So far, the facts don’t support your view.
Sometimes I feel like we’re a different country from the East Coast.
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The issue is that large national chains ( or even large regional chains ) are OK with 5 year leases, because the have the capital and can guarentee. Your abercrombie & fitch has no problems with a 5 year lease.
However, a “mom and pop” who is trying to get a bank loan for their first store… not so much. They have to get a bigger loan, a loan to cover 5 years, instead of being able to get a loan that covers 1 year or 2 years.
Which means a downtown can only have large national chains, but a thriving downtown would have a mix. And large chains need a certain amount of floor space, probably, and they might not think there is enough business, where a local retailer might have a different idea. A chicken and egg effect happens, where no one will do a 5 year lease because no one else has done a 5 year lease, because it is full of empty storefronts :-). You might want some kind of “opportunity zone” where you have 1 year leases, have mom and pops move in, and have nationals move in once it’s a happening place… but a downtown with boarded up windows and people sleeping and peeing all over the place is not a place anyone will sign a long term lease.
Another effect raised in the articles is that by building “mixed use” where there is ground-floor retail, the retail portion of the building is a small fraction of the “bottom line”, which means the project is a success even with an empty ground floor. Now, the government mandated ground floor retail to have a vibrant downtown, but what they’re getting is a bunch of papered up windows. Thus the landlords actually don’t care and are happy to have a boarded up window now and a 5 year lease in a few years.
Granted this is all based on a bit of internet research and there may be people here in the business who know better… but this is a national issue, and lots of downtowns are pressed by empty retail. There are other factors people think might be in play, like Amazon, but we see that Retail in the suburbs is alive and well… santana row for example… and what you see is mostly national chains, so to me this story hangs together.
If you’re in a government and you mandated ground floor retail as part of zoning, now you’ve got retailers doing 5 year leases so no one is occupying, the obvious thing is a tax on unused retail space in certain areas, to change behavior… but that’s politically unacceptable… but lots of “loopholes” have been ruled by the courts as taxes… which all require 2/3 votes…
Well, business loans are for fixtures, equipment, or other improvements, not rent for the term of the lease. You might borrow to buy kitchen equipment to open a restaurant but after that you’re supposed to know how to use it to keep the cash flow positive. The longer the lease, the longer you have to recoup the initial investment.
But yes, it is hard for small businesses to be taken seriously and commercial landlords want a track record and a co-signer. Start-ups are risky all around, you want tenants past the proof of concept phase.
I had to face reality a few years ago when I realized how hard it would be, not having a spouse with steady income or a wealthy co-signer, to get a loan to build out a kitchen & retail shop for my chocolate business. The idea of having to pay back $100k++ was also sobering. Luckily I managed to get into a kitchen that was already built and I could afford to take over without borrowing. It’s in a building of artist studios, the landlord didn’t ask for financial statements or other formalities. Highly unusual, I know this wouldn’t happen with new construction or an absentee landlord. The trade-off is that it’s in an industrial area with little foot traffic so I need to focus on wholesale accounts, but I’m good with that so I opted for a 5 year lease.
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Emphasis added. This is only “obvious” for those that believe that government can regulate a market, which is how inner cities have found themselves in the position of a lot of empty retail and commercial space. Smart government is the exception rather than the rule.
You got a house in SF I can buy for $600,000?
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Less than 600 square feet, no outdoor space, stares straight into a retaining wall and living room window at sidewalk level.
Don’t forget to invite us to the housewarming!
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Cozy! Who needs a yard, it’s across the street from a park.
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If that retaining wall is part of a stinky airshaft, the bathtub is across from the bed and the toilet is out in the hallway, I mean driveway - that’s an old school Lower East Side tenement studio apartment! I lived in a couple. Of course they were less than $100 a month back in the 80’s. LOL.
Seriously I didn’t realize Tiny Houses were that pricey even in SF.
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That’s pretty shallow for deeper.
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We’re retired and eat out quite often (it’s my hobby, LOL) all around the SFBA. We’ve seen a small but gradually increasing # of empty storefronts, and what is not good is that they often are remaining empty.
Yes, some get filled quickly - but some don’t, and the lag is getting greater while the number of unfilled locations continues to creep up.
Today’s new (Oct 1st) in the EBay Times has these headlines:
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Kincaid’s, 33-yrs in JLondon Square, abruptly closed
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Minerva’s, 40 yrs in Fremont, is closing due to owner’s retirement; location is scheduled for redevelopment
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Corner’s Tavern, 7 yrs in Walnut Creek, closed abruptly. There have been at least four big closures in Walnut Creek over the last six months, a higher turnover than average, with smaller fast casual on the rise.
+++++
I recently read an article somewhere - unfortunately I didn’t clip it out - interviewing a food seller (home sales, I think) who said that she couldn’t afford a brick and mortar presence because those new developments with ground floor retail wanted five year leases.
For her, one year was possible but even two was a stretch, for a new restaurateur. Even getting the loan would be hard enough, but committing to a 5 yr lease felt like “the straw that might break the camel’s back”, in her eyes.
Are there ways around it? Probably - but none of us are in a position to implement those changes.
Add this to the news of staff cuts at Nestle Dreyer’s California locations, and you have an increasingly unstable economic foundation being fostered.
For me this raises lots of questions. Is this trend a visible manifestation of a larger trend? Are restaurants sort of a canary in a coal mine for unexpected negative side effects on small businesses of well meaning Bay Area far left politics? What can be done to reverse the trend? What will the Bay Area food scene look like in 5 years?
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I am not a right winger (not a left-winger either), and really don’t want to bog the conversation down in politics BUT this is an issue for the restaurants. First all the silly permits and regulations can be consolidated and streamlined. As far as paying a living wage, sure who would not be in favor, but who determines what constitutes that and at what point does that determination squeeze and suffocate small businesses to death so all you are left with is chain stores with deep pockets? From the article:
"Over the past five years, minimum wage has gone up $1.00 every year. Jed explained that when an employer adds in benefits it comes out to roughly an additional $1.30. For Jed, who has 90 employees, that has translated to an additional $30,000 a month increase to her bottom line of labor.
“So for each year of dollar increase, $30,000 increase, cumulative $60,000 increase, cumulative $120,000 increase,” she said, “And you start to do the math, if you’re not bringing in more income, you’re at a net zero gain.”"
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Has anyone ever tried http://www.creator.rest/ ? Weirdest hours available if you don’t work during the lunch hours. https://cafexapp.com/ made a decent cup of green tea latte thingamabob. There’s also a robot coffee barista in SFO now…
We recently heard a related second-hand tale of woe from the Rust Belt. A chain fast food restaurant regional manager has staffing issues of constant turnover that “living wage” does not seem to address. Apparently, too many workers hire on just to earn a fixed sum relatively quickly, not to make a living, so they’re gone in a couple of pay periods. Raising the pay to say, $20/hr. for a crew of 4, instead of paying $15/hr. to a crew of 5, doesn’t seem to work out. So, he just soldiers on trying to keep staffed . . .
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“The local labor market is too tight to keep my poor, poor well-capitalized low-wage enterprise afloat” is not a story that should evoke any sympathy.
Pay people a competitive wage, raising prices if necessary. They’re leaving after they make rent or whatever? You’re evidently still not paying them enough to make staying worth their while. Keep raising wages. Can’t do that? Find another line of work.
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You do realize that your proposal leads directly to high inflation, correct?
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It’s a challenge in Seattle too. People don’t want to pay $18 for a sandwich and $18/hr is tough to live on when a studio apartment is over $1k/mo and all other living expenses are inflated.
I like city living but it’s not always worth the struggle.
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