormous, they will to avoid moving. (We did.)Report

      • Avatar LeeEsq in reply to Kazzy
        Ignored
        says:

        jr, I men in violation of the lease agreement as a way to end the lease early rather than a refusal to renew the lease agreement because the landlord fond a tenant willing to pay higher rent. The latter doesn’t require a rent hike.Report

      • Avatar j r in reply to Kazzy
        Ignored
        says:

        @leeesq

        What you’re describing sounds like breaking a lease? If the terms of the lease say $10,000 for the next 5 years, with a 5% increase every year, then the landlord is obligated to stick to those terms.

        Or maybe you mean that the landlord threatens to double the rent at the end of the lease to encourage the tenant to move out early. If that’s so, how often does that happen? Still don’t see why the tenant would leave early if they have a lease.Report

      • Avatar Michael Cain in reply to Kazzy
        Ignored
        says:

        Landlords sometimes make decisions about how they want to use the building as a whole rather than being concerned with just the individual parts. Suppose that the upper floors have been filling with — just an example — boutique financial services businesses. Specialty insurers, brokers for this and that, private wealth management. The landlord may believe that by attracting a significant retail “name” in that same kind of business for the ground floor, they increase the value of the location for all the others, enabling higher rents. Hypothetically, then, the landlord wants $40K to allow a toy store in the space, but only $15K for a sizable Edward Jones office, with the difference more than made up by increased rent for the upper floors.Report

      • Avatar Mark Thompson in reply to Kazzy
        Ignored
        says:

        @leeesq From what I can tell, the Dance Manhattan case isn’t an example of what you’re referring to and, honestly, I’d be surprised is such an example really existed. In the Dance Manhattan case, the lease was expiring and the landlord wanted to double the rent to enter into a new lease agreement. It did not appear to have a new tenant in place or anything like that, but instead seems to have thought the space would be attractive for a tech company and that they’d be able to get a huge chunk of change from such a potential tenant.

        Even if they did have a tech tenant ready to come in at less than double the rent per square foot, it’s also not clear to me whether they were looking to clear the space because such a potential tenant was going to lease other parts of the building as well. In other words, if the tech tenant wanted to rent Dance Manhattan’s 14,000 square foot space, as well as an additional, say, 10,000 square foot space, at only a 50 percent higher rent, then allowing Dance Manhattan to stay for a 50 percent higher rent comes at the opportunity cost of not renting the additional 10,000 square feet at that same rent.

        I’d be really surprised – like, really surprised – to see a lease where a landlord had the right to arbitrarily increase rent during the lease term, which seems to be the scenario you’re worried about.

        In my experience, to agree with @j-r , even small business commercial tenants tend to have a pretty fair amount of bargaining strength when it comes to their relations with their landlord. For instance, I’ve seen plenty of situations where landlords would deal with months of deficiencies and missed payments before taking any legal action at all, and even then, it usually takes a year or more before they get so fed up as to try to evict (as opposed to just file a breach of contract suit for the deficiency balance). In my experience, there are relatively few, if any, terms in a commercial lease that landlords are completely unwilling to negotiate or that are “take it or leave it” types of terms.

        Also worth noting – exorbitant rent increases can affect big business tenants just as much as small business tenants. E.g.: http://www.businessinsider.com/starbucks-is-feeling-rent-increases-2015-3Report

      • Avatar Kazzy in reply to Kazzy
        Ignored
        says:

        @j-r

        Here is what I imagine…

        Tenant A’s lease ends in 60 days. At that point, the landlord says, “He is your new lease agreement. Rents are doubling.” To me, that seems like insufficient notice for such a large hike. So, I’d want some sort of system wherein larger hikes in rent require more notice from the landlord.

        However, I have no idea how the commercial rental market works. Maybe 60 days is sufficient. Maybe renewals are typically negotiated a year in advance. So I may be way off. I support landlords having the ability to profit on their investment (and like how you framed that side of the equation) and don’t think we should ask them to bear the costs of “protecting neighborhoods”. I just think we should make things a little more workable for existing tenants and minimal notice time frames for large rent increases seems like, to me, a reasonable restraint on the market.Report

      • Avatar Stillwater in reply to Kazzy
        Ignored
        says:

        Tenant A’s lease ends in 60 days. At that point, the landlord says, “He is your new lease agreement.

