The Real Estate Board of New York to The New York City Council Small Business Committee on Combatting Commercial Vacancies, Intro 116-2022, Intro 197-2022, and Intro 383-2022

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REBNY thanks Chair Julie Menin and the Council Small Business Committee for the opportunity to testify on this important issue and accompanying legislation.

Commercial leasing, retail health, the quality of our streetscapes, and establishing support for the wide array of New York businesses are top priorities for REBNY and its members. It is important for City officials to take the necessary steps to support small businesses and retailers across the city. They bring vibrancy to our neighborhoods and provide employment and opportunities for economic mobility to generations of entrepreneurs. As such, we must continually evaluate all opportunities to eliminate the red tape and other barriers facing small businesses and instead incentivize opportunities for business development and growth, including through the hearing today.

Historically, retail and ground floor storefronts have always had to respond to disruptions. For the past decade, the biggest disruptor has been e-commerce, with a 123% increase in the online share of the retail sales market from 2013 to 2020. Additionally, from 2013 to 2020, the dollar volume of online sales increased 201%, while offline sales volume increased only 19%. The decade prior it was big box, and before that suburban flight and urban blight. Throughout these cycles of change, overall business survival rates have remained stable according to the Bureau of Labor Statistics.

While much of this is a national phenomenon, here in New York City businesses face increased costs from wage and benefit regulations, constant and arbitrary fines from city agencies, and a significant tax burden. There is also variation amongst business types such as restaurants and lifestyle stores versus traditional brick and mortar retail businesses. These differences point to the need for targeted policy interventions at the sector, neighborhood, and individual business level.

Of course, the COVID-19 pandemic has been the most recent disrupter for the economic and commercial health across much of our city. Throughout the pandemic, which economically impacted both owners and tenants, the real estate industry has been a staunch advocate for small businesses, and commercial property owners have made it a priority to work with struggling tenants. Many property owners provided COVID rent relief by converting fixed rent, or a portion of it, into percentage rent. Property owners also provided capital for outdoor dining and modified lease structures to provide flexibility in payments to help these businesses survive.

With the City beginning to emerge from the pandemic more robustly, it behooves us all to evaluate the cost of doing business across the boroughs and to establish a framework that supports small storefront businesses while understanding the realities that bind them. This includes embracing the collaborative problem solving seen amongst owners and tenants during the pandemic and not enacting misguided policies that would prohibit opportunities for commercial leasing, such as a commercial rent control scheme. Fortunately, some of the proposals being heard today pursue thoughtful policy that could create a better environment for New York’s small businesses, including long-established businesses that are often interwoven into a neighborhood’s unique fabric.

BILL: Intro 116-2022

SUBJECT: A Local Law to amend the administrative code of the city of New York, in relation to creating a “One-Stop Shop NYC Business Portal.”

SPONSORS: Councilmembers Menin, Hanif, Williams, Joseph, Brewer, Ung, De La Rosa, Riley, Yeger, Caban, Abreu, Narcisse, Holden, Velazquez, Gennaro, Farias, Hudson, Schulman, Barron, Krishnan, Feliz, Brooks-Powers, Hanks, Stevens, Moya, Powers, Won, Osse, Dinowitz, Brannan, Aviles, Ayala, Sanchez, Marte, Rivera, Borelli, Ariola, Vernikov and Paladino.

Intro 116 would require the Commissioner of Small Business Services (“SBS”) to create a “One-Stop Shop NYC Business Portal,” through which all applications, permits, licenses, and related information needed to open and operate a small business in the City would be available in a single, easily accessible, and easy-to-navigate location on the SBS website, as well as via a mobile application. A user could submit and check on the status of applications, permits, and licenses through this portal. Before creating the portal, the Commissioner would be required to consult with the heads of other City agencies who oversee requirements related to small businesses, to conduct a review of all such applications, permits, licenses, and related information, as well as the processes and procedures used by individuals in interacting with City agencies in opening and operating a small business. The Commissioner and other agency heads would consider ways that such processes and procedures can be facilitated and made more efficient using the One-Stop Shop NYC Business portal, with the goal of devising methods to assist small businesses in moving through application and permit processes more quickly and easily. The Commissioner also would be required to review annually the effectiveness and efficiency of the One-Stop Shop NYC Business Portal, to carry out improvements to facilitate its use, and to report on such improvements to the Mayor and the Council.

