San Francisco: The Retail Blight Spreads

The empty storefront blight not only affects areas where pedestrians hesitate to go, it's spread to popular sections of San Francisco like North Beach. [bold added]

Grant Ave., North Beach (Chron photo)

The number of vacant retail properties in North Beach has jumped, alarming residents, business owners and City Hall.... Something deeper seems at play in North Beach, where the vacancy rate grew from 13% in 2017 to 21% in 2018, the sharpest increase in any San Francisco retail district.

North Beach now ranks fourth among the city’s 24 recognized neighborhood commercial districts by vacancy rate; the citywide average is 12%.

Among the reasons: Long permitting times and high construction costs, as well as the need for seismic retrofits, which account for a quarter of the neighborhood’s current vacancies. San Francisco’s high rents and labor costs have also hurt. There’s been bad luck, too: Two fires have gutted historic buildings that housed a half-dozen businesses.

As noted previously, politicians say the reason is greed:

Supervisor Aaron Peskin, who represents North Beach, blames landlords who have “unrealistic expectations of value” and “greedy brokers” who inflate those expectations.

Speaking as someone who spent over 20 years in leasing in a variety of industries, your humble blogger will state unequivocally that, greedy or not, a property owner should never hold out for higher rents if the property (unless it's taken off the market for improvements) will be vacant another month or longer.

There are no financial advantages for a landlord to intentionally leave a storefront vacant, said Said Kordestani, a partner and tax expert at law firm Farella Braun+ Martel. Property owners can declare a loss on a property if their operational expenses exceed their revenue, but there’s no loss that can be declared for rent that isn’t being collected, he said.

“Leaving a property vacant is mind-boggling to me,” he said. “There’s no tax benefit.”

Progressives like Supervisor Peskin say that more regulation and tax penalties will solve the problem.

Sure, that's the answer.

Meanwhile, sales tax receipts keep falling....