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.
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.