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How to Save Downtown (Victoria BC)

Below is the real version of my article, How to Save Downtown (it’s about downtown Victoria BC, but applies to many city centers crushed under the weight of overly needy – and stupid – municipal governments as well as strapped economies…).

I submitted this article to FOCUS Magazine for publication in its June 2011 issue. I was subsequently horrified to see that the publisher truncated the article so severely as to make it nonsensical. After I complained, he put a more-or-less intact version online (at last reading, there was at least one paragraph still missing), but the print version of the article has unfortunately already gone to press. I wish I could have taken back my submission, but I couldn’t. I’m much embarrassed (and angry) to see my name attached to it.

Here’s the article  as it was intended to appear. Readers might notice that it grew out of my previous dying downtown series:

How to Save Downtown

Victoria City Council recently offered the business community an olive branch when it addressed the tax ratio of commercial to residential rates by voting to reduce marginally (very marginally) that ratio by 0.004% in favor of commercial rates. While the Chamber of Commerce responded with tepidly mumbled words of encouragement for council’s decision, the daily newspaper merely reported the other side of the coin: that residential property taxes will rise by 7% compared to 1.1% for businesses.

Anyone who bothers to walk around downtown Victoria can see that many businesses are struggling. Take Fort Street’s Antique Row. Start at Cook, continue to Douglas, and note the number of “for lease” or “going out of business” signs. Too often, though, we ignore the plight of businesses and focus instead on the rise in residential taxes.

I recently posted photos of the many empty Fort Street storefronts to my blog. The comments that came in were instructive. Readers (including business owners) blamed downtown’s desuetude on many things: big box stores; tourism downturns; street people; lack of community support for independent merchants; problems related to overzealous parking commissionaires.

Everyone cited high rents, worsened by excessive property taxes:

“I have been perplexed that while we saw a recession start in 2009 retail rents continued to rise right through it as though there was nothing happening.”

“There is certainly no shortage of eager, creative and motivated entrepreneurs in Victoria. If they can deal with the impossible rents, along with the fact that the City is inherently anti-small business (zoning, permits, etc), they may have a chance.”

Comments repeatedly cited the City of Victoria’s lack of business support, noting that it burdens businesses with adversarial inspectors and bylaws.

Others noted that there is too much emphasis on tourist retail and not enough on incubating innovation for the homegrown market.

And people asked: if so many storefronts are empty, why are rents still so high? Bound to triple-net leases, tenants are typically on the hook for property taxes, and even building improvements. For paying property taxes, the City delivers nothing in services, not even garbage pickup.

In 2005 Greater Victoria had a retail vacancy rate of 3.5%. By 2010, that rate had climbed to 5.9%, and it doesn’t look better for 2011. According to Colliers’s Market Report, “2011 is likely to be a year of ‘status quo’ for Greater Victoria retail.” While the forecast admits that “2010 was a year of uncertainty,” it also posits that “the overall market has remained relatively healthy.” Downtown’s empty storefronts suggest otherwise.

Perhaps macro-analyses of Greater Victoria, which include data points around “secure federal and provincial employer presence” (read: consumers) and Uptown or Westshore shopping mall expansions (read: vendors), don’t speak to what’s going on specifically in our downtown.

I asked Graham Smith, who looks after Greater Victoria retail for Colliers, about lease rates and their responsiveness to the market. Smith pointed out that every property is different, each has its unique qualities. Whether it’s on this or that side of the street or in this or that block affects its lease rates. And just as properties are unique, so are owners. Smith likened it to selling a house: most people are convinced that their property is uniquely valuable, and some owners will insist on getting their price, while others just want it rented.

Why would a property owner let his property stand empty instead of offering struggling tenants a rate reduction? Smith’s market-based answer seemed cruel, albeit realistic: if a business is struggling, there’s something wrong with the business model besides leasing expenses. A 10% rent reduction isn’t going to help that business thrive if there either isn’t really a market for what it’s retailing, or it’s not open when customers want to shop.

However, consider the tax burden imposed on business. Take 789 Fort Street, a property assessed at ~$2 million; its 2010 property tax was $49,130.18. A comparable ~$2 million residential Victoria property (1989 Crescent Rd., for example) is taxed at ~$13,685.00. That’s a difference of nearly $35,000.

Who pays the property tax on commercial buildings? Typically, the triple-net lessee.

