Mayor John Tory's Toronto

[W. K. Lis]

Next Council Agenda is up, for Feb 26.

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app.toronto.ca

Mostly, as per the norm, this is approval of what's already gone through the committed process, but sometimes interesting stuff comes up in 'new business' or in 'member motions'.

This motion from Councillor Bradford caught my attention, asking for a report on a Vacant Storefront Tax.

Agenda Item History 2020.MM16.9

Agenda Item History 2020.MM16.9

app.toronto.ca

There should be an exemption where there is street or property construction (IE. Crosstown LRT) causing the business to vacate the property.

 

[TrickyRicky]

I think a vacant storefront tax is debatable philosophically although I understand the sentiment. A vacant residential tax is rooted in the idea that everyone needs a place to live. What a vacant storefront tax is saying is that society deems doing business mandatory to satisfy societal goals. We have not traditionally gone down that route.

 

[Northern Light]

I think a vacant storefront tax is debatable philosophically although I understand the sentiment. A vacant residential tax is rooted in the idea that everyone needs a place to live. What a vacant storefront tax is saying is that society deems doing business mandatory to satisfy societal goals. We have not traditionally gone down that route.

I agree its non-traditional; though I'm not sure what you suggest is the intent here.

Isn't it just a punitive tax?

The city might make a quick buck but this doesn't solve the underlying issue of vacant storefronts that are vacant because leases are too high.

I'm not sure that that is the case; anymore than the vacant store rebate was intended merely to give away City dollars or reward vacancies.

***

I would suggest the point of this would be to penalize landlords that either withholding space from the market in anticipation of non-imminent redevelopment; or alternatively are holding out
for national retailers and setting punitive lease requirements for smaller, independent businesses in preference to the former.

Obviously, there's a question of why a space is vacant, and there surely has to be a minimum period of such before sometime of punitive tax kicks in (6 months?)

You might think, based on the above, that I'm favour of a such a tax.

I'm not sure that I am, as I have a natural distaste for complexity in regulation or trying to use regulation or tax to micromanage every economic or social ill.

I support such regulation, where a problem is widespread, the market seems unable to naturally address the problem; and there is reason to believe such a regulation will be both efficacious and cost-effective.

I'm not sure that's the case here.

But I do think there is an emerging problem, where space that is market-ready is essentially being withheld even though there are prospective, profitable, tenants to be found.

It is a market malfunction that this is occurring.

The discussion of potential solutions is therefor a reasonable one.

Though, I'm not yet sold on this particular one; and I will need to see the details and supporting evidence, before drawing a conclusion.

 

[zang]

Isn't it just a punitive tax?

The city might make a quick buck but this doesn't solve the underlying issue of vacant storefronts that are vacant because leases are too high.

The tax can be avoided by leasing a space out instead of sitting on property that gains value even being empty, or refusing to lease because condos are being built nearby and you’re hoping for a windfall.
In short, it’s incentive to lease at fair (not excessive) prices.

 

[jje1000]

Isn't it just a punitive tax?

The city might make a quick buck but this doesn't solve the underlying issue of vacant storefronts that are vacant because leases are too high.

But the solution for landowners is right in your sentence- lower the cost of the lease and be willing to lease to other retail beyond Rexalls and BMOs!

 

[WislaHD]

But the solution for landowners is right in your sentence- lower the cost of the lease and be willing to lease to other retail beyond Rexalls and BMOs!

And the tax accomplishes this?

You know it is not like landowners are choosing not to make revenue by leasing their retail spaces. They made the calculations and determined that it is cheaper to eat the cost of the vacant property than it is to lease it out at a lower price. The other thing is that maybe the landowners can't find anyone willing to take the lease even at a depressed value! The tax proposed doesn't resolve either issue.

It to me seems like another example of our provincial small town attitude in the middle of a megacity. The answer to the problem of vacant storefronts in this city is "oh well, let's just tax them until they show the right behaviour" and not maybe question whether the density exists to support retail at this location and what could be done to increase the residential density of the surrounding neighbourhood.

 

[Northern Light]

And the tax accomplishes this?

