The Need
Even prior to the pandemic, finding affordable commercial space posed significant challenges to small businesses. The Institute for Local Self-Reliance found that average commercial rent increases can range from 7% to 26% annually, with higher increases in dense, walkable neighborhoods.74 Among the reasons for skyrocketing commercial rents is the preference among many real estate developers and lenders for a single large tenant—often national chains.75 In this environment, small business revenues frequently cannot keep pace with rising rents, and purchasing commercial buildings—which can help protect tenants from sudden rent increases—is also often prohibitively expensive for small businesses.
Many small businesses that managed to remain open through the pandemic are struggling to pay rent. The Federal Reserve found that 43% of small employer firms experienced challenges paying rent in 2020, with BIPOC-owned firms more likely to report difficulties than white-owned firms.76 Though no national estimate of commercial rent arrears exists, recent research suggests that 46% of businesses with annual revenues under $100,000 are one or more months behind on rent, compared to 36% of larger firms.77 Commercial rent arrears have the potential to set off a wave of evictions of BIPOC tenants, with devastating effects on the finances of individual entrepreneurs and the communities that depend on their services.78
The pandemic has also rapidly accelerated a decade-long rise in commercial vacancies propelled by online retail and shifts to online and home-based work in some industries.79 In addition to these challenges, hot-market cities such as New York and San Francisco already struggled with high storefront vacancies resulting from property warehousing, where building owners hold properties empty in the hope of eventually securing high-paying tenants.80 In the wake of COVID-19 closures,
retail vacancies nationwide are projected to rise, with significant implications for commercial corridors and business districts.81 Pervasive vacancies are linked with decreased property values, trash accumulation, pests, and fire risks. Particularly along commercial corridors, high rates of vacancies can reduce foot traffic and sales for remaining businesses, contributing to more closures.82
In contrast, practitioners noted that in many rural areas, commercial space is often scarce, and the few available buildings often require substantial rehabilitation and environmental remediation—costs that are out of reach for entrepreneurs with limited capital. These challenges are further compounded for tribal nations, where centuries of federal policy depriving Native communities of their lands have both limited development and created complexities in land tenure and permitting requirements that make it difficult for entrepreneurs to secure commercial leases or use land as collateral for loans.83
With federal CARES Act and American Rescue Plan Act funds, as well as potential new investments in physical and human infrastructure outlined in the $1 trillion Infrastructure Investment and Jobs Act and $3.5 trillion Congressional budget proposal, local governments have an opportunity to advance transformative policies that fight commercial displacement, preserve existing spaces, and develop new affordable spaces and community ownership opportunities for BIPOC-owned small businesses.
STRATEGY
Address commercial rent burden for small businesses
To stave off commercial evictions, some cities provided commercial rent relief as part of their emergency small business assistance during the pandemic. For example, the City of Pittsburgh provided grants of up to $3,000 to landlords who agreed to reduce rents for 3-6 months for commercial tenants.84 The State of Oregon used a portion of its federal CARES Act allocation and state general funds to commit $100 million for small business support statewide, including commercial rent relief. Property owners were eligible to receive up to $100,000 per commercial tenant, conditioned on forgiving all back rent and fees and not evicting commercial tenants after receiving funds.85 In northwestern Ohio, the Greater Toledo Small Business Stabilization Fund leveraged public, private, and philanthropic dollars to provide emergency grants of up to $10,000 for small businesses to pay operating costs incurred during the pandemic, including rent.86
Some cities are considering longer-term solutions to curb high commercial rents and vacant property warehousing. The New York City Council passed legislation in 2019 to create a vacant storefront registry,87 and recently held a hearing on commercial rent regulation, a longtime priority for advocates fighting small business displacement.88 Just before the pandemic, San Francisco voters approved a ballot measure to impose a tax on commercial properties kept vacant for more than six months, while Washington, D.C., has had a similar law in place for nearly a decade that applies to both commercial and residential properties.89
Along with commercial rent relief and anti-vacancy measures, cohort members noted many opportunities for local governments to support the wide spectrum of space needs small businesses have throughout their life cycles, from providing free temporary access to public space to facilitating permanent ownership of commercial buildings, as described below.
