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Chinatown Looks for a Way to Survive and Thrive


Photo (cc) woohoo

A second-generation Chinatown native, Willie Rosado longs for the old neighborhood feeling of Chinatown. He misses getting a roast pork bun down the street where everybody knew everybody.

"It is not the old neighborhood anymore," said Rosado, the son of a Puerto Rican father and an American-born Chinese mother. "Many mom-and-pop restaurants are closed. The area is getting very crowded and all my friends moved out."

Rosado is not alone in his nostalgia. Christina Mei, a native of Taishan, Guangdong Province, moved to Chinatown in fifth grade. She attended P.S. 42 and I.S. 131, and frequented shops and restaurants in Chinatown.

"Now you see all the new condos," said Mei. "They are very expensive. Local residents don't have the money to buy them. Those non-Chinese people are paying over a million dollars for one-bedroom apartments."

Some 26 luxury residential buildings have recently been built or are under construction in Chinatown, along with 25 new hotels, and 118 new high-end boutiques and cafes, according to a report by the Urban Justice Center and Committee Against Anti-Asian Violence, or CAAAV. The report also pointed out that there were 195 commercial construction permits filed with the Department of Buildings in Chinatown between January and November 2008.

So, has gentrification finally arrived in one of New York's oldest ethnic neighborhoods?

Years of Change

Many said the transition began years ago. "Gentrification in Chinatown is not a new phenomenon," said Esther Wang, project coordinator for the Chinatown Justice Project at CAAAV. "What we have seen in Chinatown in the past few years is that development has really picked up."

"In the real estate market, Chinatown is probably the last frontier", said Justin Yu, president of the Chinese Consolidated Benevolence Association, popularly known as Chinese Community Center on Mott Street. "But most of the designs of the new buildings are contradictory to what we have."

"The gentrification of the New York Chinatown community has been going on for the past five years or so," said Paul Gong, who founded Friends of Columbus Park and is a former president of the Asian American Youth Center. "Only a few can afford this expensive living environment. So that means new tenants, new people other than Chinese, new stores and a whole new environment catering to our new neighbors."

"All this has resulted in many Chinese moving and settling in Brooklyn," said Gong, referring to the satellite Chinatowns in Sunset Park and Sheepshead Bay. "It has become harder to afford and live in Manhattan. Poor and recently arrived immigrants and low-income Chinese are being forced out of New York [Manhattan] Chinatown or are forced to live in overcrowded conditions where multiple families share a tiny apartment."

Residents worry that the city's recent rezoning of the Lower East Side next door could accelerate the process. That neighborhood, of course, has seen a major transformation as cafes, bars and boutiques as well as high-rise condos have sprouted in the area. In November, City Council approved a plan that limited the height of new buildings to no more than 80 feet and provided for affordable housing. The rezoning triggered fear among Chinatown residents that developers of luxury high-rise buildings -- now restricted in the adjacent Lower East Side -- will push their projects south to Chinatown.

Chinatown Unites

When the council approved the Lower East Side rezoning, the Bloomberg administration reportedly indicated it would try to protect the character of adjacent areas, particularly Chinatown. Meanwhile, in order to present a more united front and build consensus, more than 30 community-based groups, including Manhattan community boards 1, 2 and 3m formed the Chinese Working Group last year.

"One of the purposes is to speed up Chinatown's rezoning," said Yu. "The best thing is to preserve the characters of our community, protect the rights of the local residents to stay here, and we would also like to attract some new investors to build new construction."

The group holds a monthly meeting and has several sub-committees that specialize in various issues such as education, recreation, economic development, and transportation. In one to two years, it hopes to come up with Chinatown’s own community or 197-a plan, offering its own ideas for local development, improvement and growth. The Chinatown plan will include a rezoning proposal as well as other measures to improve Chinatown. The rezoning of the Lower East Side followed this model.

The community organizers said they want new development, but not at the expense of the low-income residents.

"Development is inevitable. There has to be development for progress to take place," said Charles Lai, executive director of the Museum of Chinese in America. For example, he thinks that dilapidated buildings constructed at the turn of the 20th century need to be repaired or replaced to be fit for human habitation. "But the flip side of development is who is allowed to work, live and play in the neighborhood," Lai continued. "When people are pushed out, it is not good."

