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Why do commercial spaces sit vacant? (2025)

freerange.city

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Re: Why do commercial spaces sit vacant? (2025)

#121

Post by fl4regun »

AnthonyMouse wrote: post #116
fl4regun wrote: post #89

Earlier quoted context omitted.

it's because the expected future income is based on what current tenants are paying, extrapolated to the number of units in the building, ignoring vacancies. I get what you are saying, it should be based on total rental income from the building - full stop - but that isn't how it is done, and this is the result. Simply stated, if you rent a new unit for 25% lower, then the value of the building just dropped 25%. If y…

> but that isn't how it is done, and this is the result. And the result is dumb, which is the point. The bank should stop doing that if they don't want to cause problems for themselves. Review again how this works. The landlord put in $4M and the bank $16M on what was supposed to be a $20M building. They can't find enough tenants, which means in real life it's only worth $14M and the incumbent system is for everybody…

I'm not defending the status quo, I'm just laying out how it is. I think it's stupid too.

Re: Why do commercial spaces sit vacant? (2025)

#122

Post by shaftway »

AnthonyMouse wrote: post #46
jwarden wrote: post #12

This explanation seems very implausible to me. By lowering the rent by X%, and therefore reducing annual revenue by X%, you admit the building is worth X% less. But by leaving the building X% vacant, also reducing the annual income stream by X%, you and the bank can somehow pretend the building is worth what it would be if full? I doubt owners and banks actually believe this. Is there some policy that forces this?

The argument the article makes is that the bank doesn't want to admit the property is worth less than the mortgage because then they would "have to" foreclose. The question is, why would they actually do that? The premise is that the landlord has to take out a new mortgage every few years and then the bank won't give them a new one if they're underwater. But that's only true if it's a different bank. Let's take the s…

Not if the economy actually does recover, or at least "looks" like it recovered on paper. Inflation helps with that.

The average inflation over the last 10 years has been just north of 3%. If you have tenants today that are paying $500k/year, in 10 years they should be paying almost $700k/year with 50% occupancy. If you can string the bank along for another loan then your valuation is $28M instead of $20M. As the owner you can effectively take money out in this scenario.

If the bank won't refinance at that rate, then you could lower your rents by a bit in the last year. If you lowered your rates back down to $500k/year then you invite a bunch of new tenants, and now you can show high occupancy again.

Re: Why do commercial spaces sit vacant? (2025)

#123

Post by grebc »

em-bee wrote: post #86
grebc wrote: post #83

Earlier quoted context omitted.

If you think there’s a better use it’s a free market. It’s even up for lease, you don’t even need to buy it ;)

no, i can't. the rent is to high. which means the rent is not market-rate. the free market was supposed to correct that, but it doesn't, so maybe this is not a free market after all.

You’re correct in that you don’t want to transact.

Everything else is your own opinion, which of course is fine.

Re: Why do commercial spaces sit vacant? (2025)

#124

Post by grebc »

fl4regun wrote: post #91
grebc wrote: post #83

Earlier quoted context omitted.

If you think there’s a better use it’s a free market. It’s even up for lease, you don’t even need to buy it ;)

real estate must be the worst thing to use as an argument for "it's a free market" - because its one of the types of things which every stock is it's own, truly unique monopoly. I can't "freely" produce the same commercial property, unless I already own that property.

Commercial property is only unique in number on a street location factor.

Plenty of the same type of commercial properties exist right next to each other, happily too.

Re: Why do commercial spaces sit vacant? (2025)

#128

Post by em-bee »

grebc wrote: post #123
em-bee wrote: post #86

Earlier quoted context omitted.

no, i can't. the rent is to high. which means the rent is not market-rate. the free market was supposed to correct that, but it doesn't, so maybe this is not a free market after all.

You’re correct in that you don’t want to transact . Everything else is your own opinion, which of course is fine.

if my business doesn't make enough profit then i literally can't. that's not an opinion or a choice. that's a fact of life. and if noone is willing to pay that much rent whether they could afford it or not, then the rent is not market-rate. that's not an opinion. that's how market-rate is defined. it is what the market is willing to pay.

Re: Why do commercial spaces sit vacant? (2025)

#129

Post by fl4regun »

grebc wrote: post #124
fl4regun wrote: post #91

Earlier quoted context omitted.

real estate must be the worst thing to use as an argument for "it's a free market" - because its one of the types of things which every stock is it's own, truly unique monopoly. I can't "freely" produce the same commercial property, unless I already own that property.

Commercial property is only unique in number on a street location factor. Plenty of the same type of commercial properties exist right next to each other, happily too.

in order to join that market you have to buy at the inflated prices on the market, since current owners refuse to sell for a loss, there's nothing you can do as an individual to make this cheaper unless you already own the land.

Location still matters, as it does for residential, proximity to employees, or customers is important.

Zoning restricts what land can do what.

There's many reasons why this isn't a "free market"

Re: Why do commercial spaces sit vacant? (2025)

#130

Post by AnthonyMouse »

shaftway wrote: post #122
AnthonyMouse wrote: post #46

Earlier quoted context omitted.

The argument the article makes is that the bank doesn't want to admit the property is worth less than the mortgage because then they would "have to" foreclose. The question is, why would they actually do that? The premise is that the landlord has to take out a new mortgage every few years and then the bank won't give them a new one if they're underwater. But that's only true if it's a different bank. Let's take the s…

Not if the economy actually does recover, or at least "looks" like it recovered on paper. Inflation helps with that. The average inflation over the last 10 years has been just north of 3%. If you have tenants today that are paying $500k/year, in 10 years they should be paying almost $700k/year with 50% occupancy. If you can string the bank along for another loan then your valuation is $28M instead of $20M. As the own…

But how does it help the bank to require that? Suppose the landlord lowered rents to raise occupancy so they could get $700k now instead of after several years of inflation. If all goes according to plan then the bank gets its interest payments either way, and then the landlord would be making $900k with full occupancy instead of $700k with half occupancy.

But if the value doesn't recover then the landlord is still only getting $500k while paying $640k at the point when they run out of money to pay their $140k annual loss, and then they default. Which they wouldn't do, even if the value never recovers, if they were allowed to make $700k by lowering rents.

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