The Real Estate Board of New York is rallying the city’s business leaders to fight a plan to impose commercial rent regulations on landlords.
Councilmember Stephen Levin last week introduced Intro, 1796, a bill that would created a City Council-appointed board not unlike the Rent Guidelines Board to set annual lease increases on retail, professional service, and manufacturing storefront space instead of landlords.
“This proposal fails to address the increasing burdens facing small businesses and will force successful ones to flee the city,” said REBNY president James Whelan. “NYC’s Department of City Planning and the City Comptroller both recently reported that the issue of retail vacancies is not a citywide problem. 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.”
Among the business groups joining the REBNY opposition are the Brooklyn and Queens Chambers of Commerce, the Alliance for Downtown New York, the New York Building Congress, Rent Stabilization Association and the Council of New York Cooperatives and Condominiums.
“The small businesses we speak to cite many factors that negatively impact their current condition, starting with overburdening government regulations and the added costs of implementing a significantly higher minimum wage and paid sick time”, said Randy Peers, President & CEO, Brooklyn Chamber of Commerce. “It seems to me we should be looking at a comprehensive set of reforms in a true effort to save our neighborhood small businesses, rather than pit one industry against another.”
Jessica Lappin, president of the Alliance for Downtown New York said, “What we hear most from struggling business owners are complaints about bureaucracy and unresponsive city agencies, crippling property tax assessment increases, over regulation, scaffolding that obscures storefronts, traffic, and aggressive enforcement.”
Many apartment building owners are relying on their commercial rents to keep their buildings viable as property taxes rise and new residential rent regulations hurt their bottom line, according to Joe Strasburg, president of the RSA.
“Commercial rent control is just another misguided attempt by our legislators to solve an issue with an unworkable solution. Just look at 50 years of failed housing policies that still have not provided affordable housing to low-income families in need,” said Strasburg said.
Last year, The New York City Bar Association determined the New York City Council has no legal power to enact commercial rent control. The Real Property Law Committee determined that the city could only impose commercial rent control by a concern for ‘health and welfare’ and argued that courts would disallow it.
Councilmember Levin, who is leading the effort, said the legislation would prevent further vacancy across the city due to rising rents that have pushed out local businesses and increased the price of services and goods.
“A regulated system for commercial spaces would set a reasonable and proportionate rate across the board for rent based on the need,” Levin. “Time and time again, we’ve seen businesses shutter in my district and throughout the city due to rent increases that are beyond their capabilities.”
Meanwhile, brokers in the city believe commercial rent control would have many unintended consequences.
“The city must take a strong hard look at all the impediments retailers and landlords have to face to get anything done in the city. It can take years to get approvals from the building department or landmarks for a storefront renovation,” said Adelaide Polsinelli, vice chairman at Compass.
“Just the process of opening up for business can put a retailer in financial jeopardy. With the large supply of available retail spaces today, tenants have many more options today than ever before.
“The bill would require landlords to give tenants a 10 year term when most leases today are shorter. This gives the existing tenant an unfair advantage over a new mom and pop who may want to test their business with a shorter lease.”
Scott Plasky, a retail specialist in Marcus & Millichap’s Manhattan office, added, “This issue is a lot more complicated that rent. Just because two tenants are on the same block it doesn’t equate to the rent being equal. In a free market a landlord can achieve the rent a space is worth and, if they overshoot, they are going to lose their tenant. But they are not all driven by greed. There has been a generational shift in retail patterns and how and where people shop. Add to this new minimum wage laws and rising taxes and there are many reasons retail is struggling.
“I like the idea that the city is trying to look out for the neighborhoods, but I don’t believe that rent regulation is the way to do it.”