The Quest for Community-Run Commercial Space

Cafe Edison, which was evicted and closed in December 2014 despite a series of rallies | Photo by David Farquar, via Flickr

New York is and always has been a market town. But cash doesn’t rule everything around us. Landmarked buildings get special protection from supply and demand. So do neighborhoods. So does rental housing. Big business and real estate jostle for subsidies and tax breaks.

There’s a growing sense that retail tenants, too, deserve some kind of protection from the high rents that have divided the city’s streetscapes into chain stores and vacancies. Storefront rents in Lower Manhattan, for example, have tripled over the past ten years, pushing a litany of longtime establishments out of business even as the vacancy rate approaches 30 percent on major commercial strips. In gentrifying neighborhoods, commercial displacement represents a change in residential population and precipitates a change in local job opportunities.

But the logic for intervention is legally and philosophically muddled. England gives special status to its pubs; Paris to its bookstores. But we have no state-sanctioned culture in New York City — or even a definition of what constitutes tenant harassment in a commercial context. While the City Council has spent decades mulling legislation on the subject, a group of New Yorkers has formed the Real Estate Investment Cooperative (REIC) in an attempt to claim some swath of commercial territory for community enterprise.

Their mission is similar to that of Community Land Trusts (CLTs), which preserve or create stable, affordable housing developments in dozens of American cities. The methods of CLTs vary as organizers weigh the competing goals of wealth-building for resident families and permanent affordability. But their purpose, at least, is clear: providing affordable housing to low- or middle-income residents.

Adopting CLT methods to commercial operations poses the same methodological questions. The broader goals, too, are less obvious. Exactly what types of commercial uses should benefit from low-rent space? Community needs, like grocery stores, health clinics, and pharmacies — even if they have no local ownership component? Or community entrepreneurs — even if the businesses they run don’t serve social ends?

Those are some of the questions that the Real Estate Investment Cooperative is confronting as it moves toward investing in a local business or space. Last week, I spoke (in two separate conversations) with three of the many founding members of the REIC: Risa ShoupDavid Glick, and Oksana Mironova. Shoup is the executive director of Fourth Arts Block, an organization that helps non-profit cultural institutions, residents, and workers on the Lower East Side, and is a member of the Project Scoping working group. Glick is an architect, urban researcher, and member of the REIC Steering Committee. Mironova, in addition to being a regular contributor to this magazine, is a member of the REIC Steering Committee and the Public Building Inventory working group.

In conversation with Urban Omnibus, they explain how they hope to adapt the nation’s most expensive commercial real estate market for the needs of New Yorkers. –H.G.

A meeting of the Real Estate Investment Cooperative in May 2015 | Photo by Chris Chavez
Henry Grabar (HG):

So what is the REIC?

Risa Shoup (RS):

It’s an alternative financing model for purchasing property based on community needs. Within that model, REIC could do many things: It could create funds to purchase the property outright. It could provide gap financing to another purchaser. It could create a land trust as an ownership model. It has a lot of flexibility, but at the root, it’s a way of pooling the finances of individuals and residents, and creating a process through which that very large pool can make collective decisions about developing real property.

David Glick (DG):

In addition, a major piece of this is that it’s a democratic platform for everyday people in their community. It’s one member, one vote, no matter how much you invest. Even if we have institutional investors, they wouldn’t have any more say. So that’s really a core part of this.

HG:

Will there be tension between investors looking for a return on investment and the stated goals of the REIC — “culture, cooperation, and community benefit”?

RS:

I think part of the answer is very simple. If you’re looking for a ten or twelve percent return, I don’t think this is the project for you. If you’re more comfortable with a slow rate of return and a project with some development time, this is probably the right project for you to invest in. There’s that self-selecting element which is critical. For this group of investors, that’s the other piece: They actually want to be investing in a property that meets a community-based need within a given geographic area.

DG:

We’re trying to really emphasize that. The feeling that you’re contributing, giving something back. And that your money is not in a bank that is funding large multinational enterprises like strip mining and the like. So it’s a place to put your money where you can feel good about what it’s doing.

RS:

To that end, we’re working on investment in publicly owned property because that, obviously, lowers certain acquisition costs, and keeps that property serving the public. Then, also, that requires a large degree of outreach within the neighborhood to figure out what those needs are. We certainly don’t want to invent them.

HG:

So there will be no distinction then between members and investors?

DG:

Even if they put in $10 to become a member, and that’s the only thing they invest, we’re still considering them investors.

RS:

At present anyway, you cannot be an investor without being a member.

HG:

What’s the legal structure?

RS:

If you ask the Brooklyn Federal Credit Union, we’re a social club, and if you ask our members, who’ve all put in $10, we all put that money in an accordance with a membership agreement that we all signed that says you put in your $10. You agree to have that money be used by this entity that is the REIC and if a property or a project hasn’t been designated by April 2017, everybody gets their money back.

