Small business owners describe challenges, opportunities of Lexington Center

When Joe Rancatore lived in Cambridge in the early ’80s, he needed a halfway point to meet his high school friend living in Western Acton. They picked Lexington – a serendipitous choice, because Rancatore returned home that day with a surprise realization: “Hey, I found a place I want to open an ice cream store.”

Almost 20 years later, Rancatore achieved his goal when a location became available for rent in Lexington Center, where he established his second store. “Lexington Center just had this vibe of old-town New England” that drew him in, he said.

For decades, businesses have seen an opportunity in Lexington Center, which in many ways embodies the historic and literal heart of an affluent town. But some residents are dissatisfied with the center’s current business offerings, according to one section of a massive draft master plan to guide the future of Lexington’s built environment. In LexingtonNEXT, the Town’s first Comprehensive Plan update since 2003, Goal #3 is dedicated to “Economic Vitality.” During years of outreach and research, consultants and advisory committee members have found that residents want “a more balanced set of goods and services, especially in Lexington Center.” What’s more, the loss of businesses such as Panera Bread and Catch a Falling Star has prompted conversations about how to retain businesses – even as several new businesses have opened in the center during the same period.

As a result, the LexingtonNEXT team has drafted Economic Vitality recommendations that include ideas to make Lexington Center more of a “destination.” The Planning Board and members of the public gave initial feedback at a July 13 meeting; the recommendations will be finalized in the fall.

LexObserver explored what some business owners, a landlord, Town leaders and Economic Development Office staff view as the challenges and opportunities of Lexington Center as a small business hub.

The specter of high rents

Eric and Jerry Michelson are cornerstones of the local business community. Even mid-day on a sweltering Wednesday, with a maze of sidewalk construction outside the front door, their shoe store was bustling.

Eric is president of the local Retailers Association; his brother Jerry chairs the Town’s Center Committee. Though the Michelson family has owned their building since the ’80s, that’s relatively rare in Lexington Center: Eric said high rents top the list of concerns voiced most often by local business owners. “The value of the properties far exceeds what most business models will support,” he said.

The pandemic has not helped matters, said Sandhya Iyer, Lexington’s Economic Development director: “The rents are back. But sales are not back.”

High rents are not unique to Lexington, according to Brian Phillips and Jelena Babić, who opened Maxima Book Center in town last fall and have owned a store in Arlington for 25 years.

“Many communities close to greater Boston are facing high and always rising rents leaving less and less profit to work with,” they wrote in an email. “We fear the time will come soon when a business like ours will no longer be able to cover its expenses, offer employment, grow, or even support its owners.”

The value of the properties far exceeds what most business models will support.

Eric Michelson, michelson’s shoes co-owner, lexington retailers association president

Rancatore considers high rent “the cost of doing business” and well worth his prime location. The Lexington store, which he calls his “other living room,” is Rancatore’s favorite among his three stores for meeting friends. “My friends from high school have come in and [remarked], ‘How did you get a location like this?’” he said. “They call it a ‘main and main’ location” – at the intersection of local thoroughfares Massachusetts Avenue and Waltham Street.

The terms of a lease can add significantly to the already steep cost of rent. Single net leases require tenants to pay property taxes on top of rent; double net leases add property insurance; and triple net leases also add maintenance.

Phillips and Babić oppose triple net leases. In 25 years of doing business at their Arlington location, they have never had a triple net lease; in Lexington, they had to negotiate to avoid one.

According to Rancatore, who also runs stores in Belmont and Newton, triple net leases have “become a standard in all operat[ions].” 

Lexington resident Katherine Venzke agreed. Venzke first opened a women’s clothing store, Helena’s, at a building she and her husband owned in Arlington in 2005. She was successful enough to rent a second location in Belmont’s Cushing Square, which she later relocated to Belmont Center after considering a move to Lexington in 2019.

Venzke signed a triple net lease for both of her Belmont locations. “Every property that I looked at in Lexington, that was a triple net lease,” she added. 

Triple net costs can be especially burdensome for small businesses because many landlords don’t bill them monthly, Venzke noted – in some cases, “you get a big bill at the end of the year, or you get a quarterly bill,” she said.

The tax portion of a triple net lease in Lexington can significantly increase the price per square foot of a small business’ rent because commercial properties are taxed at a higher rate under the Town’s split tax rate.

For Fiscal Year 2022, residential property is taxed at $13.80 per $1,000 of assessed value. Commercial, industrial and personal property are taxed at almost double that: $27.18 per $1,000 of assessed value. 

Belmont, in contrast, taxes both residents and businesses $11.56 per $1,000 in FY22. But many other towns have split tax rates, and Needham is one example of a town with a split rate comparable to Lexington’s.

Lexington has carefully considered and reconsidered the split tax rate, and its level. Last November, for instance, Select Board member Joe Pato outlined his rationale for keeping the split tax rate at its current level. He argued that allocating American Rescue Plan Act (ARPA) funding for small businesses would be a better strategy to support them than reducing the commercial rate, which would add to the already hefty tax bill residents pay. 