STRATEGY
Provide access to free spaces and pop-up markets for BIPOC-owned micro-enterprises
Temporary space can help entrepreneurs build an initial client base and grow their business as they transition to a longer-term lease or permanent space. To support this early-stage entrepreneurship, local governments can work with community partners to identify and access free spaces, and provide grants to coordinating organizations. For example, Duluth’s American Indian Community Housing Organization hosts the Indigenous Food & Art Market in the One Roof Community Housing parking lot. As one cohort member described, “Our Indigenous entrepreneurs started with a winter market, and from there, we have seen those businesses really start to grow and to develop.” A similar initiative in Portland, Oregon, the Portland Indigenous Marketplace, has supported Indigenous artists and entrepreneurs with a collaborative, culturally respectful environment and free vendor space at local nonprofit parking lots. After a year of successful events, the organization received a grant from the county government and incorporated as a nonprofit, and transitioned to hosting virtual marketplaces during the pandemic.90
STRATEGY
Support commercial building acquisition by community-serving, BIPOC small businesses and nonprofit partners, including small business incubators and collaboratives
Cohort members described opportunities to support nonprofit partners and small businesses in purchasing commercial spaces as a long-term solution to commercial displacement. The Mission Economic Development Agency (MEDA) in San Francisco, for example, has used funding from the City of San Francisco Small Sites program to support both affordable housing and commercial and cultural preservation efforts in the Mission District, a historically Latinx neighborhood experiencing rapid gentrification. So far, MEDA has preserved 100,000 square feet of commercial space in the District, which it rents out at below-market rates to neighborhood businesses and organizations. The organization is now exploring ways to help small businesses directly acquire their own spaces, as part of a community ownership and wealth-building strategy.91
Local governments can also support the development of small business incubators that provide below-market rents, shared common spaces, and access to support services. The Beaver Street Enterprise Center in Jacksonville provides offices to 48 small businesses at below-market rents, including access to free event and meeting spaces. As a nonprofit, Beaver Street offers flexibility to small businesses experiencing cash-flow problems and did not evict any tenants during the pandemic. The organization also provides free coaching, trainings, and networking events to its tenants as well as a broader network of entrepreneurs. Change Labs, a Native-led nonprofit based in the Navajo and Hopi nations, leads a small business incubator that supports Native entrepreneurs on tribal lands. The program creates annual cohorts of 20 entrepreneurs that receive intensive coaching, mentoring, and peer support, along with coworking and meeting spaces. Entrepreneurs who complete the program are also eligible for a $10,000 loan to seed their business.
STRATEGY
Invest in community ownership models such as cooperatives and commercial community land trusts
Community ownership models balance anti-displacement goals with wealth-building strategies, and foster meaningful community decision making over development. Often used for permanently affordable housing, community land trusts (CLTs) can also steward commercial properties and lease spaces at below-market rents to small businesses.92 The Rondo Commercial Land Trust Project in St. Paul, Minnesota, offers over 9,000 square feet of affordable commercial space, and seeks to retain, stabilize, and promote small, BIPOC-owned businesses along a major commercial corridor in the historically Black Rondo neighborhood. The CLT currently has six commercial tenants, includes affordable housing in its portfolio, and shoulders a larger share of costs than typical commercial property owners.93
Commercial real estate or investment cooperatives can also offer affordable space to small businesses while providing wealth-building and leadership opportunities to BIPOC community members. The East Bay Permanent Real Estate Cooperative (EBPREC) is piloting a mixed-use development with 6,000 square feet of commercial space at below-market rents for BIPOC-owned startups, with a focus on arts and cultural spaces, as part of a community-led effort to revitalize a historically Black cultural and economic corridor in West Oakland, California. As the EBPREC’s first commercial acquisition, the project will be cooperatively owned and financially supported by community shareholders.94 The Community Investment Trust (CIT) in Portland, Oregon, is pursuing a similar model by providing opportunities for low- to moderate-income residents to own commercial real estate collectively in their neighborhoods. The CIT’s first project was an underutilized commercial retail mall in southeast Portland that was only 66% occupied. Since the CIT’s acquisition, the mall is now 95% leased and houses over 25 mostly BIPOC-owned small businesses and nonprofits.95
Support small businesses in navigating permitting, licensing, and other requirements. Besides expanding access to affordable commercial spaces for BIPOC-owned small businesses, municipalities can support small business recovery by streamlining licensing and permit processes, which can prevent many entrepreneurs from opening and/or expanding their businesses. For example, during the pandemic, the City of Oakland announced legislation to hire more city staff to speed up building and small business permitting. The City of Los Angeles streamlined its liquor licensing process and lowered the cost of liquor licenses from $13,000 to $4,000 for small businesses, at the same time as the state of California also allowed restaurants to sell to-go alcohol. Though initially passed as temporary measures to support the restaurant industry during the pandemic, along with removing parking and closing streets to cars to expand outdoor dining, these types of regulatory changes could be made permanent to promote an inclusive and equitable recovery. Adjusting zoning and land use regulations to allow businesses to offer multiple services, as San Francisco did in 2019, can also make collaborative spaces with multiple businesses more viable.