        Anyone who waits til 60 days out to negotiate their next lease isn’t paying attention, dude.

        And if you run a (successful) business, you pay attention.

        Most folks know long before the lease is up whether they’re priced out or not. At least in my experience.Report

      • Avatar Mark Thompson in reply to Kazzy
        Ignored
        says:

        @kazzy @stillwater Aye to what Stillwater is saying here. Unlike residential leases, commercial leases are usually (always?) for multiple years, and the negotiations over a new lease renewal can take some serious time. It’s not simply a question of “what type of rent do you want to charge me this year”? There are improvements to be negotiated, the length of the new lease to be negotiated, renewal options (which can be a contract within a contract) to be negotiated, signage terms, and a bunch of other stuff – not just the rent term.

        If you’re waiting until 60 days before lease-end to start negotiating, then you’re begging for trouble.Report

      • Avatar switters in reply to Kazzy
        Ignored
        says:

        just to follow up on Still’s and Mark’s comments. My company signed a 10 year, 100,000 sq ft lease years ago after our original lease was expiring. We started touring other properties a year a half before the end of our term, because we knew moving a business is not cheap, and it takes time. When the landlord gets notice that we’re exploring other options, of course he realizes he’s gonna need to make us an market offer or we’ll leave. He’s got some wiggle room because other Landlord’s would need to be willing to absorb our moving costs and build out costs to effectively compete with our current Landlord, but he also realizes he incur additional costs if we move out as well.

        If we had waited until 60 days prior to the end of our current lease, our Landlord would have realized we had NO OPTION except to take what he offered. We would have been forced to overpay for rent, and someone would have lost their job.

        Two other points – I’ve seen a lot of leases in my day. I’ve never seen one that gives the LL a unilateral right to increase rents. I’m not sure what Lee is talking about. Landlords pick and choose tenants who’ll pay lower rent all the time. Primarily based on credit risk. Small companies have to a pay a risk premium because the LL has much less confidence they will be around for the term of their lease. Which means GAP is going to get a much better rental rate that startupretailx will.Report

  15. Avatar aaron david
    Ignored
    says:

    The $40,000 rang a bell in the back of my head:
    “The chances of CBGB keeping its home on the Bowery suffered another blow recently when the Bowery Residents’ Committee indicated it is no longer interested in negotiating a new lease with the famous punk rock mecca. Hilly Kristal, CBGB’s owner, previously feared he wouldn’t be able to pay the high rent of at least $40,000 — double his current rent — B.R.C. notified him that they would be renting his space for in the new lease. ”

    Oh, and B.R.C? An example of all that is good and true about America: ” B.R.C., the nonprofit homeless services organization that holds a long-term master lease on 315 Bowery.”

    http://www.downtownexpress.com/de_110/cbgbfeelingpunkd.htmlReport

  16. Avatar Zane
    Ignored
    says:

    I’d think the problem of small commercial businesses’ ability to own their own buildings is in part due to national and local mortgage lending policies and practices.

    And I don’t mean just the regulatory environment or the overall shape of the economy. Lenders, as institutions, have their own cultures as do the groups of lenders who operate within a local market.

    I’d guess that consolidation of lenders into non-locally owned or managed corporations might play a role in willingness to lend to local businesses as well, but I don’t have any evidence at hand about that. A lack of local knowledge might lead to lending to larger, known entities. It’s also possible that larger lenders would be more willing to take on a potentially riskier small business if that risk is spread across a larger portfolio.Report

  17. Avatar LeeEsq
    Ignored
    says:

    I just watched the video on my phone. If the lease is ending than the landlord is under no obligation to renew it but the video troubles me. I believe the video stated $40,000 represents a rent increase that is five times greater than Jeffrey’s Toys is paying now. That means that Jeffrey’s Toys pays about $8000 a month is the news story is accurate. Since commercial leases are not subject to rent control usually, $40,000 a month seems improbable as the true rental market value of that particular real estate even in downtown San Francisco. The video also states that Jeffrey’s Toys is to be replaced by a restaurant. I am not really sure that even a profitable restaurant could afford $40,000 a month in rent, especially if it just opened. Something unethical has to be going on.Report

    • Avatar j r in reply to LeeEsq
      Ignored
      says:

