Moving for the MONEY

A long Coastal Highway empty shops, malls and signs reading “restaurant for rent” reflect a decline of retailers in Ocean City. At the same time, West Ocean City has become the “land of strip malls,” with small shopping centers popping up along Route 50, Route 611, Sunset Avenue and elsewhere.

When a business moves west across the Isle of Wight Bay, it leaves behind the city limits and the taxes imposed by the Town of Ocean City. Property is less expensive farther from the beach and there is more space to develop in West Ocean City.

To gain a perspective on the space devoted to businesses in Ocean City and West Ocean City between 2000 and 2005, Ocean City’s Director of Planning and Community Development Jesse Houston compared commercial parcel data from the Maryland Department of Planning.

According to the data, the number of parcels of land in Ocean City dedicated to business uses increased from 504 in 2000 to 617 in 2005, a 22.4 percent increase. But during that same period, West Ocean City posted a whopping 141.5 percent of parcels with businesses, up from 82 to 198.

Worcester County Commissioners President James “Bud” Church, who represents West Ocean City, attributed that business development boom to the growth of new residential property since 2000.

“Prices are significantly lower for commercial tracts compared to high prices along the beach,” said Church, who also runs Coldwell Banker Bud Church Realty in Ocean City. “Ocean Pines and other residential properties have grown up around the Route 611 corridor and they needed the services, so commercial development moved west.”

In addition, during the real estate and building boom of the mid-2000s, the con- dominium growth in Ocean City ate up much of the land zoned for commercial ventures. Since 2002, the resort lost at least 15 restaurants and more than 2,300 restaurant seats.

Most were torn down to make space for a condominium, like the 250-seat Ocean Club on 48th Street that became the Gateway Grand, while a few became townhouses and some, like the site of the former 385-seat Mario’s Restaurant on 22nd Street, remain empty lots.

“They tore down a lot of restaurants in Ocean City for expansion of condos along Coastal Highway,” Church said. “Some of the businesses reestablished out in the West Ocean City area.”

According to Ocean City’s Finance Department, there are 2,641 active Ocean City business licenses. The city has 65 different categories of business licenses that must be obtained by businesses located in the resort, as well as those that do business in town, such as contractors, plumbers and exterminators. One of the categories of business licenses is “dog licenses,” which, obviously, is not a business but nevertheless accounted for 193 of the licenses in 2010. Because the city only keeps records of operations with active business licenses, it is impossible to know exactly how many businesses existed in past years. Yet every business operating in Ocean City must obtain a license and the city keeps records of the total revenue brought in from license fees.

Ocean City business license fees in 2000 totaled $480,368. In 2010, that figure was nearly identical at $480,425, which indicates the number of businesses has remained steady, but not grown, during the past decade.

While the number of businesses in Ocean City has not changed much, the face of those businesses has. Many startups, especially in the restaurant and retail sectors, shut down after only a season or two and are replaced with new ventures. On the other hand, in West Ocean City, the last five years saw a 375 percent increase in the number of shopping-related parcels, up from just 24 to 133 percent, demonstrating true growth.

There are many reasons why businesses are choosing West Ocean City over the resort and at the top of most lists is money.

“West Ocean City land is cheaper, there’s less regulation and the taxes are cheaper there,” Ocean City Councilman Joe Hall said.

Since West Ocean City is an unincorporated area of Worcester County, businesses only have to pay the county property tax of 70 cents per $100 of assessed value. Those in Ocean City are faced with double taxation: paying a city property tax of 39.5 cents on top of the county tax for their business.

“One factor has definitely been the whole tax situation, with double taxes in Ocean City. If it costs less to do business across the bridge, that might appeal to some businesses,” said Susan Jones, executive director of the Hotel-Motel-Restaurant Association that represents businesses in the lodging and food service industries. “If it costs more in taxes in town, that could sway the decision.”

After operating in Ocean City for 34 years, Dr. Geoffrey Robbins of Atlantic Dental Cosmetic and Family Dentistry decided to take advantage of the lower taxes and more square footage for his practice by moving to West Ocean City in 2004. Since then, Robbins said he has saved $3,000 per year on property taxes.

“When the bridge goes up and traffic stops, that’s a big disadvantage,” Robbins said. “The location is not like being on Coastal Highway where you can constantly weave and get across traffic, but that’s minor in West Ocean City where it’s less cost-prohibitive for the square footage and parking we need.”

The growth in businesses in West Ocean City and the lack of growth in Ocean City can also be linked to the population information released a few months ago from the 2010 census. Businesses go where their clients are and the West Ocean City and Ocean Pines communities saw large population growth while Ocean City saw a loss.

“I think it’s tied to fact that a lot of yearround residents live outside town. More and more families are coming to this area and they have to be in West Ocean City or in Berlin to get a house with a yard. Businesses try to set up near their client base,” said Melanie Pursel, executive director of the Greater Ocean City Chamber of Commerce.

For businesses such as hotels and restaurants that cater to visitors, being in Ocean City is the best option, Pursel said. But for other types of businesses — accountants, hair salons and boutiques — their business comes from residents, not visitors, so they search for locations near the most heavily populated areas.

That lack of population growth in Ocean City convinced Melina Bates, owner of Hot Headz Salon, to move her business from 118th Street in Ocean City to her new location in Ocean Pines. Bates pays more to own her own property in Ocean Pines than she did to rent for her business in Ocean City, but she has attracted better business at her new location. She estimated 90 percent of her clients live nearby and that more of them are yearlong residents.

“Salons out in Ocean City just aren’t making it,” Bates said. “The landlords of businesses are just letting the property go. I wasn’t very happy with my landlord. Leases go uncared for, it’s a very absentee landlord area and it’s getting very run down.” In response to the condo boom that gobbled up commercial real estate, Ocean City officials started a push to encourage more commercial growth in the second half of the decade. They did not want a situation where residents and visitors were forced to head across the Route 50 Bridge to West Ocean City to do all their shopping because there were no stores left in town.

Planning officials modified the zoning regulations, offered incentives to developers to include some commercial space when red eveloping property in commercial districts. But the mantra of, “If you build it, they will come” has not proven to be true. Though this approach did create more retail space, much of it remains empty or changes hands year after year as new businesses only last one season.

“The Planning Commission was trying to envision that we don’t want to create an inequity in the future where residential construction gets ahead of commercial construction, then there would be no room for the commercial to come back to town. But you need to look at the fact that it seems like we’re encouraging something we don’t need, because our current commercial establishments are having their own challenges,” Councilman Joe Hall said.

Ocean City Council President Jim Hall gave the example of the free-standing restaurant the city required the Gateway Grand condominium owners to include on the site. It remains without a tenant years after it was constructed.

Jim Hall, who is also a Realtor, was optimistic that Ocean City would once again see an increase in businesses as the economy continues its climb out of the recession. From a real estate perspective, he said building rents would come down and stabilize as property owners try to find tenants for their vacant stores.

“As things get better, the boutiques will come back. Rents will adjust themselves until those stores get rented,” he said.

The city recently increased all its business license fees by 2 percent, at a time when fewer businesses are putting down roots. Jim Hall said the increase was necessary to cover the growing cost of administering the licenses and was not a move to boost the city’s coffers.

To Joe Hall, empty stores in Ocean City means there are enough businesses to provide for the population. To encourage retail development, he said the city has to find a way to reverse the population decline.

“We need to figure out how to get more people living in town,” he said.

— This is the first installment of a three-part series focusing on growth in Worcester County.