OpEd: Commercial vacancy tax is a bad idea for WeHo

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Item 6C on Monday night’s agenda allocates almost $50,000 to authorize a survey and analysis among residents regarding a tax on vacant commercial spaces. Pursuant to the study, the “tax” would be placed on the ballot for residents to decide on Nov. 5, 2024.

The item, a pet project of Council Member Lauren Meister co-authored by Mayor Shyne, does little to help fill vacant commercial spaces. In fact, as the staff report indicates, “Adding a tax to this group of properties would increase costs and create a competitive disadvantage for West Hollywood compared to neighboring communities.” This is another business-unfriendly move in West Hollywood that is anti-competitive compared to neighboring cities. Neither Los Angeles, Beverly Hills, nor Santa Monica has a “commercial vacancy tax.”

San Francisco is one city that has enacted a “commercial vacancy tax.” As the staff report notes, “A Commercial Vacancy Tax was approved by San Francisco voters on March 3, 2020, and became effective on Jan. 1, 2022.” How is San Francisco doing?

However, the idea of a “commercial vacancy tax” does have support among residents in West Hollywood. In its findings, polling for the item received support from approximately 63% of likely voters. Those results increased to 73% of likely voters after voters received more “us vs. them” information. The timeline is now being pushed to be on the Nov. 5, 2024, ballot.

Looking past “public polling,” it is important for our elected officials to understand that a commercial vacancy tax will not help vacant storefronts. You can’t bully a landlord into renting a property.  Most landlords use a licensed real estate agent to secure a tenant. It is quite normal for a property to be vacant for a year in commercial real estate. What is not normal is that it takes one or two years or more to move plans through city hall. Perhaps we should be investing in small business initiatives to help small businesses open in West Hollywood.

The cause and effect of the “commercial vacancy tax” may not achieve the intended results, even if passed. There is no other city that has enacted this type of tax with demonstrable success. In fact, if passed, some of the results may include landlords only offering shorter-term leases, hindering longer-term investments in the city.

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In addition, the proposal seems to carve out “exceptions” to the tax. “Staff would recommend exempting from any proposed commercial vacancy tax properties going through renovations, those in the entitlement and plan-check process, as well as those being actively marketed by a commercial real estate broker as long as the vacancy is less than 365 days. Adding a tax to this group of properties would increase costs and create a competitive disadvantage for West Hollywood compared to neighboring communities.”, thats from the staff report.

So who is this item targeting? If you look around the city at the vacant storefronts and properties, most of the vacant spaces are in “developments in motion,” such as the spaces housing the Viper Room as it goes through the permitting process. If you exclude new developments and those in process, the item targets smaller mom-and-pop landlords. Perhaps the goal is exactly that: to force the small mom-and-pop landlord to sell out to developers.

It is important to note that the staff report presented to the city council had ZERO examples of vacancy rates in West Hollywood versus neighboring cities. The staff report does say, “Additionally, retail storefront vacancies are on the rise nationwide with the shift in consumer behavior patterns along with office vacancies nationally increasing with the shift in popularity of hybrid or remote work options. These economic factors also impact commercial vacancies in West Hollywood.”

It’s up to the city council to be smarter than the city staff or even voter perceptions and not govern policy based on polling.

Instead of scapegoating landlords for the tough retail landscape, let’s use our resources to make West Hollywood a friendlier and easier place to do business.

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Morty
Morty
2 months ago

Normally I am against these types of taxes however the rents in WEHO are too high for most businesses to survive. I blame agents like Jay Luchs who encourage property owners to hold out for unsustainable rents. How many empty retail stores around our area have his name plastered all over the windows???? It’s like a billboard for his real estate company. For any property not rented within 90 days they should charge the property owner $5000/month until it is rented. That will encourage landlords to be a little more flexible with the rents they are charging. There is a… Read more »

West
West
3 months ago

I’m generally averse to new taxes broadly applied with uncertain consequences. It tracks that big money firms could afford the proposed tax to hold out for tenants willing to pay higher rents, while smaller property owners would be disproportionately impacted. Incentives work better than punitive measures, generally, but we need to do something to get owners to set moderate rent rates commiserate with the region. If a prospective business tenant is locally owned, their tenancy should be facilitated by all means available. Still looking for a solution but I’m grateful for Larry’s insights here.

COL
COL
3 months ago

There are a number of cities who have created a resident and business friendly “One Stop”.  Each of the departments of the City and Fire have a representative and a desk representing those departments to expedite scheduling inspections, review of plans, etc on specified days and hours during the week. Residents and Businesses can schedule appointments at the “One Stop Center”.  Those cities are thriving and most are in the South Bay area of Los Angeles County. Instead of creating more of a barrier to expanded business and for that matter, residential permitting, a “one stop” type of format would be beneficial. The $50K required to… Read more »

James
James
1 month ago
Reply to  COL

COL is right. We need to expedite the permitting process first before looking at some type of vacancy tax. We have seen time and time again that it takes way too long for a business to get approved.

Todd
Todd
3 months ago

The author brings up fair points. The rash of business closings due to greedy landlords over the past 1-2 years seems to run counter to it, however. When a business closes and the space spends years vacant before another business comes in, that seems to be the problem the council and this tax is addressing. So many empty storefronts becomes a blight. Hoping there’s a way to address this, which balances all parties’ needs. I’d like to see landlords motivated to get businesses into their locations, if a tax does that so be it.

Craig Appelbaum
Craig Appelbaum
3 months ago
Reply to  Larry Block

I am a former small business owner who had to relocate because my landlord raised my rent to a prohibitively high amount. For many small businesses rent is a major component of our expenses, often as large an expense as labor.

This is not 1983!
This is not 1983!
3 months ago
Reply to  Larry Block

Your Correct Larry. Landlords don’t want vacant spaces. This proposal may not even be legal. But most annoying is the Council Members and Staff who keep saying “we need to talk to the REALTORS®”–Their service mark is Copyrighted for a reason. REALTORS® for the most part sell and Lease residential real estate. They DO NOT understand Commercial Real Estate. That is why the firms that represent space for retail Lease are CBRE, The South Park Group or perhaps Cushman & Wakefield for Office Space. And RJH below has the right idea, we need to provide incentives–especially for Tenants not punishments–the Landlords… Read more »

RJH
RJH
3 months ago

Well said Larry. There are examples though where taxing might make sense to get a landlord to do something with the property. Take for instance the dilapidated property on the corner of Romaine and La Cienega. The property has never been maintained and half of it has sat vacant for over 10 plus years if not longer. The other half is used on and off by a hookah lounge which most of the time sits closed. By taxing that landlord, maybe they would decide to lower their pricing to get it sold for redevelopment instead of just adding to the… Read more »

JF1
JF1
3 months ago
Reply to  Larry Block

yes, Code Compliance can fine them if they property is not kept up. (after multiple notices by code enforcement)

RJH
RJH
3 months ago
Reply to  Larry Block

I don’t know my property law well enough to know if that would be effective but something needs to be done. We need to encourage these owners to sell if they don’t plan to maintain or price their property accordingly for highest and best use. It is not fair to the neighborhood.This is just one of many properties that have languished for years. I don’t know this to be true but have heard that there might be tax advantages for these slumlords that encourage them to keep their properties vacant and unsold. If that is true, those should be eliminated… Read more »

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