REBNY supports Intro 116. Eliminating red tape and bureaucracy by ensuring that small business constituents can easily and quickly navigate City government should be a priority for this Council. Unfortunately, for too long, existing processes have been a convoluted web that often contains unnecessarily complicated or confusing steps that do not consider the types of businesses that are involved. This includes permitting, inspections and fee structures that should be easily mapped out for the end user.

Unfortunately, the lack of a comprehensive interagency plan at the dawn of the digital age will now make the process of creating a one-stop shop particularly challenging. Agencies have not been required to utilize the same digital platforms, leading to dozens of different portals, with a single agency oftentimes using multiple portals for separate processes or programs. As a result, combining all of these into a single platform and portal will be a significant task. The Council must ensure there is the proper funding and interagency coordination necessary to facilitate this task and should also ensure the appropriate oversight to see that it is completed in a timely manner.

In addition, as this process is facilitated, it provides yet another opportunity to evaluate all applications, permits, licenses, inspections, and fees currently necessary to do business in the City and to remove or revise those found to be burdensome, duplicative, punitive, or unnecessary. It also provides an opportunity to evaluate how interagency coordination could potentially expedite processes, particularly around inspections which historically have been a significant prohibitor. With this said, REBNY stands ready to support and assist in these efforts for the benefit of small businesses and tenants.

BILL: Intro 197-2022

SUBJECT: A Local Law to establish a legacy business registry and preservation fund.

SPONSORS: Councilmembers Rivera, Menin, Caban, Hanif, Won, Restler, Krishnan and Hudson.

Intro 197 would require the Commissioner of SBS to establish a Legacy Business Registry to recognize businesses that have operated in New York City for a minimum of 20 years and that have significantly contributed to the history, identity or character of a neighborhood or community in the City. To be part of the Legacy Business Registry, a business would be required to be nominated by the Mayor, the Public Advocate, a Borough President, or a Member of the City Council. In addition, the Commissioner of SBS would consult with the relevant Community Board and the Landmarks Preservation Commission regarding whether a business meets the requirements to be designated as a Legacy Business. The bill would also require the Commissioner of SBS to carry out activities to recognize the contributions of Legacy Businesses to their communities, and to establish a Legacy Business Preservation Fund to award grants to Legacy Businesses and property owners who offer a 10-year lease to a Legacy Business, in cases in which a Legacy Business faces a significant risk of displacement.

REBNY supports Intro 197 and believes that it provides a framework for ensuring that businesses that have historically contributed to a community are able to continue operations in adverse instances. These could include the regulatory environment, competition from e-commerce and other rising costs just to name a few of the challenges businesses face.

Property owners also face similar challenges. Continuously rising property taxes and other regulatory requirements have made owners, particularly small owners, and cooperative buildings, more dependent on ground floor rent. As such, establishing a framework for a city program that allows for both parties to benefit is of merit.
While it is likely that the proposed legislation, if enacted, would only benefit a small subset of businesses, it establishes a decent pilot that, if facilitated successfully, should be considered for expansion. During the pandemic, the previous City Council and the State Legislature debated establishing a legacy business abatement program, geared around recovery, which proposed establishing a similar registry and the opportunity for an abatement to owners who negotiated more favorable lease terms with their tenants. While this would impact revenue streams, it is another viable option that would potentially allow for a larger catchment of businesses to benefit in lieu of a grant program.

Similarly, while starting with businesses that can be defined as legacy businesses is sensible, both a grant program or an abatement program could also be expanded to the benefit of entrepreneurs, MWBEs, cultural institutions or immigrant run businesses as well.