Margaret Chin, a long-time community advocate who is running for the City Council, agrees. "There is a lot of history in Chinatown that needs to be preserved, but it doesn't mean that we should be living in dilapidated housing," she said. "We want new housing in Chinatown. But it has to be affordable so that people who live in the community can stay in there."

Some in the community say the new buildings do not fit in with the neighborhood's overall look. "We would like some new buildings but the condition is that the design has to be similar to what we have," said Yu.

Old Neighborhood, New Challenges

Starting from only a few city blocks in the late 1800s, Manhattan's Chinatown is one of the largest Chinatowns in the world. It has served as a neighborhood for working-class Chinese and recent immigrants -- and as a major tourist attraction.

"When you go to Chinatown, you'll see how vibrant it is," said Wang. "New York City is a city that is known for being diverse and cosmopolitan. ... When those values are trumped instead to favor real estate values, everybody loses something really important in terms of cultural vibrancy and the things that make a city a great city."

Still recovering from the economic impact brought by the devastating 9/11 attacks in 2001, Chinatown faces many challenges in addition to the current recession. But community leaders are optimistic.

"We have competition from Flushing, Sunset Park, Sheepshead Bay and New Jersey," said Yu. "But Chinatown is still the center of Chinese activities in the metropolitan areas. Most of the Chinese organizations are here, and most of the Chinese churches and temples are here, and people still come here to worship."

Meanwhile, the residents and New York's Chinese community seek to adapt to new conditions. Working to protect Chinatown involves "preserving the historical fabric of what is old Chinatown and what that means to people who are from here and grew up here, but also integrating the new generation of Chinese Americans," said Beatrice Chen, director of education at the Museum of Chinese in America. "That's why there are different types of shops and businesses that you wouldn't normally associate with the old-school Chinatown."

At the end of the day, unlike Little Italy which has few new immigrants, the steady streams of incoming immigrants from China will probably ensure Chinatown's growth.

"Chinatown is an established community," said Wang. "Immigration from China to New York City is going to continue and that's a factor will keep Chinatown a pretty vibrant community for a long time."

Home Shops: 'One Stop' on the Road to Foreclosure


Haydee Sanchez first learned about United Homes of New York in 2001. While riding the F train on her daily commute to her job on the Upper West Side, she saw an advertisement for the company with the slogan: "United Homes -We Make Your Dreams Come True."

Pregnant with her second child, Sanchez, a Honduran immigrant who worked in a clothing store, and her husband Freddy, then a manager at Restaurant Depot, wanted to move from their cramped one-bedroom rental apartment in Jackson Heights.

A few days later, the Sanchezes were in United Homes' offices on Queens Boulevard, where, they recall, they met the company’s president, Yaron Hershco, and an employee, who said they could buy a home with just 3 percent down. After making a $7,000 payment and taking out a $238,250 mortgage from Cambridge Home Capital, where they say they were referred by a United Homes salesperson, the Sanchezes purchased a freshly renovated two-family two-story house at 462 Chestnut St. in East New York.

Soon, though, their dream house became a living nightmare. About six months after moving in, the dining room ceiling collapsed, leaving termite infested piles of rotten sheetrock on the floor and table. Haydee said that after she called United Homes to complain, workers showed up to perform some perfunctory repairs. But they left behind termite-infested walls and rotted floors, which the family discovered after they looked under the carpets.

Haydee, who breaks into tears as she tells her story, said that, after repeated calls to United Homes that were not returned, she left a stern message for its owner, Yaron Hershco. "I told him that if he did not come and repair my house I would be on the news the next day," she says. "And then he called and told me, 'I have a lot of money and I can kill you and your family. If you do that tomorrow, you are not going to be alive.' "

Hershco adamantly denied the Sanchez’s allegations. “I wouldn’t threaten anybody,” said Hershco who said during a phone interview that he has sold thousands of homes over the past 15 years. “Quite frankly I don’t even remember even speaking to them -- I don’t know these people.”

 

The High Cost of Convenience

Housing advocacy groups and legal services corporations say that United Homes operates a business commonly known as a one-stop shop. Such companies simplify the home purchase process for their customers by providing a real-estate salesperson, financing, inspection and appraisal. In New York City, many one-stop shops buy a significant portion of the homes they then sell at foreclosure auctions and distress sales. Often these houses are in poor condition. After doing rudimentary repairs, one-stop shops sell the properties months later at significant profit.