According to sources at City Hall, Victoria relies equally (50-50) on residential and commercial property taxes, but commercial property is clearly carrying the brunt. Nor is Victoria alone. 2010 Tax Rates reveal that Victoria taxes businesses the most, but Saanich and Langford are close behind:

Victoria Residential: 3.6581
Victoria Commercial: 13.1471
Ratio: 3.59
Langford Residential: 2.3343
Langford Commercial: 7.3764
Ratio: 3.16
Saanich Residential: 3.2697
Saanich Commercial: 11.6980
Ratio: 3.58
Oak Bay Residential: 2.9305
Oak Bay Commercial: 5.0610
Ratio: 1.73
(source)

True, every municipality has a pro-residential bias. After all, residential taxpayers elect the politicians. However, the difference is very much skewed against City of Victoria businesses in absolute terms: a lessee will pay much less property tax for a similar property in Langford since the property has a lower assessed value. This difference can be the make-or-break factor for a business, and partly explains the exodus from downtown. Let’s also not forget that fewer than ten years ago, Victoria’s ratio of commercial to residential taxation was 2.63, while it has now climbed to 3.59. (source [PDF])

An effective way to reduce the currently painful ratio would be to increase the number of residential properties on the City’s tax roll.

Recall my conversation with Graham Smith of Colliers. From his 11th floor CIBC Building boardroom we could see 789 Fort Street, a one-story building with two storefronts. Presently, half the building is rented, while the other languishes.

I pointed out that this building should have rental apartments on top, which would provide both customers and even employees. The newer building next door (at Fort and Blanshard, southwest corner) was built within the last fifteen years. Although newer, it’s also just a single story, with zero residential above the store. It seems we haven’t been adding mixed-use buildings with a view to bringing a diversified demographic into the downtown.

So why don’t we encourage more development that brings residents into the downtown, which would help “spread the pain” of property taxes on mixed-use commercial/residential buildings and would benefit retailers who need steady repeat customers? Consider that downtown Victoria’s population has actually declined since the 1970s when new seismic regulations left buildings vulnerable to unaffordable code upgrades. If you’ve ever wondered why some buildings downtown don’t have people living on the second or third floors, it’s because they didn’t remain “continuously occupied” since new codes came into effect. If a building remained continuously occupied, it’s exempt. If it’s vacated, however, it becomes subject to the new rules, and requires fearsomely cost-prohibitive seismic upgrading.

As for new buildings, condo towers (which target just one small slice of the larger demographic pie) have added some population, but we’re still below 1970s population levels. Newer one-story buildings, as well as older one-story buildings, represent a missed opportunity to diversify the downtown and to bring its residential levels back up to what they used to be.

There is a new proposal that’s heading in the right direction. The Cosmopolitan is a 5-story development for the 600-block of Fort. Currently making its way through City Hall, it includes ground-floor retail, with 4 stories of rental housing above. If the project is approved (it needs a minor height variance), it’s an opportunity to build exactly what Victoria needs: residential over the store. I asked the developer, Jurgen Weyand, how the numbers work when building rental. The short answer: they don’t, really. Compared to building condos, building rental is an investment on his part that may pay off for his grandchildren. But retailers will benefit from having residents that live where they work and shop.

So let’s look out Colliers’ 11th floor boardroom window again. Sometime in the last 15 years, a new building went up at Fort and Blanshard. But it’s just one story and has no apartments above the store. Sometime in the last few years, tenants came and went at 789 Fort Street, but it’s just one story and there are no residents living above the store. There are scores of downtown buildings that have no one living over the store. The Cosmopolitan will hopefully contribute to reversing that trend.

Clearly, we need more development downtown, whether it’s condo towers or five-story walk-ups above ground floor retail. New condo towers may attract retiring empty-nesters who want to shop and re-create in a walkable downtown. Rental apartments above ground-floor retail diversify the demographic, to attract a younger, more mobile tenant who works in those businesses for her day job (and shops there, too), while incubating the next great thing in the creative economy after hours. Win-win.

Bottom line: if we want to save downtown, we need people living there, right over the store. That would provide customers for businesses, as well as defray the property tax burden currently off-loaded via triple-net leases solely on businesses.

Dying Downtown Victoria BC Part 3

Welcome to the third in a series of now three posts about Victoria BC’s dying downtown. Read the first one here (3/21/11) and the second here (3/22/11).

