This is the second article in a series (read the first article) about how landlords and their present and potential commercial tenants can work together to create vibrant, livable neighborhoods.
As a topic, the relationships between landlords and their tenants is a dicey one, because neither lessor nor lessee seem interested in speaking about it publicly. If there’s any grumbling, it's often whispered to friends, family or anyone else who might be sympathetic to one's way of thinking.
It’s not easy to find landlords willing to volunteer their insights and go on record regarding certain leasing practices, many of which frustrate so many small business owners. Some business owners complain of commercial corridor "ghost towns" that don't create activity because there are too many low-traffic and similar businesses situated next to each other (like the cluster of banks and dentist offices on NW Lovejoy Street in the Pearl District).
Others worry about long-empty spaces on high-traffic commercial corridors in otherwise thriving business districts (like the vacant spaces in Kenton). And others, still, are concerned about commercial corridors, like North Mississippi Avenue, that cater predominantly to restaurants and bars, which, to the chagrin of nine-to-five retailers, brings lots of foot traffic to the strip—once happy hour starts.
Often, commercial tenants, as well as the public, think such conditions are the result of a landlord's indifference, or even his or her emphasis on profit above all else.
There are landlords, however, who don't subscribe to such practices, and some who are even willing to reflect on the criticisms levied against landlords, as a whole.
Gene Dieringer is the president of Dieringer Properties, which leases residential and commercial spaces in neighborhoods all over town. The strongest misconception about landlords, he says, is one of misperceived wealth.
"Real estate investments with tenants are like any other businesses," Dieringer says. "They need customers (tenants) so they can pay their bills, just like a retailer needs customers to buy their goods [and] services so they can pay their bills."
Landlords, he adds, are subject to the same market fluctuations that every business owner faces, and most have taken out loans on the properties they "own," which means that, until a property's mortgage is paid in full, the landlord doesn't even own it. The bank does.
Another misconception is that landlords often hold onto an empty space because they're waiting for the promise of large profits to be brought by an area's impending redevelopment.
Rachel Elizabeth owns a building on North Mississippi Avenue in Boise. In addition to leasing out second-floor apartments, Elizabeth also leases space to The Fresh Pot coffee shop and Worn Path, an environmental lifestyle retailer, next door. She also owns the empty adjacent lot.
And even though North Mississippi has long been a commercial destination, Elizabeth is choosing to not develop that empty lot. Instead, she's landscaping it and intends for it to be used as a neighborhood park, which will host puppet shows, live musical performances, flea markets, and occasional art installations.
Having grown up outside of New York City, Elizabeth says the best places in the the Big Apple were those "weird, interesting little nooks and crannies" hidden among the skyscrapers and the bustle. That's why she wants to create an open space in a neighborhood like Boise that lacks parks or "a quiet place," she says, "where people can come and just be."
Everybody loves open spaces. It's the empty ones that cause consternation.
Vacant, Undeveloped Spaces Are Not Desirable
Of all the things that get lodged in the craws of small business owners, one of the biggest is long-vacant, neglected, nearby commercial spaces that prominently stand on a commercial corridor's main drag.
Some business owners suggest that it's often too costly for a landlord to bring certain spaces up to code for redevelopment. Others suggest that a space's owner keeps it empty and undeveloped because it's a good tax write-off.
Ed McNamara, the head of Turtle Island Development, a development firm that has earned a reputation of working with residents and supporting tenants, says he's seen no evidence of that.
“I’m not aware of any reasons to keep a property vacant for tax reasons," he says, "but that doesn’t mean there aren’t such reasons.”
Dieringer concurs. There may be tax loopholes out there, but he isn't aware of them. He says the investors he knows would rather fill spaces and generate income. After all, by simple logic, when a landlord pays taxes, he or she is generating income.
"I don't think most savvy investors think of a vacancy as an asset, but a liability," Dieringer says. "So there is usually a reason unknown to most why a building or space remains vacant for long periods of time."
Maybe the economy is sluggish, or maybe the landlord is simply waiting for a proposal from a prospective business owner with an idea that will work for both the landlord and the neighborhood.
McNamara says he recently held onto a vacant commercial space on the ground-floor of his Pearl District apartment development, The Sitka, because he wanted to rent to a tenant who had a plan to create a lively presence not only in the building, but in that section of the Pearl. The space will soon be home to a small bistro.
Or perhaps, Dieringer suggests, a landlord is patiently waiting to redevelop an empty space as he waits for something, like a zoning change in the neighborhood, which is an invariably lengthy municipal process.
Consider the Naomi's Organic Farm Supply-Les Schwab quandary of 2011.
In 2009, as Les Schwab waited for the purchase of a neighboring lot to close and the city's approval of environmental clean up, it was approached by the owners of an urban farm store that wished to set up shop on one of the tire company's parcels. By late 2009, Les Schwab had signed Naomi's to a short-term lease, the shop opened, and the Sellwood community responded by quickly embracing the new business.
But by the spring of 2011, as Les Schwab inched closer to consolidating the lots and opening for business, it informed Naomi's that it was time to start looking for a new space.
It wasn't long before Les Schwab faced a backlash from the community. Op-eds were inked, online petitions were signed, and a Friends of Naomi's group was started to persuade the tire company to move forward with its own redevelopment while letting Naomi's stay in place.
But in the end, Naomi's Sellwood shop was demolished in July 2011, and by the following year, Naomi's found a new home and opened its doors in the Reed neighborhood.
Tenant Selection Is Not a Random Process
Dieringer, Elizabeth and McNamara all say they try to make sure potential tenants understand the commercial market in their respective neighborhoods. All three of them, as a rule, strive to lease their spaces to complementary businesses so that multiple bars and eateries don’t end up in the same building, creating an oversaturation of businesses that compete for the same foot traffic (like the current situation on North Mississippi Avenue).
"I care about which stores go in the retail spaces. It is not a random process for me," Elizabeth says. "I seek out people or businesses that I think will be a good fit for the building and for the neighborhood."
Work With Your Landlord
The most important thing for small business owners to know is their own market. It's not enough to know only the goods and services they'll provide, but also the people in the neighborhood who will pay for those goods and service.
And sometimes, a landlord can be a budding business owner's greatest ally, even if he or she might not realize it.
Imagine, for instance, that you're a florist, and you've found the perfect spot for your new flower shop—a few blocks away from two successful flower shops. If you approached either McNamara or Dieringer about a vacancy in one of their spaces, they would both make sure that you were well aware of the risks you might face opening a shop in a flora-saturated commercial district.
"If a prospective tenant wanted to open a business that offers the same service or product as a successful business nearby," McNamara says, "I’d have to be convinced that the new business had a reasonable chance to succeed."
Dieringer agrees. He'd want to see your business plan. He'd want to know that you are going to employ the social media and Internet sales platforms available to you. He'd want to know how you are going to set yourself apart from your competitors.
"They'd have to convince me that it will work, and why," he says, because, "our tenants' success is our success."
Tell us about your relationship with your landlord, good or bad. What have you learned from working with your landlord? Share your story with us and your fellow readers.