The retail industry was in trouble before the virus. Online retail and e-commerce sites changed consumer spending habits and the high costs of running a brick-and-mortar retail had a negative impact on the industry. The COVID-19 shutdown could prove the final nail in the coffin unless bold actions are taken by governments, landlords, and retailers to alter the course. Here are four ideas that could not only ease the way forward for retailers, but begin the process of real growth for the industry. They could help property owners maintain building values, which in turn will allow municipalities to collect property taxes.
1. Emergency rental structure plans
Right now, it’s clear that retailers will not be able to pay rent in full by the time they reopen their stores. Yes, landlords and tenants can work out their own rental agreements, however, this takes time and requires both parties to pay legal fees. Furthermore, landlords facing lower rents will most likely appeal for lower property taxes, which will also take time and eventually cost cities needed revenue.
Partnerships should be formed between cities, landlords, and retail tenants that would replace current lease obligations for a period of 18 months. Only a percentage of rent would be owed based on monthly gross revenue. In return, the city would adjust the landlord’s property tax obligation by the percentage loss against their current lease projected income at the end of the first year.
If a tenant’s revenue meets or exceeds its fixed rent obligation based on 6% of gross revenue, then the landlord gets its stated rent and the city does not lose tax revenue. If the percentage rent is lower than the stated rent, then the landlord still saves its tenant, keeps the storefront occupied, and gets some relief in property taxes. In turn, the city protects future tax revenue by helping to restore retail in its neighborhood.
2. Local small business assistance programs
Cities will need to consider such programs to propel retailers back into the economy. One of the reasons neighborhood retailers are dying is that the unemployment rate was low and good-paying jobs were readily available. That might not be the case in the near future, and many laid-off employees will look to start their own retail businesses. Municipalities need to be ready to assist them. They could set up online “how to” guides and training programs, provide assistance in navigating the city’s permitting processes, and setting up SBA loans for entrepreneurs to get immediate cash to get their stores up and running.
3. More efficient permit processes
Cities like the one where I operate, San Francisco, play a part in the downfall of retail. Our city puts in place lengthy permit processes that are hard to navigate, take too long, and cost the business owner too much money. Retailers and developers should urge cities to re-examine their permit processes and find ways to remove barriers of entry for retailers. We need to be less worried about what type of retailer should be allowed in the neighborhood and more concerned about empty storefronts. Zoning restrictions should most definitely be reconsidered. San Francisco has a rule that forces a retail chain with 11 stores or more, anywhere in the world, to endure a 10-to-13-month review process. That should be removed entirely. Conditional use permits should also be removed, allowing change of user retailers to have quick access to opening their stores.
4. More police patrols
Cities need to have more police patrolling their retail districts. Re-opening retailers are going to have a hard enough time getting re-established without dealing with criminals. Police, too, can help in maintaining social distancing that will likely be required of retailers as they re-open their stores.
These four plans can be implemented relatively quickly and easily and would serve as boons for national retailers as well as local ones. Municipalities should be urged to consider them now, before the shelter-in-place ends.
Hans Hansson is founder and president of Starboard Commercial Real Estate in San Francisco.