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Can the Pandemic Give Commercial Rent Control a New Lease on Life?

Boarded up storefronts line a block near Queens Plaza, Sept. 14, 2021.
Boarded up storefronts line a block near Queens Plaza, Sept. 14, 2021.
Hiram Alejandro Durán/THE CITY

Natasha Amott has seen the ups and downs of the city’s economy for 13 years as the owner of the housewares store Whisk in Brooklyn.

After first establishing her store on Bedford Avenue in Williamsburg, she was forced to relocate to Downtown Brooklyn in May 2018 when the gentrification of the neighborhood led to a sharp rise in rents.

“We faced a 44% increase and we were already paying $20,000 a month for our 1,500 square foot space and that was untenable,” she said.

Now, with rents declining sharply as a result of the pandemic, she is looking at new spaces. But brokers tell her that while good deals are available for the next two or three years, the rents will likely reset to a much higher level by 2024 and beyond.

“How are we going to be better off?” she asked. “We can’t have this attitude that the pandemic saved us from high rents.”

Amott is part of a group of small business owners mobilizing to win passage of a commercial rent regulation bill introduced by Councilmember Stephen Levin (D-Brooklyn). With less than four months to go in office, Levin has called for a hearing Friday on his proposal to establish rent regulation for some commercial spaces in the city.

Whisk owner Natasha Amott works in her home good store on Atlantic Avenue in Brooklyn, Oct. 29, 2020.
Natasha Amott in her store on Atlantic Avenue in Brooklyn.
Ben Fractenberg/THE CITY

Supporters’ argument is anchored in the pandemic economic plunge that has crippled the city’s economy. While rents have dropped and many storefronts are vacant, they say, a recovery will bring soaring rents — again making it impossible for the city’s small business to survive.

“Rent regulation was important before COVID and it’s even more important today for a just recovery,” Levin said. “As we come out of the pandemic — and we will — we don’t want to go back to a time when rents can rise 100% or 300% when a lease expires.”

Seeking ‘a Just Recovery’

Enacting rent regulation won’t be easy.

A broad coalition of groups ranging from the Manhattan Chamber of Commerce to the Council of New York Cooperatives and Condominiums to the influential Real Estate Board of New York are marshalling opposition. Some lawyers also question whether the Council even has the power to enact such legislation.

“Our major concern is that it would create a bias against renting to small businesses because of all the added hoops a landlord would have to jump through as a result of this bill,” said Jessica Walker, president of the Manhattan Chamber of Commerce, “Moreover, it’s hard to push this bill now when we’re clearly in a renters’ market and the vacancy rate in Manhattan is so high.”

Levin’s proposal, mimicking in part the city’s residential rent regulation system, would establish a board to set rent increases for retail and professional or service offices of 10,000 square feet or less and manufacturing establishments of 25,000 square feet or less.

The mayor would appoint a nine-member Commercial Rent Guidelines Board responsible each year for establishing guidelines and the allowable increases.

Councilmembe Stephen Levin (D-Brooklyn) has been working to regulate rent on some commercial spaces, Sept 14, 2021.
Councilmember Stephen Levin (D-Brooklyn) has been working to regulate rent on some commercial spaces.
Hiram Alejandro Durán/THE CITY

The rents these businesses were paying before the pandemic were simply not tenable, Levin argues. He said the bill isn’t primarily aimed at the key business districts in Manhattan, though the measure would apply there as well.

“It is about places like Brooklyn Heights where small businesses invest in a neighborhood and build a business and then see their rents soar when gentrification happens,” he added. “It is about a just recovery, including for small businesses.”

There is no up-to-date citywide retail rents figure. All but one of the 17 Manhattan retail corridors tracked by the Real Estate Board of New York have seen their asking rents decline over the past year, according to a recent REBNY report. The biggest drop, in SoHo, came in at 40%.

The number of vacant stores is also growing, despite the reopening of the city’s economy. A Cushman & Wakefield survey showed the number of ground-floor spaces for rent in the 16 Manhattan corridors it tracks increased in the second quarter of the year to 290 from 275 in the first quarter.

Rents had also begun to decline even before the pandemic, with Cushman showing lower rents each quarter for almost four years.

Market Works, Landlords Say

The legislation would affect more than just large landlords.

The Council of New York Cooperatives and Condominiums, which says it “strongly opposes the bill,” notes that the legislation would hurt their members by restricting rent increases at a time when they have already lost revenue from vacancies despite their best efforts to work with commercial tenants.

Other rent regulation foes argue the market is working.

“Most of our owners have worked out revenue sharing models in the pandemic and have advanced money for outdoor dining, a sign that we want businesses and neighborhoods to thrive,” said Basha Gerhards, a REBNY senior vice president. “Any flexibility in the marketplace will be taken away by a board and there will be zero incentive to do any of these things.”

Signs us struggling retail in Downtown Brooklyn, Dec. 17, 2020.
Signs of struggling retail in Downtown Brooklyn, Dec. 17, 2020.
Hiram Alejandro Durán/THE CITY

Eight other organizations joined REBNY in a statement Wednesday opposing the plan including local chambers of commerce and business improvement districts.

Gerhards adds that studies have repeatedly shown that rent regulation over time reduces supply because the process becomes politicized and increases rarely cover costs. Over time, values — and as a result tax revenue for the city — is less than it would be without regulation.

Levin concedes that he doesn’t have a commitment from Council Speaker Corey Johnson to move the bill to the floor for a vote. Johnson, who is also leaving office at the end of the year, did not immediately respond to a request for comment.

A spokesperson for Mayor Bill de Blasio said the administration is studying the proposal, although in the past the mayor hasn’t been willing to embrace commercial rent control.

Even if the bill passes, it will face a legal challenge from lawyers who contend the city doesn’t have the power to regulate rents. Residential rent control has been established through state legislation. New York State imposed commercial rent regulation from the end of World War II until 1963, when the legislature refused to extend it.

“Local governments can regulate property affairs that affect the health and welfare of cities but courts have consistently ruled that doesn’t include rent regulation,” said Alexander Lycoyannis, a real estate specialist at the law firm Rosenberg & Estis.

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