Taxes Make Hill a Tough Sell for Stores

Posted August 31, 2007 at 3:02pm

Behind the counter at her Capitol Hill bookstore, Roberta Blanchard rules over a small collection of imagination. Tales of fairies, witches, heroes and magic fill several shelves, while even more burst out of boxes. Give Blanchard a child’s age, and she can pull out the perfect adventure from the pile. [IMGCAP(1)]

“It’s very much hand-selected merchandise,” Blanchard said. “I think I’ve ruled out a lot of the real junk.”

Her store, Fairy Godmother, has been in business for 25 years on Seventh Street Southeast — an accomplishment in a neighborhood that once was poor and ignored. But Capitol Hill has been going through a phase of renewal, and with it, the face of retail business is changing. Although several small businesses have opened in the past couple of years, some owners say rising rents and property taxes are bleeding them dry.

If the D.C. Council doesn’t come up with a legislative fix, some fear Capitol Hill charm eventually will give way to the Georgetown image — that is, chains in lieu of local merchants.

“You can’t claim to be a special place in the capital city and have everything everyone else has,” said Cristina Amoruso, executive director of Barracks Row Main Street. The nonprofit guides the revitalization of Eighth Street Southeast, called Barracks Row because of the historic barracks in the corridor that hundreds of Marines call home. “By talking to people, they said, ‘We realize we either are going to have to pay premium for an indie … or we’re going to have to cave in and bring in a Gap or Ann Taylor.’”

Tax Burden

Dennis Bourgault owns the Barracks Row property where he runs Chateau Animaux, a pet store that carries supplies for dogs, cats, small animals and fish. He has been in the Capitol Hill pet business for more than a decade, beginning with a stand at Eastern Market. But since he bought his own place in 2005, rising property taxes have deeply cut into his profits, he said.

“I have to put $2,000 a month aside to pay the tax,” he told At-Large Councilman Kwame Brown (D), who recently visited the shop. “After that, there’s nothing left.”

Chateau Animaux is one of several pet- oriented stores on Barracks Row. The street also has a gift shop, a sporting goods store and a place to buy home furnishings. But the block really belongs to restaurants and bars — a trend that brings more people to the area but also foreshadows a future without retail.

“Barracks Row to me is not for retailers,” said Rodney Smith, owner of Capitol Hill Sporting Goods and Apparel on Eighth Street. “It’s for restaurants.”

It’s hard for small stores to sell enough merchandise to pay property taxes and, in many cases, rent. While a restaurant or bar makes money on daily liquor sales, retail stores sell more expensive items less frequently, Amoruso said. If their expenses go up, they can only raise their prices and hope customers don’t go somewhere else.

Smith has been open since 2002, hoping that the revitalized street eventually would increase his business. Instead, he said rising property taxes have overshadowed any increased foot traffic, costing him as much as $8,000 a year. He once was open until late at night in an effort to get business from nearby overflowing bars. But by being at the far end of Eighth Street and thus a greater distance from the Eastern Market Metro station, Smith said he gets too few customers.

“I’m in the lost land over here,” he said.

Remaking the ‘Ugly Stepchild’

Just a block further down Eighth Street, the Interstate 295 overpass prevents Smith from getting any business from M Street and the upcoming Nationals Ballpark district. If his is the lost land, the Eighth Street beyond the freeway is even more ignored by diners and shoppers. Amoruso calls it “the ugly stepchild,” an unwelcoming block of vacant land and buildings between Barracks Row and the development around the new Nationals baseball stadium.

Some developers are hoping to develop this stretch, transforming it into a gateway to the Hill with condos, big-name retail and restaurants. Barracks Row Main Street also is commissioning an artist to paint a mural on the North side of the freeway, hoping that the art will convince visitors to wander to the other side.

ICP Partners President Leon Kafele already is planning a mixed-use building at the corner of Eighth Street and Potomac Avenue Southeast. It will have 17 condos (which Kafele describes as “mid-luxury”) and 3,000 square feet of retail, some of which could be occupied by a national chain. It is here, Kafele said, that bigger spaces will allow bigger stores and keep everyday Hill shoppers from leaving the area. He hopes the city will change the zoning to allow taller buildings.

“It has to be there where you locate retailers and prevent leakage from the Hill going to Maryland or Virginia,” he said.

Real estate agent Roy Hill is trying to bring more commercial developers like Kafele to Hill neighborhoods that have more land and bigger buildings, such as near the Potomac Avenue Metro station. Local businesses have an important role on the Hill, he said, but national chains shouldn’t be taken out of the picture. Such stores could bring more foot traffic along Pennsylvania Avenue and won’t necessarily drive up rent, he said. He said he is actively trying to engage retailers such as Banana Republic, Gap and J. Crew.

“If you can get a national brand in your building, you’ll probably negotiate a lower lease,” he said, citing landlords’ desire to have such a stable tenant. “The perception always is that if we get a national brand in, they pay more, but that’s not necessarily the case.”

Making It

The stores that do the best are the ones that fill a unique need of the young professionals who live and work on the Hill, Amoruso said. Pawticulars does just that. In business since 2003, Jennifer Zatkowski’s pet shop is small, but it also holds items rarely seen at a PETCO or PetSmart. Customers can spoil their dogs and cats with frosted cookies and organic pet food. They can buy dog beds that match their furniture and pedicures for their pets’ unkempt claws.

“Why would I go to Georgetown to go to Ann Taylor Loft if it doesn’t have the character that it used to?” Zatkowski said. “Fortunately, residents of Capitol Hill have realized that.”

Many shop owners also say that national chains probably wouldn’t want to move into the small spaces available throughout the Hill. Protected by historic district guidelines, only so much can be done to increase space in the small row houses. And some property owners are willing to give small business renters a financial break in the spirit of community support, Amoruso said.

Amoruso also hopes Councilman Brown will address a possible cap in property taxes as chairman of the Committee on Economic Development. Brown recently visited Barracks Row shops, pledging support for small businesses but stopping short of promising a legislative fix. Bills capping property taxes have failed before, but Brown said he would consider several solutions, including giving tax credit to owners who leased their property to small businesses. For most of the shops on Barracks Row, the tenant pays the full property tax.

“We need to change the frame of reference,” Brown said. “Small business is best business.”

To some longtime business owners like Blanchard, high property taxes are almost beside the point. While she conceded that the taxes hit her hard, Blanchard said she opened her shop to do something she loves, not to make money.

“The newer people doing this have different expectations than those of us who came in years ago,” she said, later adding: “I think it partly depends on why you’re in business. Everything always goes up.”

Next door on Seventh Street Southeast, Frame Up owner Richard Sheehy likes to sit on his porch and watch the crowds going to Eastern Market. His shop has been open 40 years, and now he lives in the same building. He bought the property when the area was a “slum,” he said, and fixed the plumbing, floors and electricity. First opening as a clothing shop, he now sells his paintings and does custom framing, relying on word-of-mouth for business.

New businesses should expect the high rent and tax, he said, because they came to Capitol Hill to benefit from the upswing of revitalization.

“We moved in here when it was a slum. We renovated our places,” he said. “We put our time and money and investment in it.”

Leah Daniels worked as a teenager in Blanchard’s Fairy Godmother and now manages Riverby Books at 417 E. Capitol St. SE. She is renovating an 1884 town house at 713 D St. SE for her upcoming store, Hill’s Kitchen. When it’s done in the spring, it will be two stories of kitchen products as well as an actual kitchen. Such stores are the future of Capitol Hill, she said.

“I think that there’s amazing potential on Capitol Hill,” Daniels said. “When neighborhoods are revitalized, it takes a couple of years before retail follows suit.”