Lawsuits against New York City one-stop shops charge that they engaged in various kinds of fraud including concealing damages in houses they sold, arranging appraisals that put too high a value on the home and setting buyers up with inflated mortgages. Housing activists and others say that one-shop stops have contributed to the growing foreclosure epidemic in the city's low-income neighborhoods by inveigling people into mortgages that they could not afford and selling them homes that were in disrepair.

The lawsuits also charge that one-stop shops engaged in "property flipping," in which a home is quickly resold for considerable profit at an artificially inflated price, often aided by collusion between a lender and an appraiser."

"The first time homebuyer was often taken advantage of by 'one stop shopping enterprises,'" said a July 2008 New York State Commission of Investigation Report entitled A Perfect Storm: Easy Money and the Mortgage Meltdown. "While this appears to be a convenient arrangement for the home buyer, it not only bears a significant potential for conflict of interest, but it can serve as a breeding ground for fraud."

So far, though, the government has only started to rein in the operations. The city apparently has little jurisdiction in this area, and while the state has passed a law that could limit the types of predatory loans that these one-stop shops have relied upon to make their sales, it does little to help homebuyers, such as the Sanchezes, who have already bought homes.

Fueling Foreclosures

Hershco has achieved prominence for developing projects such as the Oro, a 40-story luxury condominium in downtown Brooklyn, and he serves on the board of directors of the Downtown Brooklyn Partnership, a local development organization. He also operates a web of companies, a number of which are registered to 87-20 139th St. in Briarwood, N.Y.Many of these home his companies sold have been in predominantly minority neighborhoods hard hit by the foreclosure crisis such as Bedford Stuyvesant, East New York and Jamaica.

A substantial percentage of houses sold by several New York City one-stop shops, including those operated by Hershco, ended up going back into foreclosure, according to data compiled for Gotham Gazette by the California-based real estate data company, RealtyTrac. Two of the Hershco-controlled companies -- the Galit Network LLC and the United Property Group both of which are registered to the 87-20 139th Street address and are being sued -- have especially poor records. Out of 208 properties sold by the Galit Network during a four-year period between 2002 and 2006, at least 54, or approximately 26 percent ended up in foreclosure.

Customers of United Property Group had a similar foreclosure rate: Out of 64 homes that the company sold during the same four-year period, at least 18 or slightly higher than 27 percent ended up going into foreclosure.

The customers of Better Homes Depot of the Bronx and the Queens-based Better Homes Depot Inc., another one-stop shop that is the target of a lawsuit, also experienced high rates of foreclosure. Between 2002 and 2006, out of 522 houses sold by the two Better Homes Depots, 129 or approximately 25 percent, ended up going into foreclosure. Currently, Better Homes Depot is being sued in the United States Court for the Eastern District on charges of defrauding several first-time minority homebuyers. Repeated calls by the Gotham Gazette to Eric Fessler, who is listed as CEO od the Queens-based Better Homes Depot Inc., were not returned.

The rates of foreclosure on homes sold by the Better Homes Depots and Hershco controlled one-stop shops are extremely high comparison to annualized foreclosure data. The overall foreclosure rate for New York City was .71 percent for 2008, according to RealtyTrac. And in the Cape Coral-Fort Myers area of Florida, believed to be area in the country hardest hit by the foreclosure epidemic, the rate was about 12 percent in 2008. The rate for so-called sub-prime mortgages tends to be somewhat greater.

Even so, the high rate of subsequent foreclosures on properties sold by one-stop shops sold "sticks out like a sore thumb and indicates that there is something strange and out of whack going on," said Daren Blomquist, a spokesperson for RealtyTrac. "It would indicate that this is more than just a problem caused by the environment or location of the property," he said, adding that the numbers of foreclosure filings are probably even higher than the ones he cited because foreclosure databases tend to be incomplete, especially for foreclosure notices that were issued before 2005.

Hershco said that that there were a number of possible explanations for his customers ending up in foreclosure. “Maybe they got divorced, maybe they lost their job, maybe they are on disability, or maybe they cannot make their payments,” he said, “Can you check what the rate of divorce in those families?” he said adding that he didn’t think that the RealtyTrac data was accurate.

