In Pandemic’s Aftermath, Calls Grow For NYC To Regulate Commercial Rents

The City Council's small business committee is considering a controversial proposal to limit how much landlords can raise rents on commercial tenants. The measure, first introduced by City Councilman Stephen Levin almost two years ago, would apply to storefronts and offices up to 10,000 square feet, which could also include some supermarkets.

Levin, who sits on the committee, said rising rents have forced small businesses throughout the city to shut down, and that the pandemic has exacerbated the problem, creating a proliferation of vacant storefronts. 

“We want to be able to have a just recovery,” said the Brooklyn council member. “Not just to the property owners, but also to the small businesses.”

Levin said regulation would reduce the temptation for a landlord to turn a local bodega over to a bank or drug store that can pay more rent. “If the price increase is equal no matter who the prospective tenant is, there's no incentive for the landlord to rent to a different business or hold the storefront vacant, hoping for a more lucrative business,” he said.

But the plan is facing fierce opposition from the group that represents commercial landlords, who say the pandemic caused rents to fall precipitously, negating the need for such legislation. 

Real Estate Board of New York President James Whelan said Levin's proposal hurts small businesses.

“Enacting commercial rent control even as taxes and other costs continue to rise would only lead to more vacant storefronts by incentivizing owners to avoid deals with small businesses and pop-up tenants and instead wait for larger, more established tenants.” 

There’s no accurate city data on storefront vacancies because the Department of Finance is still processing the latest tax year. But the agency’s storefront registry shows vacancies in Manhattan hit 12.2% as of June 2020, an increase of 22% since December of 2019. Vacancy rates were between 8.1-10.9% in the four other boroughs at that time.

The commercial real estate firm CBRE reports that rents are still below pre-pandemic levels. In the second quarter of 2021, it said the average asking rent in Manhattan’s 16 prime retail corridors dropped 10.7% year-over-year. It has no data for the other boroughs.

Mayor Bill de Blasio agreed to study commercial rent restrictions further in early 2020, but the bill lost momentum after the pandemic began.

Now, more than a year later, with small businesses still reeling from pandemic-related shutdowns and other restrictions, Levin's proposal has gained traction. The legislation has 24 sponsors, almost half the council. Levin attributes this growing support to the aftermath of the pandemic. 

If approved, a new Commercial Rent Guidelines Board would set annual increases on rents, similar to the rent stabilization system for residential units. It would also apply to manufacturing establishments up to 25,000 square feet.

The new board would consist of nine members appointed by the mayor. They would include representatives of commercial tenants (not chain businesses), commercial landlords, and people with experience in finance, economics, community development and property management. 

Meanwhile, some co-op and condo owners are also wary of regulation, because many of these apartment buildings offset their operating costs by renting out street level retail space. They’ve already been hurt by rising vacancies. 

“Shareholders and unit owners - many of whom are themselves struggling to pay their monthly carrying charges  (maintenance) - have faced assessments to cover the shortfall,” said Mary Ann Rothman, executive director of the Council of New York Cooperatives and Condominiums. 

Some in the real estate industry claim the legislation violates the state’s constitution. “I think before the ink is dry, there'll be a lawsuit,” said attorney Alexander Lycoyannis, who represents property owners.

He claimed New York City cannot adjust rents without state legislation, which is what enabled the regulation of residential rents in the 1960s. But Levin and other supporters disagree, noting that commercial rents were regulated by the city between the 1940s and 60s. 

Proponents of the legislation, from the coalition United for Small Business NYC, dispute claims that rents are falling everywhere. Paula Segal, an attorney at coalition member Take Root Justice, a legal services organization, said she represents many immigrant-run bodegas, jewelry shops, and other businesses. She said they’re often given cheaper rents for the first year of a lease as an incentive, but then “it doubles in year two because the landlord is trying to make up what they lost during Covid.”

Mayor Bill de Blasio’s office said he’s studying Levin's commercial rent regulation.  

The council’s small business committee will also discuss another recently submitted proposal for a “Storefront Bill of Rights,” sponsored by Helen Rosenthal of the Upper West Side. It would limit rent increases to no more than 10% for all leases up to a year long, but not after that first year. It would also permit a landlord to renew for just 90 days. Levin said the two pieces of legislation are not mutually exclusive. 

Beth Fertig is a senior reporter covering business and labor at WNYC. You can follow her on Twitter at @bethfertig.