When I first met Katherine Raz, owner of The Fernseed, a plant shop in Tacoma, Washington, at the 2024 PLACES conference in Walla Walla, she shared that she has felt let down at times and how the Main Street network misunderstands her reality as a business owner. 

Her insights provided a great source of inspiration for the research team as we designed the Spring 2025 Small Business Survey. She suggested we include questions about whether business owners were paying themselves enough to cover basic living expenses, whether their family’s household wellbeing relied on their business revenue, and whether they leaned on friends and family for unpaid labor. The data we got from those questions was pretty sobering. Main Street business confidence had fallen dramatically, with confidence scores at an average of 6.7 out of 10, the lowest levels we have seen since we began tracking in 2022. In our most recent survey results, published late last year, confidence scores have risen slightly but are still near their record low. It’s clearly not an easy time for Main Street business owners in many ways. 

Last year, Kat came back to the statewide conference in Gig Harbor and presented some very compelling arguments and provocative questions about what it takes for storefront businesses and Main Streets to succeed. What struck me about Kat’s presentation was her focus on property ownership as a key factor in small business longevity and success, and the barriers that prevent storefront business owners from accessing it.

I asked Kat if she’d be willing to share more about her experience and insights with Main Street leaders. Here’s our conversation. 

You’ve been running The Fernseed for six years. What do you wish Main Street leaders understood about what it’s actually like to run a storefront business?

“We’re dying out here,” is the first phrase that comes to mind. I know that sounds dramatic, but as you can see from the survey results, a majority of Main Street business owners are working in ways that are unsustainable. Can you imagine an industry where 64% of decision makers were not being paid a living wage, or 53% of firms were relying on unpaid labor (which is illegal, by the way)? What I really want Main Street leaders to understand and empathize with is the shocking reality that many of us — probably a majority — don’t take a consistent paycheck. You might think it makes sense to quit if you’re not making money, but keep in mind that we also have debt that doesn’t disappear if we file for business bankruptcy, or we have time left on our leases. It’s not that easy to walk away.

In your PLACES presentation, you argued that owning real estate is a key factor in small business longevity and success. Can you explain why that matters so much?

I can’t stress this enough: owning the building is the key component to storefront business stability and longevity. It’s always worked this way, especially for low-margin businesses, which retail and restaurants are. Imagine a business that grosses $350,000 annually with an 8% margin. That’s a healthy profit ($28,000) for a typical Main Street business, but often profit is the only money available to the business owner as actual income. If you’re also paying $3,500/month in rent, which is pretty typical, we’re talking about some very difficult financial circumstances for that business owner. The hundreds of thousands of dollars they’ll pay in rent payments to their commercial landlord over 3 – 5 years is money they’ll never see again.

This sacrifice — working a lot, not taking a lot of money out of the business — is the heroic myth of the entrepreneur, and many of us fit that mold! We love what we do — many of us would do it for free — and do! — but twenty years ago, it was more likely that you weren’t forgoing a paycheck and paying rent at the same time. The long hours and low pay were worth it because running your business was the back door to acquiring a commercial property that increased in value. It was your north star, and your retirement plan.

The reason we’ve seen so many businesses closing recently — almost always at the five-year mark when their leases are up — isn’t because of COVID or Amazon. It’s because the real engine that has driven small business longevity for a hundred years is gone. No one is doing this to buy a building anymore, and so they’re just burning out. 

Since we talked in Gig Harbor, I’ve been reading and researching a lot more about the roles different types of banks and financial institutions play with Main Streets and Main Street businesses. You had some difficulty getting support from banks as you considered opening a new business location in Centralia. What should Main Street leaders understand about banks and entrepreneurs in their communities? 

My partner and I were rejected by almost a dozen banks when we tried to buy commercial property for my business. Why did we keep getting rejected? Because The Fernseed’s cash flow (profit) wasn’t enough to repay the loan on its own, even though we had other real-world ways of making those payments. For instance, we tried to buy a building in Tacoma that had two additional commercial tenants. The banks wouldn’t let me rely on the projected income from those rents for repayment, and the worst part was that they wouldn’t explain why. Isn’t that how people pay for expensive buildings, by sharing the payments and renting to others?

In the real world, yes. But the way a typical bank looks at owner occupancy, two people with the same financial profile (credit score, investment portfolio, income) could apply for a commercial real estate loan and the investor — the one who didn’t own the business in the building — would secure the loan 100% of the time over the business owner because of how underwriting works.

I finally found the answer in the Office of the Comptroller of the Currency’s Handbook, on page 131 in the section on Commercial Real Estate Lending, titled Loans Secured by Owner-Occupied Properties:

“For owner-occupied properties, the primary source of repayment is usually the cash flow generated by the occupying business.” 

This sentence, this practice, has gutted Main Streets for thirty years, and no one is paying attention. 

I don’t like being told no, so I took a copy of this OCC handbook all the way to Washington D.C., to the Senate Banking Committee, and asked them to change the rules. They told me the OCC guidelines were just that: guidelines, so there wasn’t a law to change. What did change, though, was the number of banks that adhered to these guidelines by default, with no deviation, and why.

