When New York restaurateur Colin Devlin committed suicide last summer at age 42, newspaper reports speculated that he was a victim of his own small-business heroism. With his successful series of restaurants, beginning with DuMont in 2001, Devlin was widely credited with sparking a culinary renaissance in the Williamsburg neighborhood of Brooklyn. But by 2013, that success had attracted plenty of competition and spiked area rents, and after Devlin’s death, The New York Times reported that he'd been facing financial difficulties from several sides.
Call it what you will: urban renewal, redevelopment, gentrification. It’s a familiar tale—often more of a horror story for small-business owners—and it goes like this: Friendly business startup sees opportunity in edgy, low-rent district and sets up shop. The success of this entrepreneurial upstart attracts other businesses until the neighborhood becomes a hip shopping destination. Rents and taxes skyrocket as the area gains mainstream popularity. Unfortunately, the price of success is now too high for the initial friendly startup, which quietly relocates or shuts down as a corporate chain takes its place.
Why are so many small businesses forced out of the very neighborhoods that they helped turn around? Is this a landlord issue? A city and tax issue? A community support issue? Or is it, as some argue, simply a problem with business management?
Ultimately, the most pressing question is whether or not anything can be done about it, or if this turnover is just the cost of change.
David Versus Goliath
Landlords and commercial tenants certainly aren’t set up for a successful relationship. Both the landlord and the tenant want to maximize their income and minimize their costs, but for this pair, that’s a zero-sum game—for one party to win, the other must lose. This inherent struggle is heightened when a neighborhood starts to turn around, as bike shop owner Brett Eastman found out when he was evicted from his startup location in the Church Hill neighborhood of Richmond, Virginia.
“There wasn’t anything here but a pay phone where people were running drugs,” Eastman says about the sketchy location where he opened up shop in 2008. The building next to him was abandoned and didn’t have a roof. Church Hill’s crime rate was so high that Eastman initially slept in his store to protect his inventory. “But as a 20-something starting my own business," Eastman adds, "this was the only way I could afford it.”
The success of Cyclus Bike Shop led to the building’s sale and eventual renovation, Eastman says, contingent on him staying in the space (the building owner could not be reached for comment). That landlord went on to purchase and rehab several other buildings in the area, which started attracting hip eateries, coffee shops and urban professionals interested in spending the money necessary to remodel the neighborhood's antebellum houses. Eastman’s landlord chose not to renew his lease in late 2013. Fortunately, Eastman found a still-affordable location just a few blocks away.
“She’s the landlord, she can do whatever she wants,” Eastman says. “She's asking a tremendous amount of rent for the area. Property owners think they're going to hit gold.” Some small-business owners say that real estate brokers can also be to blame, encouraging owners to raise rents to increase their property's value.
To protect living spaces from the rising costs of gentrification, neighborhoods often implement residential rent control, but commercial rent control has far less traction. New York City has been struggling with this issue for decades, sparked by a proposal for rent control in the 1980s, which failed to get passed by the Manhattan city council and was eventually dropped amid political upheavals. Supporters of the idea argue that commercial rent control would ensure a mix of stable independent businesses; those in opposition say it favors one type of small business over another and would correspondingly raise rents in nearby uncontrolled areas.
Ultimately, the only way to win this battle over the long term is to be both the small-business owner and the landlord by owning your own building. While not every small-business owner can afford such an investment, it’s the smart management move.
Learning to Manage
Rising rents aren’t necessarily the root of all gentrification evil, says Gary Dean Painter, the director of research for the Lusk Center for Real Estate at the University of Southern California. “Let’s look at what we mean by ‘gentrification,’ ” Painter says. “Is it simply higher-income people moving in? Or is it rents going up faster than in surrounding areas? For eateries and retail, people with greater incomes moving in can be a good thing. On the other hand, if there are increasing rents, the challenge is whether the business is viable having to pay those higher rents.”
In other words, gentrification should mean that consumer-facing retailers can charge higher prices in order to be able to cover their rising business expenses. (Business-to-business and mail order companies wouldn’t necessarily benefit from raising their prices.) Unfortunately, there are no guarantees.
Karen Zebulon has watched the Brooklyn neighborhood her retail store is in turn around during the past 13 years, but the increased foot traffic and higher sales don’t necessarily mean that Gumbo, which offers handcrafted merchandise from artisans around the world, could easily weather the rent increases.