Behind the Renovated Facade

The Sanchez's story offers a case study of how the practices of the one-stop shops fuel the foreclosure rate. For months after the ceiling collapse, their home became a dusty construction site where workers, prodded by frantic phone calls from the Sanchezes to United Homes offices, would show up, only to disappear again. At one point, the family had to live in their basement, while workers opened up walls on the first floor to replace rotten beams.

Eventually, the workers stopped showing up altogether, leaving the Sanchezes with a house that, eight years later, still has rotten walls and ceilings in several rooms. The couple set about trying to fix the house on their own, but even though Freddy now has a better-paying job, they fell into debt. To pay for past renovation expenses as well as future ones, they refinanced their first mortgage in the fall of 2007 on terms they say they were deceived about. In February 2008, after falling behind on their payments, the Sanchezes were in foreclosure. They blame the expenses they incurred fixing up the house.

Then there is the case of Sandra Barkley of Brooklyn. An acquaintance referred her to United Homes and received $1,000 for her trouble. Barkley said that a United Homes representative told her that the company would take care of all aspects of the home buying process. According to Barkley, she and other customers were steered to the Olympia Mortgage Corp. to get financing. Two weeks later, Barkley closed on a two-story house in Bedford-Stuyvesant that was priced at $359,000, with a $10,000 down payment. Unbeknownst to her, United Homes had purchased the house only three months before at a foreclosure auction for $153,000.

An appraisal allegedly commissioned by Olympia from appraiser Thomas Messina had concluded that the house was worth $359,000. However several months after she purchased the house, Barkley hired her own appraiser who put the house's value at $260,000. A subsequent appraisal commissioned by Barkley’s attorneys found that the house was worth only $235,000.

According to court papers, at the time Messina conducted Barkley's appraisal, the federal Department of Housing and Urban Development had suspended him from doing appraisals on federally insured mortgages because he had overvalued at least one property. HUD officials confirmed the suspension. Messina did not return messages left at his Massapequa office.

The Legal System

There have been successful lawsuits against one-stop shops. In 2003, Better Homes Depot settled a lawsuit by New York City's Department of Consumer Affairs for allegedly misleading many first-time homebuyers. It paid more than $525,000 in restitution to 36 New Yorkers and a $100,000 civil fine.

Advocacy organizations say, though, that it is difficult for victims of one-stop shops to obtain justice through the legal system. The one-stop shops can intimidate people, and many low-income homeowners cannot afford legal representation for lengthy and complex court battle. The Sanchezes, for example, said that they considered taking legal action against United Homes but were deterred by the expense.

Some cases, though, are wending their way through the legal system. Barkley is a plaintiff in a suit brought by South Brooklyn Legal Services that has been in the courts since 2005. It deals with six homeowners who purchased houses from United Homes and its affiliated companies between 2002 and 2003. The lawsuit charges United Homes with being at the center of vast and far-ranging conspiracies to defraud low-income homebuyers that included appraisers, a lender, a lawyer and even a major financial institution, Credit Suisse First Boston.

Hershco dismisses the allegations. “We sold thousands of homes over the years and they came up with six lawsuits,” he said, "and some of the allegations they made on the complaint were false.”

The suit alleges that, according to forensic appraisals, United Homes and its affiliates sold houses to the Barkley and five other homeowners at prices based on over-appraisals ranging from 53 percent to 75 percent. The lawsuit also alleges that a review of 60 properties sold by United Homes and its affiliated companies in New York City between 2002 and 2003 revealed that, after purchasing and holding properties for only a few months, the company resold them for an average markup of over $165,000.

The inflated appraisal on Barkley’s house passed muster at Olympia Mortgage Corp., where Barkley and other homeowners were steered by United Homes. From 1991 through 2004, there were 54 complaints against the Olympia. In October 2004, a month before Fannie Mae initiated a lawsuit against Olympia alleging fraud, the state-banking department suspended Olympia’s mortgage banking license. The company, one of whose principals was recently sentenced to eight years in prison for defrauding Fannie Mae of $44 million, approved Barkley for two mortgage that required no verification of either her assets or income.

Hershco says that he is unsure as to whether or not United Homes referred Barkley or other customers to the Olympia. “I don’t know—I wasn’t involved personally in any of the sales,” he said, “I never met the buyers, never met the appraisers, I never met the banks, and this is on the record under oath. …. Maybe they saw me once at a Christmas party.”

