Photo of the Day: November 27, 2009
Car Pushed Into Anacostia River By Train
Morning Roundup: Black Friday Edition
Devendra Banhart @ 9:30 Club
Saturday Thanks Don't End At Thanksgiving Photo: November 28, 2009
This is a question I often ask myself when strolling by the intersection of 14th and U Streets NW (though thankfully a little less often now, since the long-awaited redevelopment of the buildings on the northeast corner nears completion). Matt Yglesias offers up the vacant building next door, however, as a case study in why, even accounting for the current recession, so many city storefronts in seemingly ideal locations remain vacant for so long. Assuming that a landlord has difficulty attracting a new tenant at the current rent, shouldn't there be an incentive then to lower the rent? Isn't some rent better than no rent at all?
Both Yglesias and Megan McArdle agree that Felix Salmon and Justin Fox are on the right track when it comes to the question of why, in the case of empty urban storefronts like those clustered around 14th and U or say, Cleveland Park, markets don't clear: long-term commercial leases mean the incentives for landlords are different than you might first assume.
If prevailing leases are low, or tenants hard to find, the developer will quite rationally choose to keep the property empty. Leasing at a low rate will lock in a loss, while keeping the property empty has significant option value: at some point in the future, rents might well rise, and the developer can at that point lock in a profit instead. This is why successful property developers generally need very deep pockets: anybody who needs immediate cashflow, in the form of rent today, is in an invidious bargaining position and is likely to lose out over the long term.In the meantime however, these rational landlords are helping to keep urban neighborhoods in a state of partial blight. No new jobs will be created by businesses opening in these spaces, the city will collect no sales taxes from them, and the accumulation of trash and degradation of public spaces surrounding the vacant storefronts actually costs taxpayers money.
So presuming this is the story behind many a vacant storefront in the District, wouldn't it make sense for the city to siphon some cash toward making up the difference in rents for some of these long-term leases? Assuming the net gain in sales tax receipts and decreased costs to the city in upkeep would be more (and granted, that's a big assumption) than the rent subsidy paid out, everyone would win.
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This argument may apply when you're dealing with a large commercial landlord, which only deals with long term leases. But take one look at that building in the photo. Do you think it's owned by a conglomerate? Managed by Akridge or Jones Lang Lasalle? Methinks not. This is a landlord with not only the flexibility to keep leases short term, but also the incentive to do so. I agree with Sommer on this one.
"wouldn't it make sense for the city to siphon some cash"
Do you mean increase taxes on landlords who own vacant stores in commercial district?
Then I agree.
That, I believe, is where Peter Nickles lives. Not in some fire extinguisher closet in Penn Quarter.
I thought you kept him locked in a trunk in your attic?
It turns out he wasn't potty trained(!!!) so I threw his ugly behind out.
Get back in the Port-o-Let® truck, Liz.
Commercial slumlords need to take a lesson from the Shiloh Book of Tax Avoision and just get their property declared "no longer a nuisance" so's to avoid any further vacant property taxes.
Why pay high rent when the building is completely dilapidated? The area may be a great location for many customers, but the building needs to meet all safety codes. How about a little facelift? Geez!
Most commercial leases are triple-net. Meaning lessee is responsible for build out, taxes, and utilities. On top of the rent. Almost no commercial landlord will invest their own $ into making something pretty. They're almost all interested solely in passive income- an annuity of sorts.
I can't believe that no one has chimed in with comments such as; (a) the pictured building should be turned into a bagel shop and (b) bagels in DC suck.
Bagels in DC suck. LOL
How about a cupcake store?
This dynamic is an inverse of "the tragedy of the commons".
Instead of each person taking from a shared resource in a way that is greedy and without regard for the commons, each person refuses to contribute in to the commons.
It just goes to show that sometimes group decision making is better than individual rights.
Does vacant commercial get taxed at 5/10X occupied? Or just vacant residential.
Quite frankly - I don't know how any storefront retail survives in any neighborhood. Except sex shops, of course. They are the termites in this nuclear apocalypse of an economy.
Seriously. Why pay landlords to make money when you can fine them for costing the city money instead? Kick them into a much higher tax bracket if a property is vacant for more than 6 months or start fining them a neighborhood upkeep fee or something. We don't have money to give away right now, anyway.
Yeah, that would make sense, wouldn't it? Unfortunately, it would require the requisite balls and/or ovaries which the Council doesn't seem to posess. Not in their own pants, anyway. I have no idea what they keep in their kitchen cupboards. You don't want to know what Barry has in his. Believe me. It's like something out of "Se7en" only, y'know, less funny.
Seriously. Why pay landlords to make money when you can fine them for costing the city money instead? Kick them into a much higher tax bracket if a property is vacant for more than 6 months or start fining them a neighborhood upkeep fee or something. We don't have money to give away right now, anyway.
Changing gears a little, but does anyone know the background of the painting on the side of that building? Thanks.
I think it might have been part of the retro-communist-inspired art associated with State of the Union in its first incarnation as a Russian restaurant.