      In the video itself, the reporter says that the rent “could be as high as $40k.” All we know for certain is that the lease was not renewed. Who knows where the 40k number came from? I am generally wary of all money claims that I hear in the media.Report

    • Avatar Mark Thompson in reply to LeeEsq
      Ignored
      says:

      In addition to what @j-r said, the other thing here is that we don’t know how long the pre-existing lease was for. If it was a 20 year lease – which is reasonably common – then a quintupled lease might well be entirely in line with changing market values in a given neighborhood, particularly when we’re talking about retail space. Additionally, there’s also the issue of what other tenants the landlord is hoping to attract in the rest of the building. Perhaps the landlord would charge a restaurant less rent per square foot (and that’s the key metric, by the way – $40k is for the entire space, but there’s no reason the landlord can’t subdivide it, especially since it looks like such a large space that it would be too big for just one restaurant). But if so, that would be because having a restaurant in place would make the office space in the building (which is the bulk of the space) more marketable and thus increase the rent that could be charged for the office space. Quintupling the rent for the toy store thus may easily just represent the opportunity cost for lost rent in the office space.

      I’ll also add that $40k per month for what looks like a pretty sizable space in downtown SF is entirely reasonable. Take a look at the article I linked above about Starbucks in NY. That article refers to one store having its rent raised to $1 million per year, or roughly $80 k per month. The toy store in this case is significantly larger than any Starbucks I can imagine, in a real estate market that is nearly ( perhaps not quite, though it seems pretty close) as expensive as Manhattan. $40k per month seems almost reasonable by comparison. By contrast, $8k per month for a space in a high traffic neighborhood in an incredibly pricey city seems almost criminally low to the point where it’s almost unthinkable that the neighborhood even remotely resembles what it did when this lease was entered into.Report

  18. Avatar LeeEsq
    Ignored
    says:

    I also wonder how many people really care about the lost of institution-businesses like Jeffrey’s Toys. Probably not that many. Most people probably really don’t care when such businesses close even if they patronize them a lot.Report

    • Avatar aaron david in reply to LeeEsq
      Ignored
      says:

      @leeesq
      Don’t forget, SF is one of the most childless cities in America. There may no longer be a market for the toys they sold.Report

      • Avatar LeeEsq in reply to aaron david
        Ignored
        says:

        @aaron-david, I don’t how much of San Francisco’s childlessness comes into play. Based on the video, the store seemed to be doing well enough to continue. San Francisco is also one of the places in the United States where people from the suburbs go to the core city to do their shopping and entertainment rather than just simply stay in the suburbs the entire time. Jeffrey’s Toys seems to be one of those businesses that people from the suburbs will frequent a lot when they come into the city or are doing holiday and birthday shopping for the kids in their lives. They also seemed to have a lot of fan people items. Combine this with their tourist trade and it doesn’t really matter that San Francisco is childless.Report

      • Avatar Alan Scott in reply to aaron david
        Ignored
        says:

        Also, the shop seems to have done a pretty good job of appealing to adult toy & comic collectors while still maintaining a kid-friendly environment. Which is a tough needle to thread.Report

      • Avatar aaron david in reply to aaron david
        Ignored
        says:

        @leeesq
        “San Francisco is also one of the places in the United States where people from the suburbs go to the core city to do their shopping and entertainment rather than just simply stay in the suburbs the entire time.”

        No, no they don’t. I am saying this a both a bay area resident, and someone who has spent lots of time in the area since I was a child. You might, might get some Berkleyites over, but Oakland stays in Oakland, SJ is bigger than SF, etc. SF really doesn’t cater to the outer cities.

        @alan-scott
        If what you say is true, than that would make a difference. But the real issue is sales forecasts. If they are on a downward tragectory or just holding even, a slight increase in rent can be the death blow. Or rather, the final nail in the coffin.Report

  19. Avatar LWA
    Ignored
    says:

    The trump card used by chains is always “But look how much people love us, as demonstrated by how much they shop here!”

    Which is actually a valid point.

    If a solution is “I want to keep [Local Business] open, but do my shopping at [GloboMart]” then its pretty easy to see this as a nonstarter, even for non-libertarians.

    Large chains give us what we want, even if it isn’t what we want to want. We could keep small local businesses open by changing what we want- deciding that its okay to drive a little bit, or wait longer, pay more, or do whatever it is that separates local stores from chains.