“Business is improving, but there was also the recession,” Zebulon says. “Money wasn’t available for inventory—I was just paying my bills. Now I’m in the process of rebuilding to have the inventory I need, but recovery doesn’t happen overnight.”
Zebulon has seen post-recession business pick up over the past year, but a rent increase at the wrong time can kill even a busy small business like hers. A single financial factor can sway a small-business balance sheet in the wrong direction, and a single store can’t amortize those losses over several locations like a corporate chain can.
In an attempt to help, many cities are beefing up their small-business support networks. For example, a little over a year ago, Brooklyn and other New York boroughs introduced Business Improvement Districts, or BIDs, and Boston recently passed a $400,000 budget increase to cover the cost of its 20-year-old Main Streets program. Programs like this act as a sort of mashup of city, private and community consulting and funding networks, and the most effective ones are structured as a series of satellite offices based in the neighborhoods they support. That way, they can more effectively foster connections between small businesses and their local community.
It Takes a Village
When small-business owners are forced out of their communities, they often leave with a sense of betrayal. They’ve taken huge risks to anchor a neighborhood revival—attracting shoppers, other businesses, developers and residents—only to be bounced from the party. Where’s the reciprocal love?
Perry Martino hints at this underlying emotion when he talks about the changes to his store’s Miami Beach neighborhood, where corporate chains are rapidly replacing independent retailers. “I would hope in any city where you have a neighborhood like ours, there would be a law or ordinance. There needs to be a certain percentage of corporate versus local business.”
Martino reopened Perfect Gifts with two partners in 2009 after the store had been closed for a few years. One of the partners had run the shop for 12 years previously in the same location, opening when Lincoln Road was still full of skateboarders and drug activity. Now the area's been converted to a hip pedestrian mall.
“We got in at a nice time,” Martino says. “Five years ago, the area was a nice mix of local and a few chain stores. It’s pretty much all chains now.” When rent tripled and one of his partners left, Martino relocated the store to a less trendy area a few blocks away.
“It wasn’t a simple choice, but we really couldn’t fight it.” Martino says. “The city is not involved.”
Martino’s community also didn’t rally to preserve the look and feel of Lincoln Road, but Miami doesn't have a program like the Main Streets program in Boston. Main Streets operates about 20 satellite offices designed to support small businesses in their communities. The program was originally designed to combat urban blight but now finds itself more frequently helping communities successfully navigate gentrification.
“The working theory is, if small and micro businesses are doing well, that's a good metric for the well-being of the community,” says Max Gruner, who heads the East Boston Main Streets program.
“East Boston is right on the brink of urban renewal and change,” Gruner adds. “With both residents and businesspeople right now, there's a lot of fear tied to what one assumes happens when gentrification knocks on your door.”
Gruner sees his role as helping community stakeholders successfully navigate this change by defining what they want their community to look and feel like. To that end, East Boston Main Streets has asked for input from business owners and the varied residents of the neighborhood, including a large Hispanic population, young urban professionals, young families and established generations of Italian and Jewish families. For example, do they want a mix of local and chain stores? What types of businesses are acceptable to them? What should the street fronts look like?
“Rather than focus on the evils, we want to try to get in front of change and shape the agenda so that we aren’t always reacting,” Gruner says. “How can we invite new people in while honoring those who've made the neighborhood what it is?”
One example of Main Streets' success was a recent request from a casino operator to open a casino in East Boston. “The index of benefits it brought and the revenue was significant,” Gruner says. “But the community voted it down. It took a stance to say this particular project doesn't fit into the vision we'd like to maintain.” Another project that the Main Streets program assisted with was in the Jamaica Plain neighborhood. In this instance, the program was able to help a popular bar and nightclub find a new location after a rent increase.
This type of neighborhood control only works when the community is unified, however, but a community aligned on its vision and goals has the power to influence both commercial landlords and business legislation. Ultimately, community support is the most effective way to ensure that small businesses are valued and sustained.
Gentrification is change, and change can be scary for anyone. As a small-business owner, you are your own best advocate for navigating change successfully. Earn community support by volunteering in your community and getting involved with neighborhood organizations and city planning meetings. Take advantage of small-business education and mentoring options to learn how to manage your business through all types of change.
And as far as the landlord goes—well, that’s one relationship that will probably never be perfect.
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Photos: Getty Images, Cyclus Bike Shop, Gumbo, Perfect Gifts