We have yet to deal with investments larger than the $10 member buy-in. We did recently elect a steering committee, of which David is a member, and that body with come up with rules and regulations around investments. We’re also drafting bylaws with some of our working groups.

We kind of reverse-engineered ourselves: we had a great idea based on similar models we saw working in other cities. And then we held a meeting and hundreds of people came. And we held an online survey, and even more people responded to that and said that they would be interested of making an investment of several thousand dollars, and we took that as a mandate to move forward. Now we’re trying to figure out exactly how this thing works.

DG:

We actually have quite a few lawyers in the REIC. Some of them are part of a dedicated legal team that is coordinating with students and faculty at Brooklyn Law School and Fordham University to work out the appropriate SEC compliance path and entity type we would need to become in order to accept investments.

And there’s also the jobs act that the Obama administration passed, which is making it easier for crowd investments to occur. Traditionally investment has been reserved for people making over $200,000 a year. They’re classified as accredited investors. And we’re looking to unaccredited investors, people making less than $200,000 a year. And that’s a fundamental difference in our model: making it open to anyone who wants to be involved.

RS:

A fun additional fact is that a lot of these changes in investment criteria not only come from people who want to institute projects like ours that allow individual residents of working- and middle-class backgrounds to develop property. It also comes from the Broadway community and wanting to make it easier individuals earning less than 200-K to be able to invest in Broadway shows.

A January meeting of the REIC governance working group | Photo by Robert Chin
HG:

Why look at buildings rather than businesses?

Oksana Mironova (OM):

Our focus is really on preserving permanent spaces. Obviously the businesses and spaces are connected — longterm businesses get priced out because that’s the way the real estate market functions in New York City. But we thought that starting with the space, and difficulty of keeping space affordable, would be easiest.

HG:

How wide did you cast the net?

OM:

We focused specifically on buildings that are public, which is not to say that in the future we’re not going to try to look at private buildings as well, but that seemed the easiest access point from where we are. We’re starting a completely new organization, and we don’t have $10 million.

We specifically looked at a list that the Department of Citywide Administrative Services put out of buildings that are owned by the city but vacant. We looked at a subset zoned commercial or industrial that could be used to create commerce, retail, or manufacturing.

HG:

Where in the city?

OM:

The inventory was very large in the ‘70s and ‘80s, because of the crisis and other things. It’s very small now, so the buildings we ended up were limited by the city’s inventory. We ended up with six buildings, one in Coney Island, which used to be a Fire Department pumping station and has been vacant since the ’70s, a former health facility in Jamaica, a former community board office in Bay Ridge, a former school in Flatbush (which was demolished, unfortunately, about a month ago), a warehouse on Jerome Ave. in the Bronx, and a very large waterfront warehouse space in the South Bronx.

Community garden at the Coney Island Pumping Station | Photo by Margaret McInroe, via Tumblr
HG:

Are you worried that rising commercial rents won’t be as much of a problem in these neighborhoods, like Coney Island, where there are vacant storefronts, as in, say, the Lower East Side?

OM:

We’re not as free to make those choices. In an ideal situation, if we had a large chunk of money, we’d be looking at Bushwick, Sunset Park or the Lower East Side. As we develop, we may get there.

With both Coney Island and Jamaica, the neighborhoods are not facing the same pressures as a gentrified or transitioning neighborhood is facing, but at the same time, the pressure New York faces as a whole is so big that any neighborhood will have the same type of issue that the Lower East Side or the Upper West Side faces now. It will play out differently in a place like Coney Island but the rents are rising there too.

When people think about local small businesses and ways to keep them, they’re probably thinking about existing businesses that they have in mind, but you’re probably thinking about new stuff, right?

RS:

What I was saying before comes into play, because we could be gap financing for an existing business or property that needs some assistance to get to the ownership point. So I don’t discount that at all, but I think in terms of just envisioning this, a completely new development or a completely new usage for a currently vacant property is easier to wrap our brains around.

Our model for property ownership is homes. This is very different from that, but because that’s everyone’s baseline understanding of property purchase and development, yes, the new use is easier to wrap our brains around. But we might end up working on existing businesses or with nonprofits as a partner.

Irwin S. Chanin’s fire service pumping station on Coney Island, with the original Pegasus statues guarding the entrance (1980) | Photo via LPC
HG:

Do you see this benefitting a long-time local restaurant or diner or is the target enterprise closer to a community health clinic — an institution of more evident social benefit?

RS:

So my organization, Fourth Arts Block, is working more with the small business community here. In our neighborhood, attraction isn’t the issue for small businesses; it’s retention. So when I think about the REIC, I can’t help but think about it from the professional perspective that I bring to this. I have no idea if this is the neighborhood we’re going to be developing in, but if it were here, I would think about trying to retain a given business. That’s a major problem here, right?

