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Why do commercial spaces sit vacant?

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Re: Why do commercial spaces sit vacant?

#131

Post by immibis »

HeyLaughingBoy wrote: post #50
immibis wrote: post #22

Earlier quoted context omitted.

By "devalue" you mean "lower the price of" which... seems fine? Useful assets being cheaper is a good thing.

As long as you're not the owner of said asset.

Still doesn't matter to you unless you're trying to sell it.

Or you think the best way to deal with people getting scammed, is to make sure everyone gets scammed, to avoid being unfair to the initial victims of the scam. For example if Billy put $200 in a Ponzi scheme we should tax everyone else $200 to make it fair.

Re: Why do commercial spaces sit vacant?

#132

Post by crazygringo »

mcphage wrote: post #123
crazygringo wrote: post #29

Earlier quoted context omitted.

Everything is priced that way, basically. In the world of finance, everything is priced according to the future income it can generate -- not just real estate, but stocks, bonds, etc. There's nothing insane about it. To the contrary, it's the only rational way of doing things. You're right that nobody can predict correctly that far in the future, but ultimately you have to choose whether you think a business decision…

> Everything is priced that way, basically. In the world of finance, everything is priced according to the future income it can generate -- not just real estate, but stocks, bonds, etc. There's nothing insane about it. To the contrary, it's the only rational way of doing things. The only rational way of doing things is to turn every part of our economy into a bubble? Well, that at least explains why it’s all collapsi…

I don't have the slightest idea how you got to that conclusion from my comment.

Re: Why do commercial spaces sit vacant?

#133

Post by ImPostingOnHN »

spwa4 wrote: post #100
spankalee wrote: post #51

Earlier quoted context omitted.

Land value tax mainly helps with severely under-utilized properties like parking lots. Right now a parking lot is taxed far, far lower than a lot with a building, so the owner can keep it for parking when it would be better utilized as residential, commercial, or office space. If it didn't pencil out to just site on empty land, we'd get better development.

So it does not help with commercial property? How does that work? I don't understand the reasoning. Because this is of course not true unless it lowers the value of that land to below zero. And if it lowers the value of that land even just to zero, it'll just be undeveloped entirely ...

> So it does not help with commercial property?

The opposite: It does help with commercial property

> if it lowers the value of that land even just to zero, it'll just be undeveloped entirely

It's not that the value of the land is zero, but rather the price can drop to zero. The price is a factor of both the land value and the taxes on the land. For example, suppose you buy land for $50, and you wish to 10x your investment, and won't resell for less than $500 (which nobody will pay). Suppose further that the land value tax is $0/mo. You can sit on the land doing nothing, ruining the community, and it won't cost you much.

Now suppose the land value tax is raised/added to the tune of $1/mo. You would need to find some use for the land that raises more than $1/mo, or else you're losing money every month. Costing money every month means the land is now worth less, let's say $25. But what if you don't want to use the land, because you're a speculator, not a business owner? Well, you can choose to either keep losing money monthly, or sell the land for $25. Economically speaking, you might choose to sell the land if you would otherwise keep it empty for >25 months.

If you choose to sell the land, whether for $25 or $0, then I could buy it and run a business from there, and as long as the business makes more than $1, I stand a chance to profit. Thus, I win, and also the community wins, because the storefront that the original speculator kept empty gets filled with something useful.

In fact, in this scenario, everybody wins except the real estate speculator who was ruining the community by keeping storefronts empty, and that person deserves to lose and be punished. With any luck, the speculator realizes that what they're doing is both bad and unprofitable, and either finds a useful way to contribute to the community, or fucks off forever. Either way, the community wins!

Re: Why do commercial spaces sit vacant?

#134

Post by franktankbank »

toast0 wrote: post #30
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.

> Interesting, but It doesn't answer why a bank would hold a completely vacant building for 15 years. Lowering the rent to fill their building reduces the value of that building, which means when they sell it, they will recognize a loss that is likely larger than many years of operating loss from the empty building. Additionally, lowering the rent for that building will also reduces the value of other nearby building…

> first several months free, rather than reducing the rent

Doesn't this only indicate that the algorithm is shite? They can give first 1000 months free but rent is $1T, also we need 1st and last.

Re: Why do commercial spaces sit vacant?

