High Rent Blight

Downtown Delray wasn’t quite this bad, but it wasn’t too vibrant in the 80s.

I was following an interesting “thread” on social media recently regarding the closing of a retail store on Atlantic Avenue and U.S. 1.

Those commenting were lamenting the closing and the high rents that they blame for pushing out “mom and pop” retailers.

There were a few folks who were concerned that Atlantic Avenue was endangered by what some call “high rent blight”—the phenomenon of vacancies in a hot area caused by landlords asking for very high rents.

There were calls for more promotion of the downtown, rent controls and action from government.

It was a really interesting read.

A short time ago, I read other postings calling for an end to events and for the abolishment of agencies and entities that promote the downtown. Why waste the money, the argument went. Downtown Delray is successful, the job is done.

Well…folks, here’s an adage to remember. Success is never final and therefore your downtown is never “done.”

I moved to Florida 31 years ago this month. And it was a vastly different place.

The 1980s were not kind to downtown Delray Beach. We were not alone. Those were the days when malls and suburban shopping centers ruled the roost. Big box stores such as Walmart were killing main streets across the land.

Downtowns were left for dead and Delray was no exception.

In the mid to late 80s, downtown Delray had a roughly 40 percent vacancy rate, there was very little pedestrian or vehicular traffic, hardly any place to eat and you could have gone bowling at 5 p.m. on Atlantic Avenue without fear of hitting anything. Our brand was “Dull Ray.”

But things change.

Committed citizens, visionary entrepreneurs, bold elected officials and creative city staff began working together to change the fortunes of our downtown. Similar stories, with varying degrees of success, happened across America.

Once downtown Delray began to gain traction, leaders in the community developed a mantra. It went something like this: the downtown will never be ‘done’—it is the heart of the community and you can’t have a healthy community without a healthy heart. Complacency is a killer, we are competing with other cities for investment, residents, businesses and consumer spending and we have to constantly re-invent.

That was the philosophy that I grew up with in this town and one that I adopted when I was given the privilege of serving on the City Commission. I served with an interesting collection of people: Pat Archer, Bob Costin, Fred Fetzer, Bill Schwartz, Jon Levinson, David Schmidt, Brenda Montague, Alberta McCarthy and Rita Ellis. We were very different people—different ages, different religions, different races, different political parties and we had very different life experiences. But we managed to find common ground, even if, especially if, we had heated debate. We’d always find our center or “true north”—which was what we felt was best for the long term good of the city.

We weren’t always right. We didn’t always see with 20/20 vision what was around the bend, but we understood fundamentally that current conditions didn’t necessarily indicate future performance.

So if a part of town was broken, we assumed it could be fixed. And if a part of town was working, we assumed it could break. We knew success would require a commitment. We knew success wasn’t final and that success itself would pose additional challenges (hello traffic and high rents).

Which is why when times are good you don’t declare victory, you keep working and you wake up a little bit scared because you know that complacency is a killer. And when times get tough, you look at your assets—your agencies, your entities, your institutions, your ‘bones’ (as planners like to refer to our grid) and you sharpen them. You ask them to reinvent—to do more, be more, create more, grow and lead.

But if you kill or neglect those institutions, agencies and entities those tools will be gone or damaged. If you declare victory and take your eyes off the prize—well you just might find that you’ve been left in the dust.

Just remember, other cities always have their eyes on your assets.

Bleecker Street in the historic Noho District of NYC may be resembling bleak street these days.

The New York Times touched on an interesting topic last week: high rent blight.
They used the phrase to describe Bleecker Street in New York City which saw rents soar to $800 a square foot before retailers cried uncle and shut their doors. Now the once red hot street suffers from vacancy; hence high end blight which is considered late stage gentrification.
Which begs the question: can this happen to Atlantic Avenue?
Palmetto Park Road? Pineapple Grove?
When I moved here in 1987, we had conventional low rent blight. Rents were $5-$8 per square foot and vacancy rates downtown were about 40 percent.
Today, some restaurants are paying in excess of $100 per square foot–far from Bleecker Street numbers but still very high for our market.
Rents in Pineapple Grove are $30-$35 per square foot for prime space–(solid rents no doubt) and hardly imaginable back when Norman Radin conceived the district; but still not ridiculous.
But ….
high rents are coming.
They have hit the avenue and the Grove is next.
Why?
Because we’ve had some incredibly high purchase prices on and off the avenue.

If you talk to veteran commercial real estate brokers, they are wrestling with the challenge of making rents jibe with high land prices.
It’s a conundrum.
If you believe in a free market–and I do–rising prices are driven by the market and represent good news for long time landlords who have weathered good cycles and horrible cycles.
But if you want to see a diverse mix of businesses downtown and if you value independent operators–as I do–the high prices are a major challenge.
As the son of an independent pharmacist I have a little insight into the challenges of making a small business work in a competitive environment.

Today, the challenges are bigger than ever. The internet, Amazon, the very difficult retail environment etc etc., all make it very hard to build and sustain a business. Even well- heeled chains are finding it hard to survive. Throw in high rents, a seasonal economy, high insurance, a tough labor market, competition for people’s time and complicated marketing channels and you can appreciate how hard it is to make it today. You can also appreciate the need to support local businesses and to shop local.

The Downtown Development Authority is wrestling with these issues in a smart way.
They are working with Robert Gibbs, a noted retail and downtown expert who has some familiarity with Delray having worked here during the creation of the Downtown Master Plan.
But no doubt about it, this is a challenging environment. And we need to be cognizant of that. We also need to be aware of our downtown mix and our demographics too.

When rents get high, restaurants tend to push alcohol–a high margin item. And if we morph from a food destination to a nightclub scene that has consequences ranging from our brand and who hangs out here to public safety concerns and whether we become more of a late night destination than an all hours downtown.

Big topics. Great stuff to chew on.
But what we don’t want to see is high rent blight.

So how do cities address this issue without infringing on property rights or the free market?

My theory is a good offense is a good defense.
So here are a few thoughts.

Successful cities need multiple districts/neighborhoods to perform. If they do, businesses have options on where to locate.
So efforts must be made to transform The Set (and those efforts are being made), but also Congress Avenue, South Federal Highway, North Federal Highway and eventually the “four corners:” of Atlantic Avenue and Military Trail which was rezoned and reimagined a dozen years ago.
You can and should be working on multiple fronts both for practical reasons and market based ones.

The notion that cities can only do one thing at a time is plain wrong.

For example, the players for Congress and The Set are different. The areas don’t compete, they complement. Some investors will want West Atlantic. Some will prefer Congress or South Federal. Some will be interested in all of the above. Your “open for business” sign has to be open for all commercial districts while the economy is good.

One thing we know for sure, the cycle will end, so it’s important to get traction while you can. Development standards can and should be high. But you have to make hay when the sun shines as they say. And you don’t have to offer incentives–just attractive zoning and a smooth and predictable approval process. Be tough, but fair.

In previous down cycles– including the great recession– Delray Beach was the last to city to experience issues and the first to emerge from the doldrums. That was a result of a good planning, a business friendly environment, a solid brand and a City Hall that knew how to execute.
Those are “hidden” but very real assets. So it’s just as critical that we rebuild capacity at City Hall.
How does this all address high rent blight?
Well..it doesn’t lower rents, or increase availability of affordable housing or commercial spaces overnight but it does spark competition so that if the market skews there are now options in our city. If we don’t create multiple options, people, business and investment will go elsewhere.
Hopefully over time the power of the market will modulate prices to better reflect what’s possible and desirable. That’s the bet, it’s not easy. But it’s doable. One thing for sure, doing nothing guarantees trouble.

Success Is Never Final