But in other neighborhoods, attraction is the problem, so there, it might be more beneficial to try to bring in a small businesses that meet, again, the stated needs of that community. But I think more than anything what we’re talking about is figuring out what a community needs, what they’re struggling with, and how this potential project can help them. There are certainly other neighborhoods where there are long-standing nonprofits that may need help buying their space and maybe that makes sense there.

In terms of the usage question, is it something more on the retail side of the spectrum or something more on the community facilities side of the spectrum, like a health clinic? It really depends on what already exists in that neighborhood, who might reach out to us for assistance, and what additional services community members are looking for.

DG:

We are really trying to create something very nimble to respond to the different particularities of a community.

The April kick-off meeting of the Real Estate Investment Cooperative at the Middle Collegiate Church | Photo by PBS / Art 21
HG:

What about the scale of it? Do you see the opportunity to have this unroll on a grassroots level in a variety of different places at once or is it going to be more centralized?

RS:

We’ve talked about that a lot. We realize that we are at once building a single entity, and also creating infrastructure that will allow for replication of this entity. We’re going to make ours, and it’s going to do what it does, but then some members or people who are not yet members might go and make another one somewhere else. Given our politics and priorities, the grassroots model is really important and we want to maintain it.

My concern about having one that starts with more institutional support is that, perhaps, it is less likely to be as concerned with direct community input. For us, again, this is really a way of not only developing property, but also communicating more directly with residents who are used to having someone tell them what they need.

HG:

Do you see a distinction between what you’re going to provide and what comes out of a community benefits agreement (CBA) with a real estate developer?

RS:

That’s not a terrible example to use, but for the most part this is very different from a CBA. In my experience in New York, you do a CBA because you have a large developer — like at Atlantic Yards or at the stadium up in the South Bronx — who wants to do something that is essentially market-driven, but they want community buy-in, so they trade off aspects of the project to generate that buy-in. A major difference is trading. We’re doing the CBA without the other project. So I guess in one way, it’s exactly like a CBA, but in another way, it’s like no, it’s completely different, because there’s no trade-off.

DG:

We also are looking at this over the long term, we’re not just looking at it as a transactional moment and then the project is complete. We are really concerned about what if things go wrong in a couple years, is there a method for adapting?

RS:

Yeah, and I think it’s going to start out small, at least in the context of New York City. Our first project isn’t going to be on the same scale as Atlantic Yards. It’s probably going to be one building.

HG:

Obviously affordable housing was de Blasio’s signature issue and the conversation over rezoning, how many units, and what income they’re available to, has dominated city politics for the last two years. But we never heard anything about similar initiatives for business, commerce, retail. Why is that? What explains the lack of attention to this issue?

RS:

Basically I think what you’re asking is: Why don’t we have commercial rent control? Why that hasn’t passed in any way as a piece of legislation is because the city thrives on market-driven commercial development. Any pushback to that is really, really difficult to create consensus around and push forward. The market drives this city, for better and for worse — sometimes for worse if you’re a small business. It’s a deeply entrenched problem.

HG:

What makes this different from what a community land trust (CLT) is doing?

DG:

The Community Land Trust model is one we’re considering in tandem with REIC funding as a way to ensure long term affordability. We’ve discussed the scenario of incubating a CLT we would then partner with. Even though CLT’s are traditionally used for housing, it is a very flexible model that can also be applied to commercial real estate. I think the commercial aspect, which is a part of our experience of the public realm, is what really makes New York City special. All these small businesses — and not a mechanism in place to preserve them.

HG:

Do you envision the co-op taking an advisory role that comes with the subsidy you would provide for a local business?

DG:

We don’t see our role extending into the day to day management of a space. Instead we would act as the steward over the general use of that space, which needs align with the mission of the REIC and best interests of the local community. One way to keep that community connection might be through a partnership with a CLT that has a board composed of one-third REIC members, one-third tenants, and one-third community stakeholders.

HG:

When you speak with business owners and other commercial tenants throughout the city, are they organized? Do they have some sort of big organization that represents their interests?

RS:

I mean it varies neighborhood by neighborhood, right? Some neighborhoods have very active merchant associations and some don’t. In some instances the BID is very sensitive to the needs of commercial tenants, and in some areas the BID tends to work in opposition to the tenants.

HG:

Do you feel a sense of urgency about this?

RS:

Totally. It’s so critical right now. How often in your life do you have someone complaining to you about the proliferation of Duane Reades and vacant storefronts in the same neighborhood? That kind of urgency: the lack of necessary retail services, the lack of history that’s retained when small businesses are lost, the difficulty that nonprofits have in creating or maintaining the facilities they need to do their best work.

We hope that this project is one way to offset some of those challenges, and that more than anything it will give people hope, that yes, residents can actually come together and meet their own needs.

These conversations have been condensed and edited for clarity. Front page image: Birdcages at Pearl River Mart in SoHo | Photo by Sweet Jessie, via Flickr