Running a small business in Friday Harbor has never been easy, however, a number of businesses closed this fall, a potential red flag that challenges are higher than ever.

“There are a number of things at play,” Town of Friday Harbor Administrator Denice Kulseth said. The restaurant and hospitality industries have been heavily impacted by the two-plus years of the Covid-19 pandemic. “I wouldn’t discount the impact of that. It takes a while to heal from a major disruptor like that.”

But the pandemic is only a piece of the perfect storm. Ferry service issues, affordable housing and its impacts on finding employees, plus the fire in 2022 that burned three historical buildings and damaged others, are all contributing factors.

Kris Drain is one of the business owners to shut her doors. Island Studios has been a prominent gallery on San Juan Island for decades. Originally the space was a cooperative for island creators, but later became a gallery specifically for local artist to showcase their work. Its closing will significantly impact dozens of artists who live throughout the county. “I would sincerely like to thank the community and previous owners, for their support,” Drain said, adding a special thanks artists she worked with over the years. “I like supporting local artists. They are part of the charm of this place.”

Many of the challenges Drain cited were the perfect storm Kulseth portrayed. “COVID obviously was one challenge,” Drain said. “Reliable ferry services I think resulted in more a day tourists that walked on the boats and did not spend as much. High rent has also been a factor.”

Island Studios, she said, was doing well from 2017-2019. Drain even hired staff, “I wasn’t becoming a millionaire by any stretch, but I wasn’t working seven days a week and could hire employees.” Then, in early 2020, COVID hit. “The Economic Development was very helpful during Covid. They helped write grants. The San Juan Island Visitors Bureau tried to help with tourists and the San Juan Island Chamber tried to to be creative and help as well.”

Steve Buck, long-time islander, real estate broker, and CEO of Coldwell Banker San Juan Islands, Inc., noted that expenses coupled with seasonal income and lack of available employees are some of the top challenges for business owners.

“People don’t realize how many expenses there are in running a business locally, especially running it while providing excellent quality and service,” Buck said adding that affordable housing has proven to be a huge issue. “A few businesses have..resorted to purchasing homes for employees in order to be able to retain them, but most businesses can’t afford to do that. The lack of affordable housing is affecting virtually everything on San Juan Island, including medical services, and it doesn’t have to be this way,” He added that he believes the county needs to bring in more land into the Urban Growth Area to encourage a variety of affordable housing. “Think of housing like a pizza pie with each piece representing different types of housing. We need to provide land for as many of the different types of housing as possible in order to maintain balance. The Community Home Trust and Homes for Islanders are great housing programs. We are so lucky to have them both.” Both organizations need help, he continued. The Community Home Trust has some land, but needs utilities, and Homes for Islanders can’t find land. He encouraged the town and county to work together wherever possible to develop well-planned out solutions. “Not piecemeal or hodgepodge. That’s not going to solve it,” Buck added. Solving affordable housing is critical, Buck noted, not just for businesses, but to maintain the sense of community. “The number one reason I see in my business why people move back to the island is due to its sense of community. They don’t find it elsewhere,” Buck said. Some of the consequences of the housing crisis are already being felt, including not only a gap of workers in certain industries but increased costs as employers have to pay employees a higher cost of living rate to provide services. This can also mean a business can’t survive or has cut back hours in order to provide services to the public as a result of staffing shortages.

“Owning an island business is a challenge. The Covid years and recent ferry issues have taken their toll on many local business owners, yet after reading the list of new owners, new businesses opening and expanding is encouraging,” said Jim Carroll, real estate broker and property manager at Better Properties of San Juan Islands, however, the number of new businesses as well as those expanding is encouraging. According to Carroll, Toy Box is moving the former Gilligan’s e-bike location and expanding. Heyday Retail and Consignment nearly doubled their space in Sundries Court (formerly Jeri’s Mall). Tina’s Cafe is doing very well in her new location. Oyster Tale is also a new business for over a year. San Juan Sea Salt just opened on Nichols Street. Madrona Cellars at 40 First Street expanded to have outside seating. Mike’s Cafe expanded the outside garden area. Anchors Away Skybar at 1 Front Steet North has added more menu variety as well as expanded hours. The Walden, a totally new restaurant, will be opening soon above the ferry parking, next to SaviBank. ReMax recently opened an office across from Market Chef. Studio 50 is a new photo gallery on 50 First Street. Blue Water and China Pearl are expanding in 2024 to become one larger restaurant, connected, and UGALA moved over next to the ferry parking. Stacey’s Catering at 260 Spring Street is reopening with a new venue come February 2024. A new restaurant is expected to open at 185 First Street South where Aloha BBQ was located. The Top of the Town Lounge is new within the last couple of years with great reviews. Second Act is moving to 270 Spring Street and a new tenant is already destined to set up inside Mystical Mermaid’s location also at 270 Spring Street.

