San Fran Close To Passing Vacant Retail Site Tax

It was a big night in California for Biden and Sanders Tuesday (March 3). But if you’re a retailer — especially a small-to-mid sized retailer — you’re on the cusp of celebrating a victory as well.

That’s because a San Francisco ballot measure that would tax vacant storefronts looks like it’s headed for victory. It may seem to be irrelevant at first. But if it stands the test of total vote count, Proposition D would create three dynamics that work for retail. First, it would force landlords to be more careful about booting businesses that have trouble paying exorbitant rents. Second, it could force a rethink of Main Street rent rates in general. And third, proceeds from the tax would create a fund to help small and medium-sized businesses (SMBs) to stay in business.

In endorsing the ballot measure, the San Francisco Bay Guardian said, “It seeks to address the problem of landlords leaving commercial spaces in neighborhood vacant because, as Sup. Aaron Peskin put it politely, ‘[they] have unreasonable expectations of the rent they should be able to charge.’ We are more blunt: This is real-estate greed choking small businesses. Prop. D would set a tax on vacant storefronts that could rise over three years to a level ($25,000 for a typical space) that would be a serious incentive to owners to find tenants and charge them affordable rents. Which would be good for neighborhoods, small businesses, residents, and the city as a whole.”

As of Thursday morning (March 5), the San Francisco Department of Elections said 68.1 percent the votes were in favor, slightly ahead of the two-thirds margin necessary to pass. However, the votes are still too close to call an official result. If and when the measure becomes law in 2021 it would charge empty San Francisco storefronts $250 per linear foot (not square foot) for the first year that a retail unit remains vacant. That would double each subsequent year. This means that if a property owner is holding out for a tenant who can pay a particular high rent, it will be to their financial detriment to wait too long.

Fees collected would go into the city’s new small business fund. According to the SF Office of Economic and Workforce Development, some commercial corridors have as many as 27.6 percent of storefronts sitting empty, sometimes for years. The citywide average is significantly lower at about 12 percent.

“Landlords will argue that this tax is just another way that SF makes it harder to do business, and that it’s effectively punishing them for economic factors not in their control,” said SFist. “But the hope is that Prop D will encourage lazy, overly greedy, and absentee landlords to be more flexible and get more creative, and thereby revive the flagging street life in some of our once vibrant neighborhoods.”

Landlords, as might be expected, argue that the tax is punitive and out-of-touch with the economic dynamics of retail.

“To ask a San Francisco landlord to pay such a vacancy tax when he/she is already paying huge property taxes, gross receipt taxes, insurance premiums, high wages and maintenance expenses for property upkeep or a tenant who is also paying those huge business taxes, is morally and ethically wrong,” David Blatteis, of San Francisco retail and office broker Blatteis Realty Co. Inc., told the San Francisco Business Times. “In my 30-plus year career, I have never known a landlord who has intentionally kept his or her store vacant unless there was a legitimate reason, such as waiting for a building permit, waiting for the Planning Department to make a decision about allowing a prospective tenant to move in, undergoing a seismic retrofit or enduring a bad economic cycle.”

If the vote count stands, the business community will need to take stock of its rental rates and the need to keep SMBs alive in the current retail landscape.