According to court papers in 2005 Barkley's combined monthly mortgage payments under the two loans, with taxes and interest included, totaled $2,565. Barkley had a monthly salary of $2,332. But the attorney that she claims she was introduced to by United Homes, allegedly assured her that she would be able to afford the payments with a $1,600 monthly income from a rental apartment in the house.

The 'Establishment' Lenders

Whatever concerns there may have been about the unusually high appraisal on Barkley's house or her ability to pay her mortgages, Olympia appears to have had little trouble selling the Barkley's loans and those of her co-plaintiffs. A company called DLJ Mortgage Capital, a subsidiary of Credit Suisse First Boston, readily bought the mortgages.

Deals such as the one involving Barkley's home would not have been possible without the involvement of large financial institutions, according to Navid Vazire, a staff attorney, at South Brooklyn Legal Services. "It is impossible for me to believe that none of these banks knew that there was widespread fraud against borrowers," Vazire said, "and that all of these mortgages, which turned out to be unaffordable, were not being pushed onto people who were being deceived."

Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project, agreed. Investment banks, he said, both lent money to shady mortgage originators to finance their operations and purchased the shaky mortgages, which were then packaged into securities and sold to investors.

“ There was no regulation of the subprime mortgage market,” said Zinner, former director of the Foreclosure Prevention Project at South Brooklyn Legal Services “Federal regulators completely abdicated responsibility to regulate these markets. Unscrupulous lenders could make unaffordable loans with impunity and sell them on the secondary market at a big profit, and it made these one-stop shops -- these property-flipping schemes -- highly profitable. Speculators always knew that they could wildly over-appraise these properties and if they could find someone to buy them, they could always get financing for the borrower.”

On Barkley's house and others, Olympia allegedly tailored its loans to conform to underwriting guidelines for a "no asset no income program" and a similar "low documentation" program for lenders seeking to sell loans on the secondary market, both of which were allegedly advertised on a Credit Suisse Website until fall 2007. According to court papers, even before closing on Barkley's mortgage, Olympia had completed required the required Fannie Mae documentation to sell her loans on the secondary market.

DLJ Mortgage Capital purchased Barkley's loan from Olympia, despite the fact that an underwriter for the company had obtained an automated review of Messina's appraisal of Barkley house, which valued it at $236,000, an amount commensurate with the appraisal commissioned by Barkley’s attorneys. Barkley's loans were then sold by DLJ to another Credit Suisse subsidiary, Credit Suisse First Boston Mortgage Backed Securities Inc, which in turn sold Barkley's loan to a mortgage backed security called the Credit Suisse First Boston Home Equity Mortgage Trust. Yet another Credit Suisse subsidiary called Credit Suisse First Boston LLC then allegedly sold shares in the trust to investors.

Allan Taffet, a lawyer representing Credit Suisse, said that the company did not know Messina's appraisal of Barkley's home was inflated. "We bought the mortgages through the originator, and there were certain representations made about the mortgages," he said. Citing the pending litigation, a spokesperson for Credit Suisse, Duncan King, declined comment.

The 'Anything Goes' Era

The one-stop shops existed against the overall backdrop of the real estate boom and lax regulations. "It was the Wild West, and nobody had the ability to closely monitor these organizations," said Michael Hickey, executive director of the Center for New York City Neighborhoods, an organization founded by the New York City and non-profit partners to study the foreclosure crisis.

Here, as in so many other parts of the financial world, regulators, policymakers and advocates are considering if -- and how -- they can rein in the system and what answers they can offer the people who feel victims of the abuses of the last few decades.

The state agencies, along with local realty boards, knew what they had to do, Hickey said, but "were just outgunned by a fraudulent industry. The Banking Department has only 16 examiners of mortgage banks and brokers for all of New York State. Glorimar Perez-Gonzalez, press secretary for the banking department, said that her agency is working to add more.

The state's Banking Department and Department of State are both part of the state's Interagency Task Force to Halt Abusive Lending Transactions, or HALT. It has been examining the business practices of one-stop shops. Jane Azia, director of the New York State Banking Department's Non-Depository Institutions and Consumer Protection unit, said the task force is still in the midst of its examinations. So far, its reviews of one-stop shops have led to a total of $250,000 in customer restitution.