#135

Post by dec0dedab0de »

toast0 wrote: post #30
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.

> Interesting, but It doesn't answer why a bank would hold a completely vacant building for 15 years. Lowering the rent to fill their building reduces the value of that building, which means when they sell it, they will recognize a loss that is likely larger than many years of operating loss from the empty building. Additionally, lowering the rent for that building will also reduces the value of other nearby building…

Lowering the rent to fill their building reduces the value of that building, which means when they sell it, they will recognize a loss that is likely larger than many years of operating loss from the empty building.

The specific buildings I was thinking about have paid more in taxes alone than their asking price.

Re: Why do commercial spaces sit vacant?

#136

Post by dec0dedab0de »

tokioyoyo wrote: post #77
ryandrake wrote: post #54

Earlier quoted context omitted.

> Lowering the rent to fill their building reduces the value of that building > Additionally, lowering the rent for that building will also reduces the value of other nearby buildings that have that building as a comparable property > it's in the bank's interest to let things be vacant and keep the valuations based on the previous rent, rather than lowering the rent and facing the music. This just seems like everyone…

Other than some of the residents who don’t want to see empty storefronts, who is incentivized to push for a correction in this case? It’s a “everybody loses” scenario, this everyone pretends to believe the numbers.

Other than some of the residents who don’t want to see empty storefronts, who is incentivized to push for a correction in this case?

That is a tad dismissive. Instead of not wanting to see empty storefronts, consider residents who would like to start a local business, but can not because the rent on commercial properties is prohibitively expensive. Then remember that there are residents who would like more jobs in the area.

Re: Why do commercial spaces sit vacant?

#137

Post by dec0dedab0de »

CobrastanJorji wrote: post #26
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.

A property tax is intended to be this, I think. You pay for owning an expensive commercial plot. If you are making enough money with it to pay the tax, great. If not, sell it or lose money. I suppose the model sucks because the community is highly benefited by a low profit cozy coffee shop or book store, which might not be able to afford the property tax rate needed to discourage the "keep it vacant" strategy. Maybe…

Property tax is intended to fund the local government. It doesn't care if the land is just being held as a hedge against inflation, or if a foreign investor is using the land to hide assets from their own government.

Re: Why do commercial spaces sit vacant?

#138

Post by jayd16 »

Aunche wrote: post #68
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.

A vacancy tax would work on areas with high demand, but it also punishes areas that are already struggling.

Why is that? It would devalue property but renters want that. It would only hurt the rent seekers and speculators, no?

Re: Why do commercial spaces sit vacant?

#139

Post by thaumasiotes »

anigbrowl wrote: post #90
roenxi wrote: post #24

Earlier quoted context omitted.

> 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 s…

> 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.

No, the leverage isn't the problem. The article is very explicit about this: the bank makes a $16M loan at interest of $640K / year, and the building operator is so good for that loan that he pays it off indefinitely out of his personal funds. The operator doesn't want to be foreclosed on, because that leaves him worse off (assuming the market eventually picks back up), and the bank doesn't want to foreclose, because that leaves it much worse off (whether the market picks back up or not).

The reason for the pretense is that lowering the rent legally requires the bank to foreclose despite foreclosure being terrible for the bank.

Re: Why do commercial spaces sit vacant?

#140

Post by jrussino »

toast0 wrote: post #30
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.

> Interesting, but It doesn't answer why a bank would hold a completely vacant building for 15 years. Lowering the rent to fill their building reduces the value of that building, which means when they sell it, they will recognize a loss that is likely larger than many years of operating loss from the empty building. Additionally, lowering the rent for that building will also reduces the value of other nearby building…

> Lowering the rent to fill their building reduces the value of that building

This must just indicate that the model used to value the building is wrong, right?

I'd think insofar the value of the building is tied to the rental price, that value should naturally be a function of the revenue that the building can be expected to generate, which in turn is be a function not only of the chosen rent price but the likelihood of someone renting at that price. Why would a building that offers its units at $N per unit but can only fill half of them at that price be worth more than the same building filling all of its units at $N/2 per unit?

I suppose there's some wiggle room to account for the relative uncertainty in those two cases. But fundamentally the rental price is a choice whereas the value of the building is (or ought to be) based on a combination of the qualities of the property itself and what the market is willing to bear.

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