Lastly, while the programmatic requirements proposed in this bill for a lease agreement reflects the industry norm, it behooves the Council and/or SBS to allow for flexibility to be built into any program to allow for negotiations to occur on their own, potentially benefiting more owners and tenants alike. The same sentiment applies to the framework of an applicant needing to be sponsored by a city elected official and to undergo a multistep engagement process. While community input is certainly important, for the purpose of scaling, streamlining should be considered.

BILL: Intro 383-2022

SUBJECT: A Local Law to modify the requirements surrounding supplemental registration statements and the datasets for ground floor or second floor commercial premises.

SPONSORS: Councilmembers Brewer and Louis.

Local Law 157 of 2019 requires the department of finance to collect data and establish a public dataset of commercial properties in the City. This data includes the median and average total duration of leases; the median and average remaining term to lease expiration; the median and average size of rentable floor area per premises lease; the number of such premises reported as being leased and vacant; the median and average rent; and the number of such premises whose lease is due to expire within two years of June 1 of the current calendar year. The bill also requires the release of a list of addresses of commercial properties, and whether those properties are vacant. The owners of ground floor or second floor commercial premises are required to submit this information to the department of finance as a part of the annual income and expense statement submission. Supplemental registrations are required if the premises become vacant or the ownership of the premises has changed.

Intro 383 would change this timeline by requiring that when there is a new vacancy or change of ownership in commercial premises that requires filing a new registration statement, such supplemental registration statement must be filed 1) at the same time as the registration statement if the change or vacancy occurs from January 1 to May 31 and 2) within 60 days of the change or vacancy if it occurs from June 1 to December 31. In addition, it would require that, for each commercial premises required to file a registration statement, the public dataset would include whether it is vacant, leased, or owner-occupied and, if vacant, the expiration date of the most recent lease.

It should be noted that there is no incentive or benefit for an owner to keep a storefront vacant. Even when storefronts are vacant, property owners still must pay property taxes, as well as operating expenses such as utilities, and there are no tax benefits for keeping space empty. That is why the implementation of some type of vacancy tax, which has been considered in years prior, would only amount to another prohibition small owners and cooperative buildings would have to respond to. This could lead to higher maintenance fees for co-op shareholders, or the need for an owner or co-op building to lease to a more-established and higher-capitalized commercial tenant, i.e., a chain store, that can better support building overhead.

With this said, REBNY understands that we all must work to find solutions to prevent empty spaces and promote strong commercial leasing potential. If collecting and aggregating additional data helps to identify pragmatic policy solutions, including at the localized level, it is a worthwhile pursuit.

The goal of Intro 383 is to tighten reporting deadlines to make the published ata more current, including to ensure that storefronts that are no longer available do not appear to be vacant in reported data. Unfortunately, the additional reporting requirements as outlined by the bill create significant confusion for those responsible for reporting and could create additional bureaucratic challenges for the department of finance, who already face challenges facilitating Local Law 157 and Real Property Income and Expense (RPIE) filings.

While functionally as proposed in the bill there is no change for reporting requirements around occupancy or ownership changes from January 1st through May 31st, the second half of the year would require more consistent submissions. This is an imbalance of reporting times, whereas for 7 months of the year one has 60 days to file and for 5 months one has until a prescribed date. For example, if a space becomes vacant and then is leased 70 days later, a filer will have to report that a vacancy within 60 days of the initial change and then again once it is occupied – a significant task for the filer and DOF alike to maintain accurately. Failure to do so accurately would also open the filer up to the risk of certain penalties.

REBNY urges the Council to demonstrate caution around new filing requirements and believes that there may be more viable opportunities to attain data in real-time without requiring constant reporting. This includes the potential to harness existing software and other mapping systems to track vacancies without incessant paperwork from owners or tenants. With this said, REBNY looks forward to continuing to engage on this issue with the Council.

Thank you for the consideration of these points.