    Hell, we could destroy sweatshops the same way. But as long as Triangle Shirtwaists are a nickel cheaper, and if a nickel makes a difference, then they can honestly say we want things to stay the way they are.Report

    • Avatar Oscar Gordon in reply to LWA
      Ignored
      says:

      We could keep small local businesses open by changing what we want- deciding that its okay to drive a little bit, or wait longer, pay more, or do whatever it is that separates local stores from chains.

      With regard to small shops in busy metro downtowns, it’s important to keep access in mind as well. If the city has policies which discourage driving downtown, or insufficient or hard to use public transit to get people downtown to shop at iconic places, then it might be hard for such places to turn a profit in that location.

      For example, Seattle’s Pike Place market isn’t in any danger of going under, but it has parking, and a lot of local & tourist traffic. Still, for me living east of Lake Washington, patronizing the market is something of an ordeal, so I tend to only go a few times a year.

      Downtown SF might not have this problem, but when we talk about these kinds of stores, getting customers to the store is part of the equation, and a city can easily choke out such locations.Report

      • Avatar aaron david in reply to Oscar Gordon
        Ignored
        says:

        The parking thing is bigger than people think, especially in areas with public transit. Locals may be able to get in and out easy, but tourist really can’t. Especially if they have kids in tow. And if parking is difficult, or streets are poorly marked, well people just don’t want to deal with that, and will go somewhere else to spend money.Report

      • Avatar LeeEsq in reply to Oscar Gordon
        Ignored
        says:

        San Francisco’s downtown is easy to get to without driving. By American standards, the San Francisco Bay Area is well served by transit. You can take BART from the suburbs or Muni from the city itself. Parking isn’t bad for a city of its’ density. Its easier to park in down San Francisco than it is for most of Manhattan.Report

    • Avatar Saul Degraw in reply to LWA
      Ignored
      says:

      @lwa

      I pointed this out to switters above but it is not inconceivable that a business can survive by playing to a community outside of locals especially in areas known for tourism and/or lots of conventions coming to town.Report

    • Avatar Alan Scott in reply to LWA
      Ignored
      says:

      @lwa , is there any indication that this store isn’t a thriving business, though?

      It’s not like this store used to make money hand-over-fist until the ToysRUs moved in next door and then suddenly nobody bought anything there. It seems like they were making good money, but the money wasn’t good enough to justify 40k/month rent. Frankly, I’m not sure there’s a toy store of that size anywhere in the world that makes enough money to justify that rent.Report

  20. Avatar Jaybird
    Ignored
    says:

    I’m still boggling at $40,000/month. If I brought in, gross, $2000 a day, every day, then my Monday-Friday receipts would pay for my rent.

    And I haven’t paid my workers yet, and I haven’t paid my taxes, and I haven’t paid *ANYTHING* except my rent.

    If my Saturdays go to paying my workers and my taxes then that means that my Sundays are mine.

    And that seems like it’s not so bad that I’m pulling in $700,000 a year gross to take home $100,000 net.

    But that number makes me look at Saturday again and wonder if Saturday really pays for all of my workers, my taxes, and my other incidentals. If it doesn’t, every penny not paid for by Saturday comes out of Sunday because Mon-Fri is spent the second the new month starts.Report

    • Avatar LeeEsq in reply to Jaybird
      Ignored
      says:

      Thats why I think that the $40,000 a month rent has to represent some sort of trickery from the landlord. There aren’t many businesses that can afford a rent that high and maintain profit.Report

      • Avatar switters in reply to LeeEsq
        Ignored
        says:

        The idea that people are throwing around, and describing as too expensive, a monthly rent number with no corresponding reference to the size of the space rented is BIZARRE. One of those numbers, without the other, means absolutely nothing.Report

  21. Avatar Kazzy
    Ignored
    says:

    @mark-thompson @stillwater @j-r (DOWN HERE!)

    I obviously have no idea how commercial leases work. I’m just gonna stop talking for a while.Report

  22. Avatar Mark Thompson
    Ignored
    says:

    Sure they can. Seriously – average retail rent in SF is $40 per square foot. http://www.loopnet.com/xNet/MainSite/HttpHandlers/Chart/MarketTrends.ashx?city=San-Francisco&state=California&

    So on average in SF, a 40k a month lease should get.you.about 1000 square feet in retail space. That’s …..not a.lot of space at all, and from the pics it looks like this toy store is noticeably larger than 1000 square feet.

    is that more than most toy stores can.pay? Probably , though there surely are some who could pull it off. That’s a little under 500k a year in a business where gross profit on most items is about 30-40 percent IIRC. So after.labor you’re probably looking at needing to do around 2.to 2.5 million in sales to survive, or about 7500.a day. Definitely tough but quite doable especially.in a high traffic.area.