We fear the time will come soon when a business like ours will no longer be able to cover its expenses, offer employment, grow, or even support its owners.

Brian Phillips and Jelena Babić, Maxima Book Center co-owners

There’s another dimension: Just 6% of Lexington’s properties are zoned for commercial use, Iyer pointed out. Commercial taxes often fund major capital projects – specifically, the Town plans to funnel commercial tax revenue toward the new police station and new high school that loom large on Lexington’s financial horizon. Under the Town’s new capital stabilization framework, taxes from already approved large commercial projects are estimated to generate about $11.5 million annually, according to Town Manager Jim Malloy – one way the split tax rate directly alleviates the tax burden on residents.

While commercial properties account for 9% of total assessed value in town, they contribute 17% toward the total tax revenue, according to the draft Comprehensive Plan.

Small businesses are included in that 6% of properties, along with the industrial lab facilities in the Hartwell Area. However, the state’s Small Commercial Exemption allows the Select Board to exempt up to 10% of the property valuation for commercial properties with no more than 10 employees and an assessed value of less than $1 million. Such an exemption is intended to help small businesses, but in 2020, Town staff concluded that fewer than 10 parcels would qualify for this exemption – too few to warrant using the tool, since it would be funded by increasing the tax rate on businesses that don’t qualify.

Pato explained that the law’s requirements are so stringent that the Town has consistently found most of its small businesses do not qualify; for instance, single properties can have multiple tenants, and all tenants of a property must qualify for the law to apply. “Right now, the tools are very blunt,” he said. This is an area where a state-level change could prove useful. 

The draft Comprehensive Plan acknowledges this reality: “The split tax rate falls especially hard on small business tenants, and tax law strictly limits the town from providing tax relief to small entrepreneurs.” It recommends the Town “maintain the split tax rate for commercial real estate.”

The role of a landlord

Rancatore has only good things to say about his landlord, owner and broker Jeffrey Lyon, who has supported him since he first opened Ranc’s in Lexington in 2004. “I call him the gold standard of my landlords,” Rancatore said. Lyon worked with him to set up the meetings and navigate the many permitting steps required to get Ranc’s open. 

Venzke, too, praised Lyon. “An exercise of very good property owners [and managers] is that they reach out to existing businesses,” she noted – and Lyon, who is president of W.H. Lyon Realtors Inc., reached out to her when she was considering opening a Lexington location. What’s more, it was her impression that this landlord “really want[s] small businesses.” LexObserver could not reach Lyon for comment by press time.

In Rancatore’s view, the “landlord is the foundation of success” for a small business.

Some of the property owners have been really good at…trying to market and bring a store that would survive in Lexington.

Sandhya iyer, lexington economic development director

Ada Wong, president of Lexington Enterprises, is well equipped to understand the relationship of a landlord to a small business. For decades until the late 2000s, her family owned the building where they operated the restaurant Peking Garden in Lexington Center, on Waltham Street. But when Wong’s father grew too ill to continue serving as chef, they pivoted to real estate – first by bringing in Citibank as a tenant for half the space, then by closing the restaurant altogether.

Wong said triple net leases are critical to make real estate a profitable business choice. If she did not charge tenants rent including maintenance charges and real estate taxes, there would be no financial incentive to be a commercial landlord: “I’d be better off doing residential rentals,” she said.

For one of her two properties, Wong is actively recruiting to fill a vacancy; the other is occupied by Webster Bank. Who would be an ideal tenant? “Short answer, another bank, because there’s stability,” she said. But she’s well aware that “that’s not what the Town wants.” A special permit has been required for any new banks or real estate offices in Lexington Center since 2016, when an overwhelming majority of Town Meeting voted for a zoning amendment that made it harder for those two kinds of businesses to dominate Lexington Center. Town Meeting previously passed a year-long moratorium on banks and credit unions in the center in 2015.

The Town’s Economic Development Office also tries to dissuade property owners from bringing more of these entities to town. “If there’s a real estate office or a bank or something, we definitely try our level best to make sure it gets converted into something [that] is much more appreciable in the downtown,” Iyer said. Still, “at the end of the day…property owners want [the] rent that they want.”  

That said, Iyer has also observed that “some of the property owners have been really good at…trying to market and bring a store that would survive in Lexington.” And many of the landlords are residents, she added, who “clearly understand what would work and what would not work in Lexington.”

As a former business owner who grew up and raised children in Lexington, Wong said she would love to partner with a small business – but she is not convinced that Lexington residents do enough to support local businesses. “I think that what the residents say that they want and what they are doing to keep these businesses are very different,” she said.