Banks follow those guidelines strictly so they have clean lending portfolios — with no quirky community-values-driven deviations — which makes them more attractive to other banks for mergers and acquisitions. In 1990, those mergers were prohibited at the federal level, but with the passage of the 1994 Riegle-Neal Act, banks could conduct business across state lines. That act is the real dark matter, the reason behind the reason.

If I’m right about all of this, since 1994, fewer Main Street businesses have been able to secure the capital needed to acquire their buildings. Community ownership has declined rapidly, primarily because of these banking practices that value capital over local investment.

You did research tracking property ownership changes in your district on South Tacoma Way between 2000 and 2023. I was inspired by the work you put into that and reviewed some of the data we have from completed inventories in the BOOMS Tracker. In my quick scan, I found that about 35% of buildings with businesses in them are owned by the business owner. What did you find in your analysis of South Tacoma Way, and why should Main Street leaders care about who owns the buildings in their districts?

Data is so important to better define the impacts of these banking changes on Main Street, but it’s not readily available because very few organizations have consistently tracked owner occupancy trends over the decades. The information is there, but finding it involves leg work and creativity.

I wanted to know what the distribution of ownership looked like on South Tacoma Way in past decades, whether more businesses owned their buildings the further back we went. I started with a 2023 list (compiled by Northwest Vernacular) of all the parcels on South Tacoma Way within the business district — 102 total — and their corresponding mailing addresses. If a parcel had a 1:1 relationship with a mailing address on the list (i.e. that address wasn’t the mailing address of any other parcel), I assumed it was a direct relationship between business owner and building.

In 2023, 44% of buildings on South Tacoma Way were owned by someone who didn’t own any other buildings on the block and who we might therefore assume was the business owner. About 23% of buildings were owned by someone with 2 – 4 parcels in the corridor — probably also a business owner with an adjacent parking lot or garage space.

In 2000, 65% of the buildings had one-parcel owners, and 35% were 2 – 4 parcel owners.

This means, based on my inferences on who our owner occupants probably are, in just 23 years, 102 parcels in our commercial corridor went from being nearly 100% owned by the businesses operating here to just 67 percent.

Who owns South Tacoma Way in 2023? Four owners now control 35 of 102 parcels, 34% of the entire street. 

You talked about something you call the ​“paradox of success.” Can you explain what that means for business owners?

If you rent, and your business does the job everyone hopes it will do — to positively impact walkability, safety, aesthetics, and region-wide perception of the district — how do you benefit? In my presentation, I showed how my sales on South Tacoma Way had no correlation with the increase in South Tacoma’s ​“visibility” since 2020, in fact they’ve decreased since 2021, primarily because of macroeconomic trends. So you might think that business owners make more money as the neighborhood improves, but that’s not always the case. What is almost always the case, however, is that their rent goes up. So, they’re doing something great for their community, but as renters, it’s negatively impacting their profitability in the form of rent increases.

What are the concrete, practical steps Main Street leaders can take to better support the business owners in their communities?

Understand the hurdles they will face trying to acquire commercial property, and get to know your local banking landscape so you can connect them to banks where they have a chance.

When banks lend strictly to the owner-occupant underwriting practices outlined by the OCC, an average Main Street business will only ever be able to afford a building priced at the equivalent of their annual revenue — and only if they’re making at least a 10% profit on that revenue and have no other debt.

A business making $500,000 in annual revenue can afford a $500,000 building. If half a million dollars in revenue is on the high end for business owners in your area but $500,000 for a turnkey commercial property is on the low end, things are mismatched. 

In my journey trying to get a loan, I got a yes from just one bank, one that was recommended to me by the Centralia Downtown Association, a Main Street organization. When I asked this bank why they were lending to me when I was rejected by every other bank (a weird question to ask, but here we are), their answer was simple.

“We hold our own mortgages.”

If you do anything to address this issue, get to know the commercial lending landscape in your town and figure out who is a portfolio lender — meaning they originate and hold their own loans. These are the types of community-focused banks that still lend to small businesses for commercial property purchases and don’t rely on strict underwriting policies related to debt service coverage only coming from cash flow. Connecting small businesses to these lenders could have an immediate impact on keeping ownership local — without you having to do much but facilitate a handshake.

Thanks for all your research, advocacy, and time, Kat! 

Main Street America is eager to better understand and support the storefront business owners operating in Main Street districts across the country, and we know we’re partners with local leaders in this. Let’s work together to make business ownership more viable for more people.

Help us understand the landscape of property ownership in your district by entering data into the BOOMS (Building Opportunities on Main Street) Tracker and indicating if commercial properties are owned by the business owners operating in the buildings. Talk with local business owners in your communities to find out how their tenure in their commercial space affects their business prospects, and let us know you hear via the new Member Hub. 

Get to know community banks and credit unions in your community so that you can connect them with small business owners and entrepreneurs. And stay tuned for Main Street America’s Spring Small Business Survey, coming in March.