There are, she said, state laws that regulate one-stop shops and the department will consider whether the shops complied with these rules. "We are looking to see whether they [mortgage brokers] disclose to consumer the relationship with the realtor," Azia said, "That there might be a conflict—that you [the consumer] are giving up your right to undivided loyalty."

Fixing the System

Last summer, Gov. David Paterson signed a sub-prime reform lending bill that would prohibit state chartered institutions from issuing the kinds of mortgages that were made to Barkley and her co-plaintiffs. It requires verifiable income guidelines and establishes stricter underwriting standards to address the borrower’s ability to repay the loan. However, a lot of federally chartered institutions are preempted from having to comply with the state law, according to Zinner.

The state law also provides some relief for homeowners who took out sub-prime mortgages. It requires companies that service mortgages give any homeowners who took out sub-prime or nontraditional mortgages between Jan. 1, 2003 and Sept. 1, 2008 90-days notice before initiating a foreclosure proceeding. And before launching a foreclosure, mortgage servicers must appear at a court-monitored settlement hearings with the homeowner to explore the possibility of loan modification.

That only goes so far however, said Zinner. The settlement conferences do not require companies to modify mortgages. Furthermore, in New York City, where property values haven't fallen as drastically as they have in other parts of the state, mortgage firms have been willing to reduce the interest rates but loathe to write down the mortgage principal.

The lawyers at South Brooklyn Legal Services want the mortgages of the homeowners they represent to be voided. "They [the new mortgages] should be written down to the actual value of the house at the time it was purchased," and the homeowner should get credit for they inflated payments already made, said Meagan Faux, co-director of the Foreclosure Prevention Project at South Brooklyn Legal Services, "Right now the mortgages are inflated because the purchase price of the house was artificially inflated due to fraud."

The most significant change cannot be made in City Hall or in Albany, according to Zinner, but in Washington. There, he said, federal legislation that would allow bankruptcy judges to reduce the principal on mortgages remains stalled in the Senate.

He sees this as an essential reform. "There are many people out there who cannot afford their properties because of the one-stop shops and the over-appraisals," Zinner said, "If this law goes through it will help a lot more people than just those who go into bankruptcy court -- it will be the stick to push mortgage servicers to do loan modifications by cramming down the principal balance of the property, whereas right now there is nothing to really push them to do that."

Alex Ulam is a freelance writer who covers urban affairs, architecture, and real estate.

Small Business: Suffering in Good Times and Bad


Photo (c) Gotham Gazette
Restaurants and small businesses are folding along Prospect Avenue.

You only have to walk along any city commercial strip to notice the myriad of "for rent" signs. They are popping up on storefronts across New York, as merchants of all types struggle to survive. The faltering economy deserves some of the blame, but many small business owners maintain the uptick in those signs preceded the current fiscal crisis.

In fact, they argue, the real estate boom did as much if not more to cause the closings of New York's mom and pop shops as the current recession has. Landlords, they say, realizing the market would support almost any amount asked, hiked rents, sometimes by astronomical proportions. Long-time tenants were often pushed out.

Earlier this month, U.S. Rep. Anthony Weiner issued a report finding that more than 12 percent of the small businesses surveyed had closed. Brooklyn had the highest rate of vacant storefronts -- more than 14 percent -- but press reports reveal even Manhattan's upscale Madison Avenue isn't immune. Its retail store vacancy rate rose from 8 percent at the end of 2007 to above 12 percent in 2008. While not all of these vacant spaces once housed mom and pop operations -- the empty store at Brooklyn "junction" of Flatbush and Nostrand Avenues, for example, used to have a Circuit City -- many did.

Thriving local businesses are "barometers of the health and vitality of a neighborhood," said Ron Shiffman, a city planner who teaches at Pratt's Graduate Center for Planning and the Environment.

The empty storefronts leave a void in a community "especially when there are multiple vacancies on a single stretch," said Quenia Abreu, president and CEO of the New York Women's Chamber of Commerce. "The community shops someplace else, [taking] money out ... employment is taken out. Then [we] start seeing a problem with increasing criminal acts," such as vandalism, she said. "It's sad to see the start of community deterioration when we worked so hard to revitalize" these neighborhoods.

To stem the tide of closings, City Councilmember Robert Jackson has proposed the Small Business Survival Act. With 18 sponsors, Intro. 847 would give commercial tenants rights they do not currently possess when renewing a lease.