You know it is not like landowners are choosing not to make revenue by leasing their retail spaces. They made the calculations and determined that it is cheaper to eat the cost of the vacant property than it is to lease it out at a lower price. The other thing is that maybe the landowners can't find anyone willing to take the lease even at a depressed value! The tax proposed doesn't resolve either issue.

It to me seems like another example of our provincial small town attitude in the middle of a megacity. The answer to the problem of vacant storefronts in this city is "oh well, let's just tax them until they show the right behaviour" and not maybe question whether the density exists to support retail at this location and what could be done to increase the residential density of the surrounding neighbourhood.

I've expressed a very nuanced position; this is not my hill to die on.

That said, I consider the above post less-than-Wisla worthy.

You've clearly done no research and yet made absolute pronouncements.

That's not how logical arguments are constructed and you know that well, as you usually make good ones.

I can say w/certainty that there are landlords in Toronto's Beach area that have attempted to hike rent by well in excess of 100% in the last few years, forcing an existing, profitable business to close or relocate.

I can say with certainty the hike exceeded by a substantial margin any increased costs the landlord may have experienced.

I can further add, those properties sat or are sitting vacant years later.

Its an odd choice which doesn't make rational financial sense if you intend to keep the buildings standing in the medium to long term.

But it makes perfect sense to some, if your trying to make them more attractive to a developer/buyer, or to a chain that might seek a larger square footage (and you own contiguous units/buildings)

If the strategy pays off, it is what it is, and is the legal right of said building owners.

But when units remain vacant years later; there is a detrimental effect to others in the community that needs to be considered.

For all of that, I'm not unequivocally in favour of this tax, for reasons I've already stated.

But I'm also not going to let an extremely suspect argument in favour of bad landlords/buildings owners stand either.

 

[WislaHD]

Haha, I welcome being called out for a weak argument!

Looking through TREB reports, in "Toronto Central" commercial rent per sqft has risen from $32.70 in Q4-2015 to $55.65 in Q4-2019, but remained relatively stagnant in "Toronto East" and "Toronto West" at around $22.00 mark over the same period. Leslieville and The Beaches are under "Toronto East" for reference.

So leases are going up rapidly in downtown, but the reason for commercial vacancy on the east end is probably for reasons that are endemic to the east end and not specifically due to changing market conditions. My recollection is that Leslieville and The Beaches neighbourhoods always struggled with commercial vacancies, even when I was a kid. My prediction is that it will continue to do so with this tax in place until such a time comes when there is more demand for retail in those neighbourhoods.

And if the reason for vacancies is due to lot assembly for prospective development proposals, then the tax will just be eaten as another project expense (and the burden passed down to the buyer) as managing an active lease to the last moments before permit approvals is just too much hassle.

 

[Northern Light]

Haha, I welcome being called out for a weak argument!

Looking through TREB reports, in "Toronto Central" commercial rent per sqft has risen from $32.70 in Q4-2015 to $55.65 in Q4-2019, but remained relatively stagnant in "Toronto East" and "Toronto West" at around $22.00 mark over the same period. Leslieville and The Beaches are under "Toronto East" for reference.

So leases are going up rapidly in downtown, but the reason for commercial vacancy on the east end is probably for reasons that are endemic to the east end and not specifically due to changing market conditions. My recollection is that Leslieville and The Beaches neighbourhoods always struggled with commercial vacancies, even when I was a kid. My prediction is that it will continue to do so with this tax in place until such a time comes when there is more demand for retail in those neighbourhoods.

And if the reason for vacancies is due to lot assembly for prospective development proposals, then the tax will just be eaten as another project expense (and the burden passed down to the buyer) as managing an active lease to the last moments before permit approvals is just too much hassle.

Better argument! However, I counter with this.

I have reviewed listings here (for commercial rents in the Beach area).

I found nothing under $28 per sq ft.

With median pricing around $40; and one well known vacant unit (with listings at 2 different prices) running upwards of $54 per sq ft.

Commercial Property for Lease The Beaches, Toronto | Zolo.ca

Browse 22 commercial properties for lease in the The Beaches neighbourhood of Toronto, ON. Find the right business location or commercial property in The Beaches with our commercial rental listings.

www.zolo.ca

 

[innsertnamehere]

Better argument! However, I counter with this.

I have reviewed listings here (for commercial rents in the Beach area).

