Sarah McNally: NYC Needs Legislation That Will Encourage Landlords To Keep Their Storefront Tenants

Sarah McNally outside one of her stores in Manhattan.Credit...

Calla Kessler/The New York Times

A few years ago the empty storefronts on the upper east side of Manhattan became noticeably widespread. First avenue, Upper East Side? Looks like the depression, especially now.

COVID-19 has exacerbated this problem. What kind of city will we have when - or if - this pandemic ends? It's not going to be good, with small storefront owners pushed into bankruptcy by landlords whose incentive to keep tenants at high rents remains in force.

Somebody do something.

Betsy Combier, betsy.combier@gmail.com
Editor, ADVOCATZ.com
Editor, NYC Rubber Room Reporter
Editor, Parentadvocates.org
Editor, New York Court Corruption
Editor, National Public Voice
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What Could Kill My New York Bookstores?

It won’t be Amazon or the coronavirus. It will be artificially high rents.

By Sarah McNally, NY TIMES, May 29, 2020
Ms. McNally is the owner of McNally Jackson Books and Goods for the Study

Every weekday I drive to my four bookstores, pick up our customers’ orders, wedge them into the back of my car and take them to the Cooper Station post office. My route takes me to Williamsburg to Downtown Brooklyn to the South Street Seaport, and ends at my original store in NoLIta.

I sweep the deserted sidewalks — if you own a shop, you’re responsible for the sidewalk — and I wonder how many of the stores and restaurants around mine will be able to reopen and pay the debts they accrued during the lockdown.

So many closed long before the pandemic. I miss my old neighbors in NoLIta, the restaurants and their chefs, the bodega that magically had everything I needed, like Mary Poppins’s carpetbag, the Buddhist monk from the Tibetan store who gave me cardamom for tea, the bar where I had the most beautiful date of my life.

How many more distinctive stores and restaurants can our city lose before we find that we are no longer New York, but a dead-faced simulacrum?

Years before Covid, many city blocks had been reduced to a few overlit national chains — Dunkin’ Donuts, Metro by T-Mobile, Subway, Starbucks — and a whole lot of dark, depressing vacancies. Almost every business owner I spoke to or read about seemed to give the same reason: soaring rents. In some neighborhoods, even as vacancies are increasing, rent keeps rising.

When you think about it, this violates everything we think we know about free markets. From 2007 to 2017, vacant retail space roughly doubled, according to a report by the New York City Comptroller’s Office. Logic would dictate that rents would drop — if no one wants your space, wouldn’t you lower the rent? But in fact, in Manhattan, retail rents rose by 22 percent in that period, according to the report.

In 2018, even the national chains began closing more spaces than they opened. Rents have come down somewhat in a few heavy shopping arteries, but on the streets where I was looking to open stores, rents didn’t seem to budge. In 2019, rent for my NoLIta store jumped from $360,000 a year to $650,000.

You might think that small businesses in New York are simply natural victims of a Darwinian system that favors chains and e-commerce. Amazon makes a good villain. Every time I see a postal worker pushing a dolly full of boxes, I search for a single non-Amazon package — just one to break the feeling that I’m trapped in an Amazon-branded virtual reality. I am usually disappointed.

But this hardly explains our rising rents. If New Yorkers insist on shopping online, then there should be less demand for New York retail space, and it should become less valuable, not more. It is natural for landlords to want to charge as much as they can, but in a rational world, with citywide vacancy rates estimated at about 6 percent to 20 percent, you’d think landlords would prefer some rent to no rent. But when landlords have sufficient income from residential rent, they can afford to leave stores vacant.

Every part of New York has different issues with real estate, but in the neighborhoods I know, landlords are holding out for higher rents, or they feel they can’t lower our rents because of the terms of their mortgages. That makes us victims of the financial industry, not of the free market.

A lender provides a commercial mortgage based on a building’s appraised value, which is based on its rent roll. If landlords lower rent, their buildings become less valuable. Moreover, if a landlord owns many buildings in the same area, and she lowers the rent on even just a store or two, her entire portfolio loses value in the eyes of the bank, because future appraisals will assume a lower market rental rate. That’s why an empty store that theoretically commands a high rent can be a safer option for a landlord than a reliable tenant paying a reasonable rent.

We don’t know what the vacancy rate will be when the shutdown is finally over, but without a plan to help us, it will almost certainly be catastrophic. In France, the government offered to suspend rent for small businesses closed during the lockdown, so that when the country reopened, stores and restaurants could, too.

In New York, by contrast, the meter is ticking every day. When the shutdown is over, small-business owners like me will be expected to pay our back rent, despite months of lost revenue. And our excessively high rents will remain in place even though fewer customers may be allowed in our shops, fewer diners in our restaurants, fewer clients in our salons.

This is a systemic problem, but there has been no systemic solution offered. At the start of the pandemic, state legislators proposed suspending commercial rents for small businesses that have suffered financial losses for 90 days, but the bill is languishing in committee. The City Council passed a law that will keep landlords from enforcing personal guarantees on leases if the tenant has defaulted on rent because of the pandemic. That means my landlord can’t seize my personal assets, like my car, if I were to default. The law is a lifesaver for people when their businesses sink, but it does nothing to keep us afloat.

The federal government has allocated money for small businesses, but we have to spend most of the money immediately on wages, or find a way to pay it back. That money is important for workers across the country. Unfortunately, it won’t help businesses in New York pay back all those months of rent that we will owe.

During the pandemic, as before, the killer of New York storefront business will be rent. Even now, facing a post-Covid twilight, too many landlords would rather have vacant stores than retain paying tenants by helping them through these months of closure. We need intervention to encourage landlords to keep their storefront tenants.