The bill continues a debate that has gone on in New York City at least since the 1980s. What, if anything, should government do to help and preserve the city's small businesses?

A Lost Cause?

Certainly many could use some assistance. A recent survey released by the U.S.A. Latino Chamber of Commerce based on data collected from all five boroughs between November 2008 and January 2009 underscored the gloomy situation. Of the 927 Hispanic businesses included, 53 percent said they are in danger of closing, with 74 percent reporting "high rents and unreasonable lease terms" as the main culprits. Two-thirds cited the "rising costs of doing business" in New York, followed by 65 percent who said municipal taxes and fees are excessively costly.

More than 90 percent described having had a "negative experience" while attempting to renew a lease because owners abused their power; 87 percent felt they had no rights at all during the renewal process. Moreover, a third of respondents reported a landlord demanded money in order to renew their lease, which is illegal. The owner made it clear to the merchant that there would be no renewal unless the storeowner paid an additional fee, off the record, off the books and outside the purview of the lease terms.

Although the issues extend beyond the Hispanic community, there is, said Abreu, "a disproportionate effect on minority and women-owned enterprises... such as beauty shops and bodegas." This is especially true in areas like Harlem and Washington Heights in Manhattan and Jackson Heights in Queens.

Setting Controls

The threats to these businesses are hardly a new phenomenon. Twenty-five years ago, in the face of the first great wave of modern gentrification, Manhattan's Upper West Side witnessed a slew of closings of neighborhood staples: bakeries, hardware stores, bodegas. What makes this round unique, according to merchants, is city government's attitude of indifference and a climate of in-hospitality -- even hostility -- toward them. Business owners point to uncontrolled escalating rents, countless neighborhood rezonings and the creation of more Business Improvement Districts (BIDs) as evidence.

Steve Null, who founded the Coalition for Fair Business Rents in 1984, wrote in an email, "A perfect storm has arrived with decades of rent gouging, abuses and corruption with no hope for a better future -- in a major down economy with the highest rents, landlord passalongs, taxes, utilities, insurance etc. All hell is about [to] happen on Main Street NYC if someone does not quickly regulate these out of control greedy landlords."

Jackson's bill attempts to address some of these challenges. "The absence of legal protection... has unnecessarily accelerated the closing of small businesses and resulted in lost jobs, tax revenues and community instability," the legislation states. In response, it attempts to create "a fair negotiating environment."

Specifically, if an owner and tenant cannot successfully negotiate renewal terms within 90 days, a mediator would intervene. Then if that fails, an arbitrator could be brought in to establish the new rent, based on various criteria such as the market value, longevity and location of the business, and the cost of maintaining and operating the property.

Currently, there is no regulation of rents for commercial property. Once a lease expires, landlords have sole discretion to charge whatever they please, or even to refuse a renewal for no cause.

Being forced to move can be disastrous for a small business. Shiffman, who sat on the first ever small business task force in the early 1980s, said remaining in the same place is crucial for small merchants. "Once a business is started, its location is critically important... because they [build up] their customers." Rent speculation ends up "driving businesses out" who, in turn, rarely succeed in a new place without their original patrons, he said.

Saying his bill is "about survival," Jackson said, "It's imperative that it's put into place. It's like a patient on a respirator who needs a doctor to rescue [them]. Under the measure, he said, storeowners could get a reasonable deal on renewals, while landlords would still turn a profit.

Jackson expects the bill to move by September, just in time for the Democratic primaries. He hopes to put pressure on local candidates -- if they don't support the bill, "small businesses won't support you."

As it stands now, the whole rent renewal process " is anti-democratic," said Queens Councilmember Tony Avella, a co-sponsor of the bill. "Why is the real estate industry allowed to control the agenda?... We have to protect these mom and pop stores who provide local jobs."

(The Real Estate Board did not return repeated requests for comment.)

Critics of increased controls argue they could do more harm than good. Restrictions on commercial rents "could be a big mistake, both hurting business and reducing tax revenues," said Stuart Saft, a real estate attorney who has represented landlords, told the Real Deal.

Meanwhile, other officials have offered additional proposals to help small businesses. City officials have suggested a number of solutions, including using zoning to discourage huge storefronts (almost always occupied by chains), providing more microloans and encouraging large developments to include small, independent stores.

