Why does change take so long?: retail business rents

WAMU/NPR reports ("Small Business Owners Press D.C. Lawmakers For Financial Relief") on a City Council hearing on a spate of bills introduced to address the issue, although some of the proposed legislation is still way more focused on "legacy businesses" rather than the problem in general.

But considering I have been bringing this up for more than 15 years, it's very hard to be excited about it.

I used to testify about this issue a lot from 2004 to maybe 2007, before I got the message that the DC City Council was not interested in addressing the problem in a systematic way.

- "Avoiding the real problem with DC's property tax assessment methodologies," 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

The basic problem is that because DC is an international real estate market, property prices are bid up on various criteria, many of which push up rents beyond the value of the property based on the revenue capacity of the space.

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

I had a letter to the editor in the Post about it in 2007.

Tax Policy Hurts D.C.'s Local Businesses, Richard Layman

A July 20 Metro Article ["Feeling the Pinch of D.C.'s Prosperity: Small Businesses Cry Out for Relief From Rapid Rise in Property Taxes"] inadequately explained why tax assessments are rising for small commercial property owners in the District.

Regardless of buildings' locations and use, the D.C. Office of Tax and Revenue values commercial buildings as if they could be converted into downtown office buildings. If the purpose is to turn the entire city over to office buildings and retail chains, then this property tax assessment methodology is working.

The market for downtown property is not local; it involves national and international developers, lenders, and portfolio investors. The market for small-footprint buildings in neighborhood commercial districts is local--in terms of property owners, investors, tenants, sales potential and rents. The solution is simple: differentiated tax assessment methods.

The legislative focus on property tax abatements or tax caps fails to address this fact.

As a result, locally owned businesses will continue to close or relocate to the suburbs, while more and more of the retail identity and uniqueness of the District is lost and the city's retail landscape becomes reshaped into yet another mall, albeit outdoors, featuring national brands.

One of the things that bugs me about politicians is that they focus on individual, somewhat idiosyncratic examples -- Ben's Chili Bowl -- and not structural conditions. That's why I was disappointed in 2013, when then Councilmember Wells testified about this issue to a tax revision commission, but about individual businesses, not the structural problem.

-- "Revisiting the issue of neighborhood commercial district property tax methodologies"

A big "new" problem: the need for more coordinated planning in small commercial districts.  While it's not a new problem, the velocity of real estate intensification has increased significantly and therefore, because commercial district zoning allows for housing and up to 5 story buildings, retail is being displaced in small districts like Upshur Street NW, in favor of condominiums.

There's no attention being paid for that, and the need for "thumbnail" development plans for small commercial districts, to coordinate change.

Since 2002, I've suggested Cleveland's Business Revitalization District Overlay zoning as a model for what DC ought to be doing... It requires an extra level of coordination and review for new projects.

A newer problem: people go out to eat, not to buy goods.  A related problem that is even newer is that people when they go out, tend to be interested in eating and experiences, not in buying goods. 

So asking prices for rent are probably too high for retailers based on their ability to sell goods, even beyond the revenue capacity of a store based on more traditional metrics.