As you can see in the second post, one of my commenters on Facebook remarked that for her, that stretch of Fort Street isn’t really downtown. I answered that it is officially a part of downtown – it’s in the Harris Green neighborhood. Also, my photos included the 700 and 800 blocks of Fort Street, and if that’s not downtown, nothing is.

I would argue that if people don’t think of it as “downtown,” it’s because it doesn’t look like a downtown.

To prove my point, take a look at the photo below (let’s call it Exhibit A):

I’ll have a lot to say about this scene in just a sec, but first, allow me to show you the other six already-empty or endangered storefronts on that same stretch of Fort Street, except this time the south side of the street (my first post in this series looked at the same blocks on the north side of the street).

Once again, we start at Fort and Cook Streets, heading east (this time on the south side of the street). First, a clothing boutique (which used to be in the 700 block of Fort a while back) is closing:

Next up, a high-end antiques place. The owner has had the building on the market for a while – don’t let the faux Tudorbethan decoration fool you, this is a plain cinderblock box. It’s just the front facade that has been prettied up:

Right next door is a real disgrace: the ex-Little Piggy, which has been an empty eyesore for going on years now:

Again, the Tudorbethan facade is just tacked on. The building itself is nothing much – and has been on the market for a while.

Alright, heading further east, we hit the 900 block where a new building recently completed. One retail space has been leased, but the other is still waiting for a tenant. At least this is a quality building (but rents are therefore accordingly steep, tough for indie businesses to enter into):

Leaving the 900 block behind, we’ve now crossed Quadra Street and are continuing toward Blanshard. On this block (800) we see a couple of holes:

And, same block:

Finally, in the 700 block (between Blanshard and Douglas Streets), the tacky frontage shown in the first photo that headed up this entry:

As you can see, if you compare my first Dying Downtown Victoria BC entry and this one, the empty storefronts exist on both sides of the street, and the 900, 800, and 700 blocks in particular are by any definition downtown.

So what’s wrong with this picture?

Let’s take another look at the picture I started with:

Look at it. What you see here is what is basically a tiny little lot with a tiny little structure on it – one can’t even deign to call it a building – which in any other market would be bulldozer bait. This is a one-story thing – it houses two retail units: one of them happens to be rented out at the moment, while the other one has gone bust and is empty. …And will probably stay that way for a long time.

Now, in any  normal world, this structure would be torn down and developed because it’s right downtown, it’s sitting on incredibly valuable land. But instead, what we do here in Victoria, is we allow a one-story waste-of-space space waster to continue existing downtown.

So what should the city do?

Well, how about this?

Instead of enabling property owners like the one who owns the property in this picture to continue propagating this kind of decay downtown, why not say to him or her, “You know what? We’re going to put tax incentives in place so that you can develop this property. Forget about height restrictions, you can go as tall as you can need to make the numbers work, but let it be known that we are going to hold your feet to the fire for a real quality product. It has to be a total quality product. You don’t have the height restrictions, you don’t have the density restrictions, so in exchange you have to include rental components and on the street frontage you have to include retail spaces that are specifically affordable for local businesses. So. How about this, Mr or Ms Developer? You build something that’s anywhere in the 15- to 20-story range, or whatever it takes to make the numbers work. Your building is on a very small lot, so you have only a tiny footprint to work with. So the top 4 to 6 stories could be given over to duplex-style penthouse condos that you can sell at a premium, another 3 to 5 stories below the top 6 floors could be smaller condos, while everything below that is given over to rental, including market rental and a healthy percentage (30%?) of subsidized rental. And, as mentioned, at street level, we have retail. Ok, Mr or Ms Developer, go and make those numbers work. See what you can come up with. See how tall it has to be, and then get back to us and we’ll make sure it moves through the approvals process, pronto.”

That’s what I would do, and that’s my advice to the City. And I won’t even charge a consulting fee.*

…Although, if someone wants to hire me in some such capacity, I’m available… 😉

Furthermore, if you did that with one site, other bulldozer-bait sites in the vicinity would also get the message and finally get developed.

Maybe, just maybe, if our downtown actually looked like one and if people could actually live there once again (we currently have fewer people living downtown than we did in the early 1970s!), we’d begin to treasure it. But as long as we have asinine restrictions that not only keep the built form low but also depress the entire ecosystem of the city, as long as we have councilors who cling to some weird notion of low-rise density, and as long as we have NIMBYs in the surrounding neighborhoods who scream blue murder because a highrise is going up downtown, we will continue to create market conditions that are inimical to human economic life downtown.