 Creating a more vibrant Lexington Center 

When Venzke was considering opening a store in Lexington in 2019, “I was hearing from other business owners [in Lexington Center] that business wasn’t good,” she said. That was before the pandemic and the Town’s extensive Center Streetscape construction, which have further hindered foot traffic. The lukewarm local appraisal of pricey real estate, combined with her strong Belmont customer base, informed Venzke’s decision to remain in Belmont instead.

Asked to identify the greatest challenge to doing business in Lexington, Phillips and Babić singled out transportation rather than rent. 

“The biggest issue Lexington faces is its connection to the cities of Cambridge or Boston,” they wrote. “Unless you have a car, it is very hard to come and explore Lexington, especially on the weekends, when there is not even one bus service connecting it with the rest of the world.” LexObserver previously reported on recommendations to improve MBTA bus service for the Town.

Phillips and Babić believe “the survival of small businesses cannot depend on just local foot traffic.” In Arlington, for instance, residents’ purchases account for only about 55% of their sales.

Insufficient public transportation also makes it harder to hire adult workers, they added – a challenge Pato and Wong noted as well. (Ranc’s employs many high school students.)

I think that what the residents say that they want and what they are doing to keep these businesses are very different.

ada wong, lexington enterprises president

Iyer sometimes hears residents complain about the lack of business variety in Lexington Center. “I think it’s a cyclical thing,” she said. “There are people who are saying that we don’t have a good mix of businesses, because of which they’re not coming back to the center.” 

Phillips and Babić identified retail mix as a key challenge in both their Lexington and Arlington locations. “‘For Lease’ locations on the main street often get rented to businesses serving a small, and very selected clientele, creating retail dead zones, as we like to call them – fitness clubs, nail salons, and daycares to name a few,” they wrote. Instead, “Businesses like hardware stores, [book] stores, candy stores, cafes, bakeries, toy stores… are where the community meets.”

Lexington’s 2016 action to limit the number of banks and real estate offices in the center, they added, “was put in place way too late to salvage enough [storefronts].”

Eric Michelson agreed that “the vitality of the center is based upon a nice mix of businesses, and businesses that are consumer-offering.” In his view, a clothing store exemplifies a type of business currently missing from the center; he also considers the recently closed toy store a major loss.

That said, Lexington has managed to add more than a dozen new businesses to the center during the last year of the pandemic, Iyer said – and has more coming soon. Fiorella’s, a restaurant with locations including Concord and Belmont, is slated to open an additional storefront on Waltham Street. 

Pato has observed the influx as well. “At the beginning of COVID, my fear was, this is going to turn the center into a ghost town,” he said. Despite the odds, “that hasn’t happened.” In fact, rent is an issue precisely because Lexington Center “is a desirable target – landlords charge what they can.” 

For Rancatore, pandemic-related obstacles such as “supply chain problems…supersede anything to do with the high rents and the split tax rate” as burdens to running a business, he said.

Beyond many challenges, the pandemic has created surprise opportunities for the Town to support businesses and achieve longstanding goals because it has stimulated an influx of funding. “The pandemic, in some ways, was a blessing,” said Economic Development Coordinator Casey Hagerty, “because it gave us some money to do projects that we probably wouldn’t have had money to do otherwise.” 

The Economic Development Office created a grant program that has directly funneled hundreds of thousands of dollars to small businesses. It is also using ARPA funding to open a pop-up shop where businesses can test-run ideas, which Maxima did in 2019 before deciding to open in Lexington. The Town will also hire an events coordinator to plan some fall events “to revitalize the center and bring back foot traffic,” Hagerty added.

Iyer pointed out that Lexington Center is at its most vibrant during occasions such as Patriots’ Day and Discovery Day, when it’s flooded with people. But density can also be achieved by more permanent measures, like creating housing.

Venzke said creating a more vibrant downtown requires a partnership between the Town and residents. “I don’t think the responsibility just lies with the municipality,” she said. “And I don’t think the responsibility just lies with residents.”

She suggested that residents can support the center by going into a business once a week, whether they buy something or not; making a purchase; and letting business owners know, politely, if they “[do] not have what you’re looking for.” 

“If enough people make special requests, I might increase my offerings or change things to accommodate because those are paying customers telling me if this was here, I would buy it,” Venzke said. “That’s an alternative to residents saying, ‘well, that clothing store opened, but they don’t have anything that I want.’”

From the Town’s side, Phillips and Babić would like to see more marketing about the benefits of shopping local. Although Maxima opened a year ago, “there are still a lot of people not familiar with our business,” they wrote. To them, that suggests “the town could do more by sending a message to its residents…to visit the town center and explore all the new, and existing, businesses in Lexington Center more frequently.”

Phillips and Babić were drawn to the center by “the wide sidewalks, benches, and outdoor seating at the food establishments,” which facilitated walking, gathering and relaxing in common spaces. They cited the new Visitors Center, robust retail associations and strong Town Economic Development Office as other key draws.

“Lexington,” they added, “has all the elements needed [for] a strong town center.”