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Why do commercial spaces sit vacant?

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Re: Why do commercial spaces sit vacant?

#81

Post by anigbrowl »

zem wrote: post #4
polalavik wrote: post #2

We need land value tax bad [1] In Los Angeles I’ve watched business after business close because their rent was increased by their commercial landlord only for the property to sit vacant in some cases (no exaggeration) for over 5 years! Thats absurd. Also as a business owner who would like some space to work out of your only options are endless swaths of vacant industrial buildings that are tens of thousands in rent…

same thing happens in SF, often to businesses that have been a valued part of the local neighbourhood for years. it's infuriating.

Yep, this has wiped out my favorite deli, local cinemas, and bookstores in the east bay. Basically non-capital-intensive businesses seem to pay the price for the market signal falsification engaged in by landlords and banks. But nobody wants to bite the bullet and risk setting off a repeat of the 2008 financial crisis, so we've ended up with some kind of hypernormalization-style fake economy which is being 'run' by a former reality TV star and a bunch of TV personalities and political entrepreneurs.

Re: Why do commercial spaces sit vacant?

#82

Post by dragonwriter »

epistasis wrote: post #73
dragonwriter wrote: post #62

Earlier quoted context omitted.

> The entire thing is about making sure land is used on the most socially benefiting way possible. The idea of land value tax is to make the government effectively the universal landowner and everyone else renters, and renters paying a high enough rent that it is economically infeasible to use land for any but the most financially remunerative purpose. Having it optimizing for social utility rather than maximizing ne…

It would make sense to have those Pigouvian taxes no matter what. But having an LVT is orthogonal, and it doesn't make the bad economic incentives that much worse. Especially since most economic activity subject to pigouvian taxes will not be much affected by land value taxation.

> It would make sense to have those Pigouvian taxes no matter what. But having an LVT is orthogonal

It is absolutely not orthogonal; LVT by design makes doing things with property that are less financially remunerative unviable, it’s key selling point is eliminating “less productive” uses by that mechanism. This exacerbates any divergence between market incentives and social utility.

Re: Why do commercial spaces sit vacant?

#84

Post by johnecheck »

mekdoonggi wrote: post #69

Startup Idea: My company will lease your space for whatever price you want. Then we sub-lease your building at the market rate. We charge the different between the market rate for your building and what you want to charge + a small fee. That way your property retains it's "original" value, but actually gets rented out. Everyone (especially us) wins!

That's unbelievably stupid. But then again, so is not renting out the space at the market rate so you can pretend it's worth more than it really is. So... good luck, I guess?

Re: Why do commercial spaces sit vacant?

#85

Post by seanmcdirmid »

polalavik wrote: post #2

We need land value tax bad [1] In Los Angeles I’ve watched business after business close because their rent was increased by their commercial landlord only for the property to sit vacant in some cases (no exaggeration) for over 5 years! Thats absurd. Also as a business owner who would like some space to work out of your only options are endless swaths of vacant industrial buildings that are tens of thousands in rent…

Is it because of Prop 13 that commercial property owners aren't paying adequate property taxes that would act to encourage use?

Re: Why do commercial spaces sit vacant?

#86

Post by rwmj »

bflesch wrote: post #46
strongpigeon wrote: post #11

A problem is that the externalities of leaving a space vacant are not priced in. Having a bunch of storefront vacant in an area makes it much less appealing and devalues all the other properties surrounding it. It does seem like a vacant storefront tax, which is briefly mentioned at the end of the article, could address this, if partially. This whole extend and pretend deal seems like it's simply accumulating risk ho…

A "vacant storefront tax" would easily be circumvented by a legal entity with a vending machine business or the "owner" themselves putting one of their "offices" there (a table).

No no no .. snails!

https://www.bbc.co.uk/news/articles/c9v1rjlekpeo

Re: Why do commercial spaces sit vacant?

#87

Post by mekdoonggi »

Jblx2 wrote: post #61

If you can pretend that 50% occupancy @ $500k per year total rent is a temporary market slump, why can't you also pretend that 100% occupancy at $700k in rent is also a temporary market slump?

Empty unit? The right tenant is coming any day now. Rented unit? Can't be rented to imaginary rich/stupid people.

Re: Why do commercial spaces sit vacant?

#88

Post by nullocator »

Jblx2 wrote: post #61

If you can pretend that 50% occupancy @ $500k per year total rent is a temporary market slump, why can't you also pretend that 100% occupancy at $700k in rent is also a temporary market slump?

This also confused me, especially since we know that over time rents would be raised so maybe in a few years you do hit the target of a million?

Re: Why do commercial spaces sit vacant?

#89

Post by shaftway »

ricksunny wrote: post #70
spankalee wrote: post #44

Earlier quoted context omitted.

We need to repeal Prop 13 completely. The fact that my neighbors pay 1/10th the property tax that I do, despite being younger and less at risk of being forced out of their home due to going fixed income or some financial crisis, is absurd.

I'm a former (i.e. not irrelevant to the question) Californian who also thinks Prop 13 should be repealed, and am probably supportive of LVT; Can you walk through the scenario that younger neighbors pay a tech of the property tax you do? Are they legacies and benefiting from some sort of inherited trust or something?

Not OP, but it's probably about inheritance rules. If you inherit a property then you inherit its tax basis. In fact, if I remember correctly, you inherit the tax basis, but the capital gains basis resets. You effectively inherit a property that has a low property tax, but face zero capital gains if you turn around and sell it.

All of this is subject to limits and rules and stuff. I think prop 19 made it so that you have to use it for your primary residence for the first year. And I think there's a cap on the difference between property value and tax basis of ~$1m.

Re: Why do commercial spaces sit vacant?

#90

Post by anigbrowl »

roenxi wrote: post #24
dec0dedab0de wrote: post #5

Interesting, but It doesn't answer why a bank would hold a completely vacant building for 15 years. I think we need Vacancy taxes that go up based on the percentage of time vacant over different spans of time. Anything that makes owning an empty building a bad investment in all circumstances. This needs to apply to all units in a multitenant building.

> Anything that makes owning an empty building a bad investment in all circumstances But empty buildings aren't a bad idea under all circumstances. Eg, It might be prudent to have empty living space in a tourist or student area to deal with annual surges in demand. Or maybe someone has a warehouse full of facemasks because they think the price will 10x in the next pandemic. We'd have the same crowd complaining about…

That would be true in a normal economy where supply and demand dominated. See an empty storefront/building, hustle up a few bucks and turn it into an art studio or entertainment space or whatever. But if you start using a building you have to pay rent, and if you pay rent that goes on the books, and if it goes on the books then the mortgage on the property gets reevaluated and the then the merry-go-round comes to a screeching halt, because most commercial property is mortgaged up to the eyeballs.
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