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Santa Barbara News-Press: As Santa Barbara seeks to relieve small businesses during coronavirus crisis, real estate experts predict huge loss of downtown businesses

March 20, 2020

There’s no shortage of vacant storefronts to catch one’s eye when walking down State Street, and by the time the dust settles on the COVID-19 coronavirus crisis, local real estate experts expect they will be impossible to miss.

Santa Barbara, California – Published 3/20/2020
A vacant building at 636 State Street in Santa Barbara, a day after Governor Gavin Newsom issued a statewide stay-at-home order, on Friday, March 20, 2020. (Kenneth Song/News-Press)

There’s no shortage of vacant storefronts to catch one’s eye when walking down State Street, and by the time the dust settles on the COVID-19 coronavirus crisis, local real estate experts expect they will be impossible to miss.

As common a sight as darkened commercial spaces bearing “for lease” signs from local real estate companies like Hayes Commercial Group and Radius Commercial Real Estate are, the number of vacancies in the downtown corridor are less than they were several years ago, according to Michael Martz, one of the former’s partners.

But now that all nonessential businesses have shut their doors following Gov. Gavin Newsom’s order for all Californians to stay at home to reduce further spreading of COVID-19, there’s a good chance many shops and restaurants on State Street won’t return when the health crisis subsides. This breeds a plethora of considerations, from how to reduce damage inflicted on small businesses in the midst of the pandemic, to how to fill new vacancies with businesses after the situation is abated.

With her Small Business Task Force, Mayor Cathy Murillo is focused on the former. In an interview with the News-Press, the task force comprised of local business owners, commercial property owners, and business consultants among others is tackling ways to keep local businesses on “life support” during their closures.

These methods include lobbying the state government to provide Santa Barbara residents who are currently out of work with income and providing discounts to downtown corridor businesses who pay toward the upkeeping of nearby parking structures. According to task force member and senior assistant to the city administrator, Nina Johnson, the most promising first step for businesses to weather this difficult time is actually something they can do to help themselves.

“Right now, businesses need to be checking in on delaying some of their expenses.” Ms. Johnson said. “There are tax deferral programs, special bank loans to help them, and some other resources.”

Another of the City of Santa Barbara’s measures to help local businesses as well as residents will come in the form of an emergency ordinance that the Santa Barbara City Council is expected to adopt during its meeting next Tuesday. According to District 2 councilmember Mike Jordan, the ordinance will restrict landlords from evicting tenants who can’t pay rent because their income has been impacted by the coronavirus. This tenant protection measure utilizes the authority that Gov. Newsom granted localities in an executive order issued on Monday. Due to its “emergency” classification, it can be adopted at the very same meeting in which it is introduced.

“As long as the details can be worked out, we will adopt it at that meeting on Tuesday,” Mr. Jordan said.

The smattering of empty commercial spaces along and just off of State Street aren’t closed due to COVID-19, but real estate professionals from some of the companies listing vacant downtown spaces suspect those will soon be joined by others produced for that very reason. Spaces that saw their businesses go under before the COVID-19 outbreak are likely going to lie empty for longer than they otherwise would have. Radius Commercial Real Estate executive vice president Austin Herlihy predicted that restaurants will be hit especially hard, as many are already hanging by a thread because of California’s annually increasing minimum wage, scheduled to hit $15 per hour in 2023. The COVID-19 situation would just be the coffin’s final nail.

“In my opinion you’re going to see a lot more because of the coronavirus. You’re going to see fifty percent of the restaurants close for good,” Mr. Herlihy said.

Retail business isn’t in too much better shape, as far as Mr. Martz can see. The Hayes partner remarked that because national chain retailers have had to focus their physical stores in bigger markets due to the prevalence of online shopping, increasingly few of them have sought to do business in smaller markets like Santa Barbara. Due to the high number of local businesses that don’t have the deep pockets of a national chain retailer, Mr. Martz suspects many stores on the State Street corridor will be unable to weather the storm of the coronavirus.

Once the economic situation returns to something more closely resembling normalcy, Mr. Martz believes Santa Barbara’s reputation for being unfriendly to businesses needs to change in order to get vacancies occupied quickly. This entails easing the requirements demanded in the City of Santa Barbara’s change in use procedures, which go into effect when a prospective tenant wants to utilize a space for a purpose other than its previous usage. Possible alterations demanded change in use can range from ADA updating a space or reconfiguring parking. Implementing them tends to be a long and arduous process.

Even before the coronavirus outbreak, this topic has been frequently discussed in the Santa Barbara City Council, according to Mr. Jordan. In his opinion, winding up not needing the alterations demanded from change in use is becoming a commonality among many businesses that go through the process.

“As soon as they start sharing common characteristics, that tells me something needs to change in the policy part,” Mr. Jordan stated.

When it does become time to seek out new tenants for whatever vacancies may arise along State Street in the coming months, Mr. Herlihy expects the economic conditions to come will result in those spaces demanding far less from renters than before the coronavirus outbreak.

“I think we will be adding a lot of new listings. The lease rates are just going to have to drop and the concessions are going to have to increase,” he said.

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