Dying Downtown Victoria BC followup conversations

Yesterday’s post (Dying Downtown Victoria BC) generated a fair bit of comment on Facebook. I decided to take screenshots of the comments and post them here. (However, since I haven’t had time to ask the people who commented whether they were ok with having their comments taken from Facebook’s walled garden into the open access world of the blog, I erased their names.)

First, a friend “shared” my link to his page, which produced the first comments string, below (with names erased in yellow). This is followed by the comments posted to my Facebook page (names erased in blue).

Enjoy!

^ That’s from a friend’s page.

Below, comments from my page:

FYI: about a year or so ago, I had a most interesting chat with a retired City Hall employee who had worked his way up from literally digging ditches for the City as an 18-year old to going into engineering. One of his hobbies was researching land titles. From what he told me, I got the impression that the city doesn’t have a real data base on who owns what (which was echoed by a woman who tried to find out from City Hall how many rental units there were in Victoria: the City couldn’t tell her). Anyway, my contact was quite insistent that a lot of property is in family hands and hasn’t changed ownership in several generations. The heirs can make more money sitting on half-empty buildings, charging high rents for the storefronts, than they would if they tried to redevelop their properties (or even sell them). The tax structure is set up to make it more attractive to hold and let decay than to develop. Add to this the mania we have about height restrictions and not allowing density, and perhaps a pattern emerges…

Dying Downtown Victoria BC

If downtown Victoria BC storefronts were teeth, this city would need a new bridge.

…Oh, wait. That’s a bad joke (see posts tagged with Johnson Street Bridge)… We are getting a new bridge. But as the following photos will show, what we really need is economic revitalization.

This afternoon, I was walking down Fort Street to Monk’s at Fort and Blanshard. I passed one empty storefront after another – just on one side of the street, just on one street, just on three-and-a-half blocks.

This is what many parts of downtown Victoria look like.

We start at Fort and Cook Streets, the northeast corner, before we head east on Fort St. (we’re traveling on the north side of the street).

We see 1090 Fort St, and there isn’t just one empty storefront, but two.

This is Kona Coffee Shop – or rather: was. Now gone.

Next up, same building:

This used to be a hair salon. Even a hair salon can't survive here?

Next up, in a small, low building a few doors down:

Charles Baird Antiques – closed

The next one’s demise (just a few doors down) was new-to-me:

Plenty Epicurean Pantry will be closing next. 🙁

Nearly next-door to Plenty (ironic name) is the Korean specialty clothing boutique that closed earlier this year. The sign claims that someone new is taking over, but I’ll believe it when I see it. Right now, the place is empty and bereft:

Specialty knits boutique – closed earlier this year.

Ok, we’re still in the same block (1000s), and here’s another place that has been sitting empty for months and months:

This used to be a niche home decor store. Has been empty for months. No new takers.

Ok, we now come to the 800 block of Fort St. (The 900 block on the north side of Fort is mostly surface parking lots – next to Lund’s – and a grassy trash-lot in front of View Towers. So, there are only a few stores in that block anyway…)

.

Seeing that this one is closing was a shocker: it's a Korean grocer, next to a French butcher. Why is it closing?

A couple of doors down, there’s the carpet place, which recently started claiming that it was closing. Probably just a ploy, but I thought I’d include this to replace Marvan (in the 1100 block of Fort, on the south side), which is closing, sadly:

I'm guessing this store isn't really closing. It's just a cheap ploy to convince rubes there are deals to be had.

The alleged going-out-of-business carpet store did take over (in a most unattractive manner) an empty storefront next door – yes, another one, and it has been empty for …what?, years now?

The ex-Miroirs home furnishings store, an empty storefront for months upon months, currently being used by the carpet store two doors up (the carpet store that's claiming to go out of business, too)…

Now we’re in the 700 block of Fort. I can’t even remember what this store used to be – but it’s empty, and will probably stay that way for ages…

Empty storefront in 700 block of Fort St.

And next door to the above, the former Cairo Coffee Merchants, defunct:

Cairo Coffee Merchants, closed, empty, …for how long?

Ok, that was depressing.

It never fails to amaze me that Victoria is full of attractive neighborhoods, bounded by gorgeous scenery that’s unparalleled.

But go downtown, and you have to wonder why Victorians hate their city so much that they let it die.

Note: this post is the first of a series of three – it just kind of happened that way. Part 2 is here and part 3 is here.