I found nothing under $28 per sq ft.

With median pricing around $40; and one well known vacant unit (with listings at 2 different prices) running upwards of $54 per sq ft.

Commercial Property for Lease The Beaches, Toronto | Zolo.ca

Browse 22 commercial properties for lease in the The Beaches neighbourhood of Toronto, ON. Find the right business location or commercial property in The Beaches with our commercial rental listings.

www.zolo.ca

subsectors of the "toronto east" area are going to be more expensive - but the average has not increased in the last while. Which means one of two things. 1. Beaches rents have not been increasing. 2. Beaches rents have been increasing and other areas in Toronto East have been decreasing approximately proportionately, creating an overall average of no increase.

 

[tiffer24]

Work stoppage involving outside workers' union could begin as early as midnight.

https://www.cp24.com/news/work-stop...on-could-begin-as-early-as-midnight-1.4828269

 

[Towered]

Is Tory about to get Millered?

 

[TrickyRicky]

There’s a lot going on behind the “landlord greed driving independent businesses out” notion. Land price inflation that tilts the highest and best use towards redevelopment upsets the Apple cart in many ways and puts pressure to change on commercial tenants and their landlords alike.

The sophistication and capital requirements needed to operate a Main Street business increase with each passing year. We’re probably just not going to see the same kind of diverse neighbourhood retail experience people want for their hoods any more as the capital requirements and sophistication start exceeding the capacity of middle-class people. This even if landlords aren’t reaching for rents (they are) hoping to snag a cannabis operation etc.

 

[Jonny5]

There’s a lot going on behind the “landlord greed driving independent businesses out” notion. Land price inflation that tilts the highest and best use towards redevelopment upsets the Apple cart in many ways and puts pressure to change on commercial tenants and their landlords alike.

The sophistication and capital requirements needed to operate a Main Street business increase with each passing year. We’re probably just not going to see the same kind of diverse neighbourhood retail experience people want for their hoods any more as the capital requirements and sophistication start exceeding the capacity of middle-class people. This even if landlords aren’t reaching for rents (they are) hoping to snag a cannabis operation etc.

These are great points. There's further economic structural issues too with financing in addition to leasing commercial space.

I had a relative start a small business in the early 90's. She had no previous business experience. It was a low-mid range priced clothing store which was located in a busy strip mall in Hamilton anchored by a grocery store, a Shopper's Drug Mart, a McDonalds, and a Tim Hortons (also a Jumbo Video!). So there was lots of foot traffic there. The inventory was generic brands with casual wear styles. The business case was that there were no other clothing shops anywhere in the vicinity and the average income of residents in the near vicinity was a little below city average. This was stuff you would wear when you go to this strip mall to do your grocery shopping and get a Big Mac.

It failed after a year, though she wound up essentially breaking even on the whole thing; bailing out when she realised she couldn't carry the interest cost of the loans and ever make a profit, at least not for many years.

What I think about now is how that business would never even get off the ground in this day and age. She would never get the loan to start a clothing store with no personal capital as collateral like back then, and the landlord, RioCan, would probably never lease them the space for it. That is simply not a viable business period anymore. Why would a landlord take the risk and wind up with potential bankruptcy cleanup costs of tearing out a built up space, and missed rent payments? Let it sit empty until a golden goose appears, or you blow it up and redevelop. But, as you noted, people have this fetish for streets lined with shops that really is no longer practical or wanted. It's actually probably now 15 years past it's sell by date.

 

[TrickyRicky]

For the record I am a commercial landlord. I support in principle the idea of independent retail and the continuation of existing businesses to operate. That said we are getting to the point that many independent Main Street retail operators can barely absorb rent increases at the rate of inflation (say 2%) because of increases in other fixed costs and compliance issues.

I’m not giving you scientific numbers here but I’ve dealt with commercial tenants that want to open up a business and say budget $250,000. These are not novice operators. They have decades of experience. At minimum the true cost of opening their business today generally exceeds 100% of their anticipated budget. That’s rough given that leasehold improvements ultimately belong to the landlord and the locks can be changed overnight in the event of nonpayment. P.S. most independent Main Street businesses are in debt to their landlords and therefore could have their locks changed overnight at any time.