(Man, remember when State of the Union was a restaurant, and Andalusian Dog and Las Cruces existed? Good times.)
Unfortunately, yes, I do remember State of the Union. But my lower intestine is desperately trying to forget. If you ever find yourself inside and notice the impact cratering in the toilet, that would be Yours Truly.
What, you mean you ordered something other than the black bread and borscht? More fool you.
Anyone know the backstory behind the empty properties on the western end of the 1300-1400 block of G St, NW (between Metro Center and the White House, adjacent to Kaiser Family Foundation)?
It seems like these would be prime commercial real estate given their location, but they have been empty with several homeless folks camped outside them for YEARS, and it has baffled me for ages.
I think the rent in the whole area has been jacked up a lot in the past five years. For example the Willard(?) building on 15 & H used to be really low end offices and retail storefronts that got all pushed out to renovate the building during the property boom. Then the bubble burst...
It is slated to be the home of the long-delayed Armenian Genocide Museum
http://www.armeniangenocidemuseum.org/
Interesting, thanks!
It's a shame that such properties go to waste... I'd love to see the city up the tax on abandoned or vacant properties and force their lazy owners to find tenants; but then you know said lazy owners will moan and groan about the economy and how hard it is to find rental arranagements and blah blah blah... It's correct to say indeed that "some income is better than none" and so those who let the properties sit vacant are foolish and should probably have the property seized by the bank anyway... Emminent domain anyone?!
Considering most have been vacant for decades and we're just off a 10-year boom, it's insulting that anyone would offer that "oh, the economy sucks I can't find a renter" argument. They just need to adjust their asking down to market reality. "Real Estate Intervention", anyone?
I miss the State of the Union and it's bouncing floors, filthy restrooms and puke smelling air. Ahhhh...memories.
How about all of the abandoned storefronts around the Shaw metro? I'm pretty sure they're all owned by Ellis development which just sits on the properties for the development of Broadcast Center One which is HEAVILY subsidized by our tax dollars and is clearly moving nowhere. Why the neighborhood has to be held hostage to a big developer who is being subsidized by our tax money while they sit on these properties is beyond me. At least they should be required to fix them up a little bit and clean up all of the trash and booze bottles from the loiterers these empty storefront eyesores attract.
Seems to me there's two sides to this story.
Yes, there are plenty of owners of commercial buildings that maintain them very poorly.
But we should remember that most of these areas truly sucked up until quite recently. A lot of commercial real estate owners took a huge hit in the 80s and 90s on their DC holdings. When you are losing money every month and every improvement you put in is torn up by the local youths you tend to stop caring how pretty your property is or isn't.
I've seen some of the same commercial buildings in DC graffiti'd and vandalized six or seven times. Repairing that gets really expensive. Some become literally little more than shells, as thieves take all the copper wiring and anything thing else they can remove, no matter how much effort the owner puts into securing the property.
And DC government has a VERY hostile attitude toward businesses. It can sometimes take years to get the necessary permits and permissions to improve commercial real estate.
And the process for liquor licenses, which many of these businesses would like to have, is terrible. The horrible businesses stay in business for decades, but many new liquor license requests are met with dismay, hand-wringing, and bitching from residents, many of whom moved 30 feet from a commercial strip and are then shocked when someone eventually wants to open a commercial establishment that isn't a cupcake shop.
Yes, there are some crappy commercial landlords out there. But don't automatically assume that every unused space is a case of greed on the part of the landlord.
Seems to me there's two sides to this story.
Yes, there are plenty of owners of commercial buildings that maintain them very poorly.
But we should remember that most of these areas truly sucked up until quite recently. A lot of commercial real estate owners took a huge hit in the 80s and 90s on their DC holdings. When you are losing money every month and every improvement you put in is torn up by the local youths you tend to stop caring how pretty your property is or isn't.
I've seen some of the same commercial buildings in DC graffiti'd and vandalized six or seven times. Repairing that gets really expensive. Some become literally little more than shells, as thieves take all the copper wiring and anything thing else they can remove, no matter how much effort the owner puts into securing the property.
And DC government has a VERY hostile attitude toward businesses. It can sometimes take years to get the necessary permits and permissions to improve commercial real estate.
And the process for liquor licenses, which many of these businesses would like to have, is terrible. The horrible businesses stay in business for decades, but many new liquor license requests are met with dismay, hand-wringing, and bitching from residents, many of whom moved 30 feet from a commercial strip and are then shocked when someone eventually wants to open a commercial establishment that isn't a cupcake shop.
Yes, there are some crappy commercial landlords out there. But don't automatically assume that every unused space is a case of greed on the part of the landlord.
No competent normal person lingers "years" waiting for permits. The ones that do are looking for boundary-pushing zoning or historic relief, or a liquor license in a moratorium area.
Simply not true. Ask Joe Englert (owner of the bars on H St NE) how long it takes to start up a business from scratch in DC.
That's a touch different from ma or pa smith setting up a bbq joint or whatever. Neither Joe nor his country club are typical for about a million different reasons, starting with the extent of his renovations.
