If you own commercial property in Los Angeles, you might think there’s been some tragic mistake and somehow you ended up owning the Cabin in the Woods.
Just like the nefarious forces in the movie, local governments across the L.A. area suddenly are in command. They’re telling landlords who they can and cannot rent to. They’re killing property rights. Scary stuff.
The city of Beverly Hills last year capped the amount of medical office space it will allow. That means building owners can’t always rent to willing tenants.
An article in last week’s Los Angeles Business Journal headlined “Beverly Hills Cap Protested” was about an office building on Wilshire Boulevard that may soon be two-thirds empty as old tenants leave, mostly because of normal attrition. The owner can’t fill the space with doctors – the one class of tenants willing to rent.
“We’ve had a lot of deals that we’ve had to turn away,” Keenan Wolens, an officer of the company that owns the building, was quoted as saying in the article.
Or, take the city of Malibu. It’s moving to cap the amount of space that chain stores can occupy at a shopping center at 20 percent. Why? The city wants to support local retailers and restaurateurs. But that means shopping center landlords can’t rent to popular, established brands and must find lots of mom-and-pops to fill their space.
And then, of course, we have the example of the Wal-Mart-owned grocery store that’s planned to go in near Chinatown. Mind you, the store is going in a space already zoned and entitled for a grocery. It’s space that sat vacant for years. It’s in a downtown neighborhood yearning for a grocery. Wal-Mart and the building owner followed the city’s rules. Yet the Los Angeles City Council a month ago voted 13 to 0 – yes, unanimously! – to ban the store. Luckily, Wal-Mart managed to get the permits it needed on the eve of the vote. But don’t be surprised if the City Council tries again to deny the store. By the way, these are the same council members who will tell you with a straight face that they’re not anti-business.
Look, Beverly Hills may think it’s overrun with plastic surgeons and Malibu may think it is way too special to have an Applebee’s. (L.A.’s case is a little different; it is infected with a pure strain of hatred for Wal-Mart.) They feel they have to “do something,” so they have started down a destructive path, instructing businesses what tenants they can and can’t allow.
I wish the local government folks would take a few seconds to consider this argument: If an owner of a shopping center in Malibu rents 80 percent of his space to mom-and-pop shopkeepers and local restaurateurs – tenants with frighteningly high failure rates – the entire center may well go down. But if he has a Starbucks on one end of his center, a Forever 21 on the other and a Whole Foods in the middle, the foot traffic will help support the little-known local shops and restaurants in between.
In other words, if Malibu wants to support local retailers and restaurants, it should allow the shopping center owner to include the well-known chain stores needed to make the center a success.
But that argument’s a bit complicated. Here’s something simpler: City council members all over the area but especially Los Angeles have mismanaged their cities’ finances and can’t even patch their streets. They are the last people with the moral authority to instruct landlords whom they should or should not accept as tenants.
Or simpler yet: Command economies don’t work.
Alas, these arguments are lost on the local elected types. I’m sure they’ll continue, like the nefarious forces in a horror movie, trampling on property rights and killing value. Scary stuff, indeed.
Charles Crumpley is the Editor of the Los Angeles Business Journal.