Could a New SF Commercial Eviction Ordinance Save Japantown?

Update, 10:35 p.m., Tuesday: San Francisco's Board of Supervisors voted unanimously to pass the commercial eviction ordinance. The sponsors of the legislation are: Supervisors Aaron Peskin, Dean Preston, Gordon Mar, Shamann Walton, Ahsha Safaí, Hillary Ronen, Rafael Mandelman, Matt Haney, Sandra Lee Fewer and Norman Yee.

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On Tuesday, San Francisco’s Board of Supervisors will vote on an ordinance that would extend the city’s existing commercial eviction moratorium through March 31, 2021, and provide a pathway for rent repayment negotiations between landlords and struggling business owners who continue to face tremendous revenue losses and growing debt during the coronavirus pandemic.

The proposed ordinance would be the city’s most robust lifeline yet for small business owners across the city, providing long-term tenant protections for retail businesses, including legacy mom-and-pop shops that community members say are the heartbeat of San Francisco’s beloved Asian cultural districts and neighborhoods.

The vote comes on the heels of high anxieties for some San Francisco communities of color, in particular in Japantown where the fate of dozens of beloved businesses inside the Japan Center mall are in the hands of only two corporate landlords.

As KQED reported in September, attempts by business owners to negotiate a rent repayment structure with the landlords — including for the months when businesses were inoperable during the COVID-19 shutdown — have gone unanswered. Additionally, the landlords have started to demand full and immediate repayment from tenants, heightening eviction concerns that have galvanized community members, including generations of Bay Area Japanese Americans.

The new ordinance, sponsored by Supervisors Aaron Peskin, Dean Preston and Ahsha Safaí, would match the timing of the state’s current commercial eviction moratorium. Gov. Gavin Newsom has extended that statewide moratorium, which allows local jurisdictions to continue banning evictions of commercial tenants affected by the pandemic, until March 31.

The city’s current moratorium, which has been extended by a series of monthly mayoral executive orders since the start of COVID-19-related shutdowns, is set to expire on Nov. 30.

Chris Chin, owner of Matcha Cafe Maiko, is hoping the ordinance will pass so that he knows how to chart the territory ahead. He has three store locations in San Francisco, including in Chinatown and Japantown, and has had to lay off about 75% of his full-time employees. The popular cafe, which serves authentic Japanese desserts and treats, has suffered a 70% drop in business.

“Right now it's really helped that we haven't paid any rent yet, but I know it's all gonna come down,” Chin said. He says it’s been a slow climb back as the city has gradually progressed in reopening, but the months of unpaid rent loom. “We're going to have to pay it all back.”

The new ordinance pays particular attention to the hardships of San Francisco’s most vulnerable small businesses that have annual gross receipts that are equal to or less than $25 million based on 2019 figures.

The legislation has a tiered repayment approach: of top priority are commercial tenants that employ fewer than 10 full-time employees. If eligible, these "Tier 1" tenants would have up to 24 months after the statewide eviction moratorium’s end to pay back any unpaid rent, without facing the threat of eviction. They would also have the opportunity to terminate their leases early without penalty. Businesses that have between 10 and 24 employees would have 18 months to pay back unpaid rent, those that have between 25 and 49 employees would have one year and those that employ 50 or more would have until the moratorium’s expiration date.

Supervisor Peskin, during a Land Use and Transportation Committee meeting on Monday, said that about 80% of businesses in San Francisco employ fewer than 10 people, making this proposed ordinance broadly impactful across the city. He added that an estimated 164,000 people in San Francisco are employed by small businesses, according to his office’s calculations.

“We as lawmakers have an imperative, actually, to make this a matter of law, to allow these businesses that are the backbone of our economy to make it through the pandemic,” Peskin said during the meeting.

Excluded from the ordinance’s protections are for-profit tenants in office spaces; the legislation is engineered to help retail businesses that don’t have the benefit of being able to operate remotely.

Real estate attorney Allan Low of San Francisco-based law firm Perkins Coie is helping to represent the 41 tenants inside Japan Center Mall. He also helped advise the legislation, and said that the current moratorium hasn’t addressed the issue of mounting unpaid rent, which is why the new ordinance’s proposed repayment structure is especially significant.

“The mayor's order really relied on the good faith of the two parties to work out their deals, or to resolve their disputes,” said Low, who emphasized that hasn’t been largely the case. To address this, the ordinance functions “kind of like the guard rails on either side of the road, where hopefully you could meet somewhere in the middle of the road.”

Low said many commercial landlords across the city are not coming to the negotiating table at all, which has left business owners — like Chin of Matcha Cafe Maiko — riddled with the anxiety of enormous debt, a burden that becomes heavier with each passing month.

“I'm not asking to not pay at all,” Chin said. “I don't know what's happening. The landlord is not really saying anything to us and we're just kinda hanging in the air right now ... they just send us the bills that say, ‘OK, this is how much you owe now, so make payments.’ OK, but how are we going to work this out?”

Supervisor Peskin adds that the ordinance addresses this problem head-on by providing a starting point for negotiations between landlords and tenants, in particular by giving leverage to small businesses.

Community members say leverage is desperately needed in Japantown’s Japan Center mall. Dozens of public comments were submitted in hearings ahead of Tuesday’s vote, as well as many emails, from generations of Bay Area residents who expressed their treasured memories of San Francisco’s Japantown and the cultural significance it plays in their lives. The neighborhood is one of only three remaining Japantowns in the entire country.

To date, conversations with Japan Center’s two corporate landlords — Kinokuniya Bookstores of America and 3D Investments — have mostly stalled or been ignored: monthly invoices continue to be delivered to tenants and attempts by legal representation to negotiate rent repayment have gone unanswered. And now, demands for full and immediate repayment of all outstanding rent and charges have started, according to a recent report from Eater SF. Requests for comment from both Kinokuniya Bookstores of America and 3D Investments have not yet been returned.

Low said business slowdown has resulted in his clients losing massive amounts of money each month, ranging from $5,000 to $20,000 per month. A particular point of contention are high common area maintenance (CAM) fees that have skyrocketed exponentially for many of the tenants over the years, and are included in the monthly outstanding invoices. According to Low, 3D Investments has already begun efforts to try to evict one Japan Center tenant.

Low acknowledged that many landlords are hurting during the pandemic as well. He noted that the ordinance also offers protections for some commercial property owners: those who own less than 25,000 square feet in San Francisco, for example, can apply for a waiver demonstrating significant financial hardship and move forward with eviction for non-payment by tenants.

He hopes, though, that the ordinance will highlight the necessity of keeping tenants in place, especially for larger landlords like Kinokuniya and 3D Investments. The survival of San Francisco’s Japantown, which was established centuries ago, depends on it: “It should incentivize landlords to realize that there’s not a line of tenants that are lined up to take the space,” he said, noting the deep uncertainty of economic recovery ahead without additional federal aid yet in sight. “Let’s try to work with the people that are already there.”