Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Saturday, September 08, 2018

New York Times special section: "The Empty Storefronts of New York"

Last Sunday, the New York Times published a special section on "The Empty Storefronts of New York." Besides the print section, it's also online.

It's powerful.

But it's a complicated issue.

Canal and Lafayette Streets, Chinatown, Manhattan, NYT photo.


1. NYC has the same issue that we have in DC in that as the real estate market has been reproduced in terms of being reorganized on an national and international basis, so that properties (and concomitant commercial taxes) have escalated in price beyond what normal retail businesses can reasonably pay.

I used to testify about this a lot, until I finally realized that the DC City Council didn't care, and I was wasting my time.

-- "Revisiting the issue of neighborhood commercial district property tax methodologies," 2013
-- "Avoiding the real problem with DC's property tax assessment methodologies," 2007
-- "Tax Policy Hurts D.C.'s Local Businesses," letter to the editor of the Washington Post, 2007
-- "Testimony -- Historic Neighborhood Retail Business Property Tax Relief Act," 2006
-- "Forcing Displacement by the disconnection of tax assessment models from public policy goals," 2005
-- "Displacement of retail businesses through increasing property tax assessments," 2005

2.  What has happened is that in hyper strong markets, buildings are valued as assets, not merely as "envelopes" for business activity "today."

As a result valuations for the buildings are much higher than they would be if buildings were valued only in terms of their ability to generate rents.  With higher valuations, rents for retail spaces have gone beyond what would be justified in terms of the ability of the business to generate revenues from sales (based solely on sales per square foot). 

-- "Cleveland Park Retail: My off-hand evaluation, the rents are too high," 2009
-- "Commercial retail rents #2," 2009

3. For a long time, national and international firms, seeing "advertising value" from marquee stores in high rent districts were willing to pay higher rents that for those stores was uneconomic, but was justified for its contribution to "brand value."

4. In turn, that led commercial property owners to believe that higher rents were justified not just for high profiles spaces, but in general.

5. This is true even in "neighborhood districts" that mostly have local business proprietors not chains.

6. Separately, the other thing that is happening is a more discrete definition between neighborhood serving retail, mostly convenience (food, pharmacy) and services (dry cleaners, etc.), and sub-city but regionally serving districts, with larger stores and wider range of offerings--think how Union Square in Manhattan functions as a regional shopping district for Lower Manhattan.

That means more vacancies too as once locally offered retail included furniture, office supplies, apparel, electronics, etc., as well as categories that aren't normally around at all post-Internet such as travel agencies.

7.  Plus ongoing consolidation in retail, partly in response to the impact of e-commerce on traditional brick and mortar retail, but also financialization and other aspedts.


1. I do think that there needs to be an overt and separate valuation process for retail property.  Especially for neighborhood districts with local business proprietors and property owners--such districts shouldn't be valued and evaluated as if national and international property owners and retailers are active in that market.

2. Which should reduce taxes.

3. And lead to rent reductions.

4. I do think if necessary, a form of commercial rent control is reasonable.  Since high pricing is a function of forces external to the market for renting commercial real estate.

5. However, perhaps the most important response is to create a retail focused community development corporation to buy, hold, and rent retail space, modeled after the Paris Vital Quartier program implemented and managed by the SEMAEST CDC.

The program operates on a break even basis, and in some of the targeted neighborhoods, vacancies have declined by up to 40% ("Paris City Hall wants to revive Semaest," Les Echos).

The program has assisted more than 650 individual businesses and controls 730,000 s.f. of retail space.

-- Presentation
-- Paris SEMAEST Integrated Action Plan, (English), Urbact
-- "Emmanuelle Hoss, new managing director of the Semaest, a real estate company in the city of Paris," LSA Commerce & Transportation
-- "Social media to strengthen local commerce: The case of the Semaest in Paris," Urbact

Blog commenter charlie has made the point for some time that as the retail sector consolidates, and even successful companies close stores, the value of retail space should decline and this will result in lower prices for buildings and therefore, lower commercial property tax assessments, impacting local government budgets.

-- "NYC's retail rents keep sliding with Fifth Avenue taking a beating," Bloomberg Businessweek

It's hard to say though in hyper strong markets where the property market is inter/national because of how buildings are valued as assets independent of their present value in terms of generating rents.

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At 9:17 AM, Anonymous charlie said...

So, in terms of DC, I think the problem has another angle - property tax.

As you said, building have become assets.

The asset value is based on the cap rate.

So, the owners of the building really need to jack up the value -- and they do so by overcharging on rent.

The consequences is that they can't fill up space.

Under DC, they adopted a new computer system to value property and you can take that vacancy into effect in terms of determining the tax value.

So, you can pretend you have a higher cap rate (good for lending money based on the building) and pay less in property tax.

And in urban area the retail is just on part of the revenue stream.

Also this:

You going to have to click around here but interesting links of scooter design.

At 10:02 AM, Blogger Richard Layman said...

thanks. I did mention property taxes, but I guess not well enough.

two different elements:

a. how prices get jacked because of properties being part of the national-international market. I mentioned the actors, but didn't mention that prices become higher probably than if they were totally valued on local considerations.

b. how this then leaks out and impacts other commercial districts in the city. Some are also part of the national market (e.g., Dupont Circle and Acacia, Cleveland Park and Federal Realty; Friendship Heights and Grosvenor; Georgetown, etc.) but some districts are strictly regional (U Street, Petworth) or local (Takoma).

In the "most recent" piece from 2013, I recommended that there be different tax bands, but I didn't use that language, and I should have.

At least three bands: (1) CBD; (2) regional; (3) local. You could probably even break regional down into two; high and low; e.g., Capitol Riverfront/Wharf vs. Petworth.

2. But how do you figure in extranormally high prices for properties as a way to "protect" capital when you're home country is problematic, etc., or you want to score points for various reasons (e.g., Qatar sovereign wealth fund investing in CityCenter, etc.)?

more comments appreciated.

I happened onto a TedX video with Loretta Lees. I think her writings are great. Wasn't totally clued into the video.

The thing that I think about more and more is about how a lot of this is driven by constraints on supply and population increases significantly greater than when most cities were primarily constructed.

Of course people with more money will outbid people with less money.

In other words, it's not just money grubbing assholes, although that is likely a part of it. It's also more competition for limited space.

Again, restricting development (different from legitimate controls on what is constructed) only makes things worse, exacerbates the supply problem.


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