Will vacant storefronts tax improve business in Berkeley?

The old CP Shades store on Solano Avenue is now one of that street's many vacancies. Photo: Tracey Taylor

During the month of February, there were 11 vacant storefronts along the top stretch of Solano Avenue, giving the shopping district a slightly beleaguered air.

While the soft economy accounts for some of that vacant frontage, City Councilmember Jesse Arreguín suspects some landlords in Berkeley are keeping rents artificially high, making it difficult for small business owners to find suitable retail space.

Arreguín thinks that Berkeley could minimize the number of vacant storefronts by charging landlords a fee when buildings lie fallow for an extended period of time. He will ask the City Council tonight to send a directive to the city manager’s office to study the issue.

Landlords “have the right to rent their space to anyone they want,” said Arreguín. “My concern, and the concern I have heard from others, is that holding out for that ideal tenant and then leaving the space vacant for six months to a year or even longer – that decision has a cost to the community, making commercial districts look like they are in decline and creating the appearance of an unsafe area. It definitely has an impact.”

Arreguín thinks imposing a vacancy registration fee will give landlords the incentive to find new tenants quickly. Although his idea is only conceptual at this point, he has suggested a $180 registration fee that escalates to $300 for every six months the property remains vacant. A new law could also impose cleanliness standards on vacant property, such as requiring it be kept clear of graffiti, weeds, and litter.

Landlords would have a grace period of up to six months to try and rent their property, said Arreguín. There would be exemptions for buildings being renovated or landlords who are suffering financial hardship.

The City Council has been grappling with the issue of vacant storefronts for almost a year. In December 2010, it passed the “Encouraging Economic Development and Increasing City Revenue from Business Activity” plan. The council asked the Planning Commission to look into “providing incentives to property owners to encourage leasing and establish disincentives to motivate property owners not to leave their properties vacant.”

But one commercial realtor says that Arreguín’s assumptions about why there are so many vacant storefronts in Berkeley are wrong – and that a fee is not the way to solve the problem.

While years ago people used to get dressed up and head downtown to shop for shoes, clothes, or consumer electronics, they now head for malls or superstores like Costco, said Michael Korman of Korman and Ng.

Those kinds of businesses don’t exist in Berkeley. Instead, most of the retail space for rent is in older buildings where the space tends to be very deep. The stores were designed that way because decades ago store owners needed a lot of storage space in the back to keep their goods. Nowadays, store owners don’t need a store 50 feet deep because they can get goods delivered overnight, said Korman. They mostly just want the six feet of window space fronting the street. But they still have to pay for the larger and deeper space.

Parking is also an issue, said Korman. He said one reason why the Elmwood shopping district is flourishing is because they city owns a small parking lot behind the stores on College Avenue.

“That is a lifeline to those businesses,” said Korman. “You can go in for an hour and have lunch. If the city really wanted to help, they would provide little parking lots. If the city had the courage – and the will – they would do that.”

Korman did not agree with Arreguín’s conclusion that many landlords are holding out for higher rents. While he could understand assessing a fee on dilapidated buildings, he can’t see the reasoning behind a fee on those that are merely vacant.

“There might be a penalty on egregious blight, but a vacant store is not blight, especially when you have hard economic times,” said Korman. “Hard economic times are all over.”

Other cities in the Bay Area assess a fee on vacant properties, but usually when they are blighted by graffiti and weeds, not just sitting empty. San Jose used to just impose a fee on blighted residential property, but added retail and commercial buildings a year ago, said Mike Hannon, a code enforcement official. If an inspector notices a building that is neglected, the city will issue a warning that gives property owners 30 days to clean up the site. If repairs are not made, the property is put into a registration program where it must remain for at least three quarters. The owner has to pay $460 a quarter, as well as other fines.

There are about 108 residential properties in the registration program and three commercial properties, said Hannon. There are not many retail buildings because landlords usually take care of the property.

“Most property owners are maintaining [their building] because they want to get it rented out,” said Hannon.

Arreguín said he had not done any formal study on why some landlord’s spaces have remained vacant for so long. He has looked at listings in Berkeley and compared the rents to those in other cities, he said. He has had conversations with shop owners and heard anecdotal information about the push to keep rents high.

