A Case Study on Preventing Business Displacement
By Chih Wei Hsu, Research Associate
Suehiro, a restaurant and community hub in Little Tokyo, was forced out of a Los Angeles neighborhood after 50 years of service. Suehiro is not alone. Super Pan, a Mexican bakery in Virgil Village, said goodbye to its customers after 20 years of baking delicious sweet bread. If you look in your own neighborhood, you’ll see small businesses that have suffered the same fate. Have you ever wondered why these cherished establishments disappear?
If you live in what realtors might call an “up-and-coming” neighborhood, chances are the formidable ‘G’ force is at play. Gentrification! Colloquially, people cite gentrification when they see higher-income residents move into lower-income neighborhoods. But it’s critical to note that this is made possible by public policies, including historically inequitable practices limiting wealth building in certain communities, such as redlining, land use and zoning laws, and corporate-friendly tax incentives that open doors for investments in economically depressed neighborhoods without requirements of developers to strengthen those same communities.
What’s the outcome? The residential and commercial landscape of the community changes. Developers seize the arbitrage opportunity based on the “rent gap” —the potential future rent that the landlord can extract compared to the current rent and depressed property value—and build, for example, luxury market-rate apartments forcing the local residents out. Businesses serving higher-income newcomers move to the neighborhood along with their clients, forcing relocation or closure of long-time community-serving businesses.
In the case of commercial real estate, landlords can reject lease renewals for existing tenants simply because the business doesn’t fit the landlord’s vision for the space. This unilateral decision-making by a community outsider single-handedly changed the very fabric of a neighborhood. For example, in the case of Suehiro’s eviction, the landlord said they aimed to reshape the 1st Street commercial corridor in Little Tokyo to make it resemble Melrose, an upscale boutique shopping district in Los Angeles that is devoid of Japanese heritage ties.
The pandemic has made things worse. Throughout and in the aftermath of the COVID-19 pandemic, thousands of small businesses nationwide permanently closed their doors. The high inflation rate that began in late 2020 didn’t help either. In Los Angeles County, over 15,000 businesses are estimated to have closed their doors due to the pandemic, and over 5,300 businesses fell behind on rent in the City of Los Angeles. Businesses are said to be recovering, but the looming threat of gentrification and displacement remains high in their vulnerable state.
So what strategies can we employ to keep small businesses in place? At Inclusive Action, “staying in place” means preventing displacement and ensuring that the community owns the land and property. In this way, the value of the spaces is measured not only in dollars, as with outside investor-owners, but also in the cultural and social contributions it has to us. Our first innovation, Community Owned Real Estate (CORE), aims to actualize this philosophy. CORE is an evolving community ownership collaborative in Los Angeles that started in 2018 with two primary goals: First, to thwart small business displacement through strategic commercial real estate acquisition, and second, to expand access to community ownership to CORE tenants and community members.
Today, we’re sharing a case study (chapter 8) we did in partnership with the Small Business Anti-Displacement Network (SBAN), in which we evaluate the progress made toward achieving CORE’s goals and the challenges experienced in trying to achieve them. We spoke with CORE tenants and partners and learned that affordable rent, flexible rent payment options, business coaching, and a sense of stability that they felt through CORE’s fostering of it, have been invaluable for them. On the other hand, they also expressed a lack of clarity about who is responsible for property management, implicating a potential downfall of the collaborative partnership. CORE tenants also shared how construction delays impacted their business operations and plans. We will take these lessons to improve the program as we gear up for CORE’s next phase and inform our fast-emerging commercial tenant advocacy.
Next up for CORE, we will be exploring pathways and mechanisms for transitioning commercial tenants to property co-owners within the CORE portfolio while also extending ownership opportunities to community members like you through ways like community shareholding, land trusts, or other community investment options.
If you’re itching to read more about strategies to prevent small business displacement, check out SBAN’s report: Keeping Small Businesses In Place: Voices From the Field (our chapter starts on page 137.) The report also highlights neighborhoods in Washington, D.C., Miami, Seattle, Chicago, San Francisco, London, Kolkata, and Montréal and the tools and strategies used to keep BIPOC- and immigrant-owned small businesses in place. If watching a video sounds much more appealing than reading, here’s a great 20-minute documentary by SBAN featuring the story of small business owners and communities fighting gentrification in Miami’s Little Santo Domingo, Chicago’s Puerto Rico Town, and our very own Boyle Heights and East LA.
Our hope is that through community ownership, establishments like Suehiro and Super Pan can exist and thrive in the neighborhoods they call home.