    This is doubly true if you’re catering to tourists and.thus overcharging a bit.

    Other types of retail businesses can thrive quite reasonably well at that rent in a high traffic area in an expensive city like SF.Report

  23. Avatar Alan Scott
    Ignored
    says:

    That rate is yearly, not monthly. So 40k/month should pay for something closer to 10,000 square feet. That said, the rest of your math works out, and $7500/day seems a possible, albeit hard to reach, goal.Report

  24. Avatar A Compromised Immune System
    Ignored
    says:

    Markets, yay! The real question is whether “market efficiency” is really what we need. Markets can be incredibly efficient at not just destroying lives but also destroying the things that make a neighborhood livable.

    “The grocery store on Cobble Hill was a profitable business but not profitable in the same way J.Crew is profitable. I do believe that a neighborhood is a tricky and potentially impossible balancing act between the rights of property owners and the needs and concerns of local residents.”Report

  25. Avatar Pyre
    Ignored
    says:

    The alternatives to the toy store closing are this:

    1) Jack the prices up to accomodate for the rent.

    2) Find another location. (My comic store had to do this ages ago when their old place jacked the rent too high.)

    3) Rely on neighborhood good will to get through the rough times (A failing strategy that was attempted by people who would try to “starve” Walmart out by making a point of shopping at and even donating to Mom and Pop stores.)

    4) The threat of violence/Unpopularity. (Redirecting ire against the landlord has had some brief short-term successes where the landlord was successfully turned into a pariah. There was an amusing case back when I played Auto Assault where, at E3, the company’s booth was cited for excessive noise. The owner of the company came up to the front of the booth, took out a check, and dared E3 to collect. Sensing the potential for rioting, E3 backed off. On an international level, companies such as Foxconn have made small, mostly cosmetic, changes to the treatment of it’s labor force. The obvious problem is that people’s attention wander so this is a short-term solution.)

    5) A command economy where all decisions are made at the top and dictated all the way to the bottom.

    6) A more fluid system where decisions can still be made as to what should be preserved. (In it’s simplest form, the problem leads to people praising this system when it preserves what they think is worth preserving but then yelling about how it traps a city in amber when it preserves what they don’t think is worth preserving.)

    7) Adaption to the times. (If stores that sell perishables such as chocolate can adapt to an internet economy, so can toy stores. However, too many of these “classic” stores would rather do this:

    http://somethingpositive.net/sp09092004.shtml

    and this:

    http://somethingpositive.net/sp09102004.shtml

    than say “Okay, we can’t afford to do business the way we used to. How do we make our niche?”)

    8) Encourage people to take a look at some of the underlying causes. Using taxes as an example, if their S+U tax is any indicator of their overall tax structure, San Francisco’s taxes are insane. It is both simple and satisfying to say “The Landlord is a greedy douche” but it may not be correct. Given that San Francisco is a place where actually buying property is a pipe dream for all but the richest of our society, it might benefit us more in the long run to look at WHY landlords are raising their rent by 40K a month. Greed? Probably that is part of it. Is it all of it? Probably not.Report

    • Avatar Will Truman in reply to Pyre
      Ignored
      says:

      Bonus points for citing Something Positive.Report

    • Avatar Oscar Gordon in reply to Pyre
      Ignored
      says:

      Exactly.

      Let’s say a store got a lease 20 years ago for $6K/mo. If the downtown has been booming, today, when that 20 year lease has run it’s course, $6K/mo may be barely covering the taxes on the space. If that is the case, do we blame the greedy landlord, or the greedy city*?

      I’m being hyperbolic here, the city may not be greedy, but honestly raising taxes to support the increased cost of supporting infrastructure for vertical & high density development.Report

  26. Avatar ScarletNumber
    Ignored
    says:

    I didn’t realize that Jeffrey’s toys was an independent toy store.

    I assumed it was a branch of Toys R Us.Report

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