In addition to permits and licenses, commercial tenants are typically responsible for any improvements to their space, including bringing spaces up to code. The costs of this work can present a significant challenge for small businesses. Said one practitioner:
A lot of our clients...do not get the grace of the code items that were grandfathered in for the businesses that were there prior to them, and the expense of having to update these buildings just to get started is stopping a lot of businesses from even being able to move forward.
Local governments could provide financing to small businesses to make infrastructure improvements, particularly in areas where available spaces need substantial rehabilitation and retrofitting, or environmental remediation.
STRATEGY
Encourage small-scale manufacturing as an equitable local economic development strategy
Manufacturing remains an important component of local economies, and COVID-19 revealed the resilience of the sector as many firms pivoted to address new, urgent need for products like personal protective equipment, and as international supply-chain challenges forced local producers to adjust and scale up. But even before COVID-19, cities realized the benefits of supporting manufacturing and industrial district revitalization. With average hourly earnings of $27.10 nationwide, the sector provides a substantially higher wage than fields with similarly low barriers to entry, such as retail ($18.90) and leisure and hospitality ($16.07). But like any other economic development strategy, investment in manufacturing and industrial districts does not automatically translate into economic opportunities for BIPOC entrepreneurs or jobs for residents of economically excluded communities. Recognizing this gap, municipalities and their partners are engaging in intentional efforts to support local manufacturers in ways that allow communities of color to access new manufacturing jobs and succeed in them.
Supporting the production of affordable industrial space for local small businesses. In Newark, the city is supporting its first “Makerhood,” an affordable mixed-use development with light manufacturing space and apartments in the Springfield/Belmont neighborhood, a historically Black community. The city partnered with Avi Telyas, an immigrant entrepreneur and real estate developer, to develop the Krueger-Scott Mansion, a historic, city-owned property, into a project that could give Newark entrepreneurs with limited resources access to affordable housing, office space, and business support. The project required adjusting local zoning regulations to allow the combination of residential and light manufacturing uses in a single building as well as provisions requiring that building tenants must also live there—a way to prioritize local manufacturers in Newark, many of whom are people of color. Furthermore, to ensure affordability while making the project economically viable, the partners adopted a funding model that combined various public and private funds including from LISC, the United States Department of Housing and Urban Development, New Jersey Community Capital, Wells Fargo Bank, Prudential Life Insurance Company, the City of Newark, the developer, and the use of New Markets Tax Credits.
Local branding as an opportunity to promote manufacturing growth and jobs for residents. Some cities have recognized the potential to connect businesses with the identity of their place, not only as a marketing strategy, but also as a means to bring local businesses together and advance local manufacturing sectors. Such strategies include the establishment of an umbrella organization that becomes a gatekeeper for the manufacturing sector and that connects businesses to a broad range of services, including workforce assistance. SFMade, for example, is an example of an umbrella organization that provides marketing support to small local manufacturing companies while sponsoring Youth Made, a summer internship program that places low-income high school students in the Bay Area in internships with these businesses. The success of the Youth Made program led SFMade to create a toolkit for organizations interested in developing and implementing manufacturing youth internship programs so the model can be replicated in other cities across the country.
Convening small manufacturers to identify employment needs and develop the right kinds of training curricula. In many regions, the manufacturing landscape is composed of small firms of increasing variety, making it challenging to aggregate training needs at scale. Community colleges or local community-based workforce training programs are the most common venues for specialized manufacturing training. But these programs—either because they are small and under-resourced, or because they operate at the broader county level—are often challenged to meet manufacturers’ varied needs and requirements, especially because any one firm might require just a handful of new workers a year. Recognizing this challenge, Chicago’s Business and Career Services (BCS), North Suburban Cook County’s “One-Stop” operator, convened manufacturers that collectively identified the need for a pipeline of young people in their factories and developed the training curriculum for a youth internship program to be delivered by local community-based organizations citywide. The group partnered with Opportunity Advancement and Innovation in Workforce Development (OAI), a community-based organization on the South Side of Chicago that works with out-of-school youth. Employers worked with BCS to develop a 12-week curriculum for OAI’s youth that combines four weeks of classroom training at community-based organizations followed by an eight-week full-time paid internship. This Opportunity Works program has since expanded to include some dozen locations citywide, where it provides manufacturers with sufficient exposure to participants prior to hiring them full-time, and has led to successful employment of 80% of graduates. In addition, by engaging local manufacturers, the program structure also provides participants with certifications, such as OSHA-10 and additional forklift credentials, that are recognized and valued by local employers and thus offer broader employment opportunities.
