Thursday, July 3, 2014

Goodbye, Union Square Cafe. Hello, rent assessment panels?

In the late Nineties, I was fresh out of college and without a penny to my name.  I moved to New York City and found an apartment on 16th Street in an area that now passes as Chelsea, but was then a (relatively) low-rent no-man's land with no real anchors to the neighborhood save for two:  the Barney's outlet on 17th, and Union Square Cafe.  The latter was so close to me its neon sign could be seen from my front stoop.  

In today's NYT, Danny Meyer, who started Union Square Cafe in that interstitial neighborhood some 30 years ago and who will lose his lease due to soaring rents, has a nice op-ed about the importance of the neighborhood restaurant and what, if any, solace the real estate world should have for the character-defining uses of a high-rent neighborhood.

Now, let's be honest:  the Union Square Cafe is not your ordinary neighborhood restaurant.  One of my roommates in the Nineties, a recent Harvard grad, filled in for a friend at the coat check counter, made $250 in tips, and had a conversation with Charlie Rose.  Your Harvard-grad-as-coat-checker-who-chats-up-celebrities restaurant is one of those only-in-Manhattan (or maybe LA) neighborhood restaurants.  And my nostalgia for the restaurant is primarily aspirational:  it was the restaurant I walked by every day on the way home; beyond its doors was a mystery to me, merely the restaurant I'd eat at some day when times were more flush.  Of course, now that I have the money to make Union Square Cafe my neighborhood restaurant, I live in Idaho and the real estate market is having the cafe for dinner.  I think the emotion here really isn't nostalgia so much as  what my Japanese poetry teacher called "mono no aware."

But the idea of neighborhoods, and what place they have in our cities, and what the law should (or shouldn't) do to try to make neighborhood life better, remains one of my overarching concerns.  And so, I was taken by Meyer's suggestion, about halfway through his op-ed, that New York City adopt a model "like London's Rent Assessment Panel,  a government committee that resolves rent disputes and is credited with helping prevent rapid erosion of the city’s neighborhood fabric."  

I had never heard of the London Rent Assessment Panel, and so I looked it up.  From what I can glean, the London Rent Assessment Panel only arbitrates residential rent disputes.  From a Guardian article on the panels:

I arrive at the London Rent Assessment Panel near Goodge Street for a 9:30am hearing. The building is shiny and new-looking, with light created by the glass-walled offices and hearing rooms. On the wall of the waiting room is an old ward boundary map of the area around the City of London, a reminder that many more people used to live in central London until the end of the 19th century. One of five Rent Assessment Panels in England, the quasi-judicial body aims to settle disputes between private landlords and tenants in London. The hearing room itself is intimate setting with two panellists and the involved parties sitting at tables.

* * *

A recent report for Rightmove said that 30% of renters in London and the south east were paying more than 50% of their take-home pay on rent. In practice this means that renting is becoming increasingly unaffordable, and changes to housing benefit coming in next year are likely to make this work. Despite often being blamed for the decline of private renting in the 1980s, we're seeing a clamouring for rent controls again.

The tenants and landlords will receive a decision notice within 28 days. The hearings are over by lunchtime, which means the committee can carry out their visits in the afternoon, and decide what the rent should be.

Here is more on the courts from their own webpage.  It doesn't sound to me like the London Rent Assessment Panels explicitly address what Meyer is proposing, which I believe, is essentially a public law-based arbitration of private rents on certain types of commercial uses in neighborhoods with the goal of making sure that a neighborhood retains a mix of uses and local-serving character. Another approach cities have tried, to some varying success, is to limit the number of businesses in a particular use category in a neighborhood commercial strip.  And in San Francisco, some have proposed the city should offer a tax break to landlords that sign 10 year leases or longer to legacy businesses.  But Meyer's suggestion is something more:  kind of an anti-Icarus effect for real estate prices for certain types of neighborhood uses:  rent that is never too high, never too low.  It's interesting as a proposal, and might work.  But for commercial spaces, it would seem to need more nuance.  For instance, what if the "neighborhood restaurant" gets a huge break on rent in a year when rents are high, but then goes on to make tons of money and could have afforded the higher rent?  That wouldn't be fair to the landlord, but could potentially be ameliorated through something like percentage rent added to a base rent.  In any regard, I find the idea of a commercial rent assessment panel for neighborhood uses intriguing, but I think it would quickly become complicated because the rent panel would be trying to assess market risk for both the landlord and the tenant over a time-frame--10 or 15 years--that is longer than most real estate cycles.

For cities like New York and San Francisco, the question becomes at what price nostalgia or character should be purchased through policy or the intervention of law.  It is a hard balance to strike.  I'd like to believe I'll make it back to Union Square Cafe some day, but it seems the days are numbered.  In places like Manhattan, perhaps equally numbered are the days of places between places, the interstitial streets between neighborhoods booming and busting, where Union Square Cafe flourished, and a block down, I began my life in the big city.  I have a nostalgia for those places in between where opportunity begins anew, maybe because it was in those neighborhoods that I got my start, and I sense viscerally it is those places in between others need to get their start, as well.  I hope they are not gone for good, in New York, or San Francisco, or any city.

Stephen R. Miller

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