But you said 'no competent normal person'. I gave you an immediate example. Incidentally, Joe had the same problems with Argo and other locations which did not have inputs like his mini-golf place.
Most new restaurants needs extensive renovations, particularly when they are going into a space that is dilapidated.
I know a good number of bar/restaurant owners in DC. Most of them will tell you that a delay of one to two years or more is not uncommon.
I'm not saying this is the reason for all crappy unused spaces in DC. I'm just saying the "blame the property owner always" mantra is retarded and shows a certain lack of knowledge of how hard it is to operate a business in DC.
Joe is competent but not normal. This because neither what he builds nor where he builds it is normal. It took Joe a long time to open in part because of the extra-ordinary extent of his renovations and the fact that he tried to create a new nightlife corridor out of thin air and willpower.
His is a poor example to measure the city's permitting process by.
So to your list of caveats we also have to add any business that's trying to open in a corridor that is underdeveloped but the owner has hopes of starting a revival?
It's not just the permit process. It's the negotiation with the owner. It's the actual buildout. It's the inspections. It's not knowing who to pay under the table. It's the constant renegotiations with neighbors. It's the pissing contests with PEPCO and Washington Gas. It's the locals stealing all your copper pipe repeatedly.
And here in the last year it's financing. Even the most solid of businesses can't get financing anymore. The commercial credit crunch is very real, and many think they are specifically targetting 'urban' areas like DC as being high-risk so they can go back to a safer model of financing yet another Applebees in Springfield.
It's not really fair to penalize a developer if he has a property but can't get anyone to lend him the money to renovate it.
Opening a business in DC ain't for pansies.
One DC business owner to another, most of what you write sounds like anytown USA to me. Owning a business isn't for pansies. That's why most people don't choose that path.
But if you know of anyone who's been shook down by DCRA or whomever, tell them to contact the Mayor's office and the AG. Trust me that they won't put up with that shit.
Alright, I'll bite. Hillman is now Supreme Generalissimo and District Overlord. Apart from declaring martial law and implementing eminent domain, how does a Hillman Administration deal with vacant commercial properties that have been sitting on U Street and 9th Street for decades? Because jacking up taxes doesn't seem to be an option, seeing as there's no willpower on the Council, and "trimming the bureaucracy" sounds nice but only results in more government contractors to monitor the job cuts.
I'm not sure I have a good answer. But, then, we don't come to DCist for answers.
But I will take that position you offered. I assume it pays handsomely and people have to call me Sir Overlord?
I've long wondered about that space right on the NE corner of 14th and U. It's been empty since the days of the Grand Poobah in the early 90s.
And yeah, tax the hell out of landlords who hold properties vacant for years to get the right rent. It's incredibly damaging to the surrounding area and there should be a cost. 14th Street could've come back up 10 years earlier than it did were it not for developers buying and holding properties vacant for years until they liked the market conditions.
Regarding that State of the Union space, it would be easier to tear it down and start over if you were going to put anything in there. Let's just say it hasn't aged well on the inside after being completely abandoned for a decade.
Yeah, good luck getting that one through HPRB.
Hell. It wouldn't even get passed staff review. The blame falls on the owner for demolition by neglect.
I can buy the "a higher paying tenant will come along eventually" argument, but only for so long. Sometimes, the landlord simply has completely unrealistic expectations regarding the market and refuses to adjust the rent accordingly. An example of this would be the south side of F Street, between 9th and 10th. While the north side of F has been pretty well leased out, the south side is a calvacade of empty storefronts with a "Douglas Development" sign in the window. Jemal's holdings in DC are so vast that it doesn't matter one whit to him whether those properties sit empty for 20 years; his concern isn't neighborhood vitality, it's bringing in either a national chain desparate to be in Penn Quarter, or a restaurant with capital to burn on his above-market rates.
Hillman has a point though--the District government CAN be hostile to businesses. It is impossible to open a business of any complexity (i.e. a restaurant, bar, etc.) within a year. The owners of the old Dakota Cowgirl space have been working on securing the permits for that space seemingly since the dawn of time. So there is a lot of blame to go around for this.
My favorite part of that space? The previous restaurant put all that work into it, only to have local thugs break in through the roof. And rumor has it that even with all the work (not to mention coming into what was then a dilapidated piss-stained strip before anyone else would) they had some of the locals still constantly gave them a hard time.
Sometimes we get what we deserve in this town.
Jemal's more complicated than that. From what I can tell he plays a long game. He purchases blocks of property and will allow them to sit vacant or put some sort of low-level community benefit use into them (City Green, for example). But his goal is to assemble blocks of properties and create extra value through synergistic uses. Put another way, he doesn't buy, renovate, and rent buildings. Rather, he buys, renovates, and rents neighborhoods.
Joe Englert has pointed just how difficult it is to start a business in DC. He may be the exception but he certainly has spoken strongly about it. It's a combo of greedy landlords and District government stupidity. The city charges small, local merchants the same tax rate as large corporate franchises. That's why places like Chinatown/GP turn into big outdoor malls. The Gap is the only store that can afford the city's taxes.