The Administration's Role

In a Latin Chamber of Commerce survey, 59 percent of respondents believed the relevant local government leaders "don't understand" the particular needs of small businesses. And, 43 percent predicted a continuation of the city's "anti-[small business] environment."

"The city's tone [to merchants] is a major problem, and has been during previous administrations," said Shiffman, who also is the former director and co-founder of the Pratt Center for Community Development. "There's a sense in New York City that gentrification is a good thing... rather than [having] stable businesses."

For their part, administration officials cite the services they offer. "There is a lot of support being provided to small businesses and jobseekers through our agency," said Laura Postiglione, press secretary for Small Business Services. She highlighted the department's Business Solutions Center, which offers courses on business planning and related topics, and provides training funds for entry-level employees and pro-bono legal services to review contracts and leases. According to its Web site, the center helped 170 clients secure more than $11.8 million in financing and assisted more than 5,000 entrepreneurs in developing their business plans.

In his weekly radio address on March 22, Mayor Michael Bloomberg focused on the plight of small businesses and detailed the city's efforts at worker training. "During the past 12 months alone, we've distributed some $3 million in grants, coupled with funds from more than 30 employers, for training nearly 2,000 workers," Bloomberg reported.

According to Avella, who is running against Bloomberg for mayor, many independent merchants do not think Small Business Services meets their needs. In a recent letter to the mayor, Avella wrote, "I have been meeting with small business owners, who feel that [the Department of Small Business Services]... intentionally or unintentionally, prioritizes the needs of property owners/landlords and other moneyed interests, above the interests of individual merchants."

New York's land-use policies have also come under fire, particularly in traditionally ethnic communities. A joint report issued by Good Old Lower East Side, a tenants rights organization, and the Urban Justice Center, called "NO GO for Local Business", concluded the administration's push to rezone that area has led to small businesses "getting evicted in record numbers."

An analysis of Chinatown criticized government agencies like the Lower Manhattan Development Corp., the city's Department of Housing Preservation and Development, and planners for trying to attract luxury development and using "processes like rezoning and the use of eminent domain to remove low-income communities and communities of color."

"Property owners sense there will be more money in the future [from the rezonings], so they don't mind holding" on to their vacant properties, said Pratt's Shiffman.

The Roles of BIDs

A key part of the Bloomberg administration's small business strategy is the city's Business Improvement Districts. BIDs are state-authorized public/private endeavors designed to "supplement" municipal services such as sanitation and security in commercial areas. They are funded by fees assessed on local property owners and merchants.

The Bloomberg administration has created 18 BIDS for a total of 63. According to Postiglione, BIDs serve approximately 16,000 retail businesses and invest approximately $98 million in these districts.

Null believes the administration relies too much on the BIDs and that there is an inherent conflict between the interests of those running the district -- the majority of whom must be property owners -- and the needs of commercial tenants, who primarily rent space.

In his letter to Bloomberg, Avella noted the mayor has " often touted the ways in which BIDs bolster local economies," but, he continued, "Unfortunately, too many small BID members... feel the system is not addressing their needs."

The BIDs can be a useful tool, Jeremy Waldrup, Small Business Services assistant commissioner for district development, said in an email. The districts "have catalyzed neighborhood revitalization and economic development... The programs and services provided by BIDs work to strengthen the local commercial corridors and impact the everyday lives of those who live, work and shop in these districts," Waldrup said.

In 2007, NYU's Furman Center for Real Estate and Urban Policy analyzed the efficacy of BIDS, determining that while larger BIDS increased property values, smaller BIDS proved to be a wash. With more than 50 percent of their budgets often eaten up by administrative costs, the study says, little remains to benefit local businesses.

Looking to the Future

As small businesses shut their doors, many of the tenants that move in are national chains that can afford higher rents. A recent count by the Center for an Urban Future found, "At least 32 retailers have 50 or more stores throughout the city, a list that includes everything from CVS and GNC to GameStop and Payless. Dozens of other companies have more than 10 outlets here."

Shiffman sees this as a disturbing trend -- and thinks the city should too. When it comes to chain stores and large franchises, he said, there should be no contest in public policy. "First and foremost, [small businesses] circulate money in the local economy, more than any other enterprise ... and, they employ local people and professionals, far better than do franchises. We need to nurture [these] businesses and manufacturers."

Jillian Jonas is a freelance journalist focusing on local and national politics, government and public policy.



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