He is also encouraged by several ongoing discussions with potential experienced restaurant operators, “A new restaurant or business owner will also have new energy, and ideas to provide to locals and visitors which is exciting to hear,” Carroll said.

Roberto Moya and his wife Kathryn bought San Juan Chocolate, now Cin Cin, on Spring Street in 2020. He has been elected as President of the San Juan Chamber of Commerce for a second term. Cin Cin, according to Roberto, has been going well, and he gave credit to his landlord Scott Boden for some of their success.

“He has been a really good landlord,” Roberto said. Boden lives on the island and frequently shops at Cin Cin. “The challenges have been in opening other businesses.” According to Roberto, the couple would like to open a restaurant as well but have had difficulty. Leases were exceedingly expensive, he reported, and or came with strings attached.

“We have met so much resistance here from people that consider their buildings more of a liability on their books which gives them better tax breaks. It’s basically a tax shelter.” The truth, Roberto said, is that the building owner is asking too much money. “Many people would have already gotten into them, but [one has] been empty for a year and a half… you can’t be charging Seattle-style rents… That doesn’t make any sense for a place that is served by a ferry. That doesn’t work here.”

To encourage landlords to keep their buildings full, Drain said she would like the Town to create tax incentives for buildings owners, or create fines for letting buildings sit empty. Kulseth has been looking into an array of options. “There are a number of places that have them and they are all set up differently. I’m looking into it and seeing what might work here,” Kulseth added she would like to research where funding goes and how it can be used for before presenting it to Council.

Roberto noted that if a business can’t make their rent says more about the cost of the rent than the business. He encouraged landlords to reassess rent structures and allow businesses to grow organically. The Port, for example, come up with strategies to help attract and keep small businesses in their buildings. After a fire in 2013, the Port Commission hoped to attract marine-related business, according to Port Director Todd Nicholson. However, the market didn’t cooperate. They changed plans and opened up the space for food or beverage-type businesses. The Port also began using creative solutions including profit-sharing agreements to keep rent lower during slow seasons. “It balances out while business is good in the high season,” Nicholson explained. These agreements help the business become established before having rent piled on with startup costs and other fees. “The primary advantage the Port has in leasing land and buildings is our structure and mission. Because we are a public entity charged with creating private sector jobs, we look at financial returns differently,” Nicholson said. “We charge market rates based on appraisals, not what the market will bear. We also have the ability to adjust terms and lease structures or offer incentives that help startup businesses. These special lease conditions tend to dampen our short-term revenues, but lead to good long-term jobs and revenues.” The strategy, overall, has been successful. “We have zero vacancies in leasable building space. We are constantly looking for private partners to use Port land to create more leasable space.” Nicholson added that there is a real need for inexpensive light industrial space for local small businesses. While the Port would like to independently create this type of space, there are a number of demands on the Port’s financial capacity. “Our primary focus for the next couple decades must remain on the systematic replacement of all of the aging marina infrastructure,” Nicholson said. Environmental concerns are considered on equal footing with financial and economic development factors, he said, and has been proud of the environmental cleanup underway at the Jensen boatyard and marina. The cleanup will correct the effects of over 100 years of waterfront industrial activity. “The Port, with full knowledge of the challenge, voluntarily purchased a property no sane private company would ever touch,” Nicholson said, which is the power of a public entity like the Port. “The biggest challenge is always balancing the infrastructure work that must be done with new investments that create new jobs. The private sector is the best tool for creating new space on Port land leases, but the interest rate and construction cost environment are pretty brutal right now. There are still private companies looking to work with us on this goal. I am confident that new space will develop over time – just not at the pace we’d prefer.”

Those currently brutal rates, according to Buck, have been a challenge for building and business owners. “Many costs have really gone up; insurance, taxes, utilities and maintenance. If they have commercial loans on their buildings, their interest rates may have really gone up too,” he said. Still, Drain encourages building owners to be aware of the local business cycle. “There are landlords who own buildings here that don’t live here year-round and may not understand the situation… we really only have 100 days a year to make our money,” Drain said.

Roberto encourages a shift in perspective for building owners away from using the property to make money, toward using it to invest in the community. Roberto pointed out his own landlord, Boden, and Vern Howard as two who have done just that. Both live on the island.

“The expectation of making your money off the businesses that serve the community [should change]. It’s not all about money. When you live in such a small town like this, you have to make it about the community.” If building owners considered their buildings as investments in the community rather than purely financial, he added, the community would in turn take care of them. “The reason I love living here is because of the community, and I see a lot of opportunities. I see a lot of potential. We just have to make it nicer for the people that live here.”