“Most commercial property owners aren’t problem property owners,” said Arreguín. “They keep up their properties. But we have out-of-town owners who aren’t all that interested in keeping up their properties.”

“The ultimate goal is we want these spaces to be filled,” he said.

Print Friendly
Tagged , , , , ,
Please keep our community civil. Comments should remain on topic and be respectful.
Read our full comments policy »
  • DC

    I agree, certainly.  Berkeley is too fixed in what it allows as far as zoning.  But this fee is a completely separate issue.

  • Anonymous

    If the city really wants to support local businesses, they should approve more no-parking apartments. People who don’t drive don’t go to malls to shop. Heck, that’s why these buildings were built decades ago, and that’s why they fell on hard times once everyone and their mother got a car.

  • good idea

    I think it’s a great idea!  We’ve watched spaces in the downtown area sit vacant for years.  The doorways become bathrooms, campgrounds, and storage facilities for the homeless.  It is blight, and the property owners should be held responsible.  Sadly, I think most of the property owners who have held out so long aren’t going to be persuaded by a measly fine to do the right thing.  And having looking into many of the available spaces in that area, the property owners are most certainly unrealistic in their rent expectations.  

  • BH

    But what is “market rent”?  What the landlord wants and what a tenant can feasibly pay seem to be two very different things.  Agreeing to high rents is one of the biggest killers of small businesses.  Are you working for yourself or the landlord?  It seems like tenants are sending a very clear message, but the landlords are trying to dictate a “market rent” that simply doesn’t work in this economy. 

  • safay

    On one commercial street in Philadelphia, local businesses and developers came together to reduce the number of empty storefronts.  Unoccupied storefronts are rented free to arts and cultural organizations, who apply for usage.  The selected organizations get renewable 2-month leases, which still allows the landlords to look for paying renters.  It reduces blight, brings shoppers onto the street, and supports local arts organizations.

    http://www.smartsandculture.com/blog/2009/january/upside-recession-artsOrganizations currently in residence include textile art support for the homeless:http://handmadephilly.wordpress.com/2010/10/19/art-activism-arts-on-south-gives-handmade-a-chance/
    and a very vibrant gallery for recycled art:

  • mtaysic

    Sorry for my ignorance.. why were Trader Joe’s and Berkeley Bowl West stalled?

  • Guest
  • Charles_Siegel

    That is very interesting. I hope Berkeley imitates this law.
    Thanks for posting.

  • John Freeman

    You might want to review the size of the tax there in San Francisco and the amounts discussed in this article. They are peanuts. What impact do you think this will have other than create some make-work for city staffers to use up the money collected? (Also, I think I remember city staff fessing up, since the time this article was published, that any legally permissible registration fee would be too small to change landlord decisions. That’s why they are supposedly trying to figure out the mythical parcel tax method.)

  • Charles_Siegel

    As I remember, Anthony said that they thought the fee would be too small, so they were looking at a tax. But surveys found that the public would not support a tax, leaving us with a fee as the only way to go. It is not as good as a tax, but San Francisco apparently thought it would have some effect.

    Maybe Anthony can give us more info, if he reads this.

  • guest

    Do you ever get tired of moving the goalposts, JohnTomBruce?

    You were WRONG about the legality of these fees. Learn from it and stop pretending to be an expert on subjects you don’t have any expertise about.

  • John Freeman

    You were WRONG about the legality of these fees.

    It always has been and remains unlawful to impose punitive fees. Nobody has moved any goalposts, whatever personal issues you have aside.

  • Charles_Siegel

    At least, it will recover the money that the city spends because of these vacant storefronts. This sort of fee is based on the actual cost to the city. Why should we subsidize property owners who keep their storefronts vacant?

  • guest

    Precisely. Vacant storefronts result in higher costs for the city. At the very least the city should be charging those owners for the costs of cleanup and additional attention that they require.

  • John Freeman

    You linked to two conversations about how punitive fees are impermissible and only very small fees associated with actual expenses could work.

    That’s the same thing I’ve said here.

  • Nunya Beeswax

    Oh, so you don’t spend a dime in Berkeley because you had a hunch that one day they might penalize the rapacity of commercial property owners who would rather keep a storefront vacant than rent for below their target amount?

    Good to know. Assuming you meant “Berkeley” and not some small town in Hungary.