Developers Must Set Aside Affordable Retail Space in City-Funded Developments

Council Member Rafael Espinal Jr./Image Credit: John McCarten and New York City Council

The law will help provide more opportunities for small businesses to remain in the City. On February 23, 2020, Introduction 1408-B was enacted into Local Law 35 of 2020. Introduction 1408-B requires developers to set aside affordable retail space for non-chain retailers within large City-funded affordable housing developments. The requirement will apply to certain affordable housing developments of at least 750,000 square feet that receive $15 million or more in City funds. The law, sponsored by Council Member Rafael Espinal, Jr., was proposed in response to the challenges local retailers face to remain in the City such as the recent increases in retail space rent and competition from chain stores.

Local Law 35 requires the Department of Housing Preservation and Development to conduct an assessment of the retail and community needs in the neighborhoods around large City-funded affordable developments. HPD will use the assessment results to decide if the developer will have to set aside affordable retail space. A spokesperson at Council Member Espinal’s office told CityLand that HPD will conduct the assessment after they make an agreement with a developer to preserve or build a large-scale affordable housing development.

The assessment will determine if a neighborhood has a need for small businesses. It will look at the number of existing retail stores, the type of existing retail stores, the type of retail stores the neighborhood needs, and the number and cost of available retail space in the neighborhood. The assessment will also look at any community feedback related to the development project.

If the assessment shows that the neighborhood has a need for small businesses, the developer must set aside retail space that is leased at below market rate. The developer is not allowed to lease the space to a chain business. HPD will determine the size of the retail space developers need to set aside, the maximum amount of rent that can be charged for the space, and the type of business that can occupy the space. If HPD and the developer have agreed to provide a community service, benefit, or program, then HPD will not require a developer to set aside affordable retail space if providing the space would hinder the terms of that agreement. The developer must inform HPD that the agreement has been met within thirty days after 80 percent of the retail space has been leased.

Local Law 35 also requires HPD to annually report projects where developers were not required to set aside affordable retail space. The report would include the number of projects not required to set aside affordable retail space, the assessment results for those projects, and if applicable, a description of the community service, benefit, or program that would have been hindered by providing retail space. This report will be sent to the Mayor, the City Council, the City Comptroller, the Public Advocate, the Borough Presidents, and the Community Boards.

If HPD finds that the developer has failed to set aside retail space, the City can take four actions. The City can enter into another agreement with the developer to enforce the terms to provide affordable retail space, find the developer in default of the agreement, recover all or part of the City funds given to the developer, or report the developer’s failure to provide space in the annual report.

According to the City Council Fiscal Impact Statement, it is estimated that the law will have no impact on revenues or City expenditures. Private developers will have the expense of providing affordable retail space.

On March 18, 2019, the Council Committee on Small Business held a public hearing on Introduction 1408-B. At the hearing, Council Member Espinal, Jr. noted that affordable housing developments that have ground floor chain stores can displace a community like luxury housing. He explained that the presence of chain stores can displace small local businesses of the community and people who live in the affordable housing units may not be able to afford to patronize the chain stores.

Genevieve Michel, HPD Assistant Commissioner for Government Affairs, stated that HPD believes that to determine whether space is needed for small businesses, projects should be looked at on a case by case basis, not by one overall assessment. She also mentioned that HPD’s preservation projects might already have existing retail tenants in place and setting aside space can harm those tenants. Michel stated that HPD does not want to put additional financial constraints in place because it would not give HPD flexibility where it is needed for projects.

At the hearing, Gregg Bishop, Commissioner of the Department of Small Business Services, yield his time to HPD; however, he stated that the department shares the Council’s belief in supporting small businesses and will work with the Council on the bill.

Supporters of the bill believed that the bill would promote small business entrepreneurship opportunities, fulfill local retail needs, and reduce retail space vacancies.

Opponents of the bill believed that the bill would make affordable housing development more difficult because market rate retail rents help a project meet its financial obligations. Another concern is that the assessment is too broad and does not take the unique needs of a community into consideration. New York State Association for Affordable Housing, an affordable housing trade association, states that a community may not want a non-chain retailer in their neighborhoods but may want another type of business or a chain retailer.

On January 23, 2020, the Committee unanimously voted to approve the bill. Prior to the vote, Committee Chair and Council Member Mark Gjonaj explained that providing more affordable retail space will ensure the survival of neighborhood shops and to protect the City’s commercial areas so “they can maintain the vibrancy of our neighborhoods.”

Immediately after the Committee vote, the Council voted to pass Local Law 35. After the vote, Council Member Espinal, Jr. stated that “[Local Law 35], which mandates affordable rents for commercial space in affordable housing developments, is part of a broader conversation around how to keep rents affordable for all small businesses in NYC. Affordable housing developments have to take a holistic approach to what their footprint in the neighborhood is going to be. Just as we have set-asides to address the affordability crisis for tenants, we must have set-asides to tackle the growing vacancy crisis for small businesses. Protecting New York’s small business culture starts with a recognition that the rent has become unaffordable for way too many commercial tenants. This legislation is a step in that direction, and I hope it will bring more attention to the struggles our small businesses face.”

The law will take effect six months after its February 23rd enactment date and will be repealed seven years after it becomes law. According to the Council, the sunset provision will allow the law to be revisited as needed in seven years because of the changing landscape of commercial retail space in the City.


By: May Vutrapongvatana (May is the CityLaw Fellow and New York Law School Graduate, Class of 2019)

2 thoughts on “Developers Must Set Aside Affordable Retail Space in City-Funded Developments

  1. Interesting legislation with good intentions; however, a luncheonette or coffee shop may be desirable, yet there may be no takers, so that a large chain such as Starbucks could be desirable. Ought Starbucks be excluded because it is a large chain?

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