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?
Why do commercial spaces sit vacant?
61–70 of 151 posts
Re: Why do commercial spaces sit vacant?
#62Earlier quoted context omitted.
The article points that adding any more costs just costs the operator money and won't change their behavior unless the costs are so high that the bank is forced to foreclose. Maybe on some that level that is a good thing and clears the market but in the current situation the banks just won't make loans unless this happens. It makes me think of the "poker game" model of nuclear power plant construction where the vendo…
Yes, the idea of a land value tax is to make it high enough to for banks to foreclose. The entire thing is about making sure land is used on the most socially benefiting way possible.
> 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 negative externalities requires a finely optimized system of Pigovian taxes and subsidies, otherwise you are nailing the accelerator to the floor on the divergence between market incentives and social utility.
Re: Why do commercial spaces sit vacant?
#63We 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…
True. What I don’t get, is how is vacancy a good move for the landlord? Wouldn’t it make more sense to have a tenant during that time?
I don't like just saying "read the article", but this is precisely what the article explains. In short: the rental rates are a condition of the property owner's loan.
Re: Why do commercial spaces sit vacant?
#64Earlier quoted context omitted.
True. What I don’t get, is how is vacancy a good move for the landlord? Wouldn’t it make more sense to have a tenant during that time?
Commercial loans are not like residential mortgages and often the loan is based on a minimum rent. If you go below that then you are in default.
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Re: Why do commercial spaces sit vacant?
#65> a building is not a building but a financial product. Are we cooked chat?
Your house and the 30-year fixed-rate mortgage on it is a financial product too, and a fairly complex and risky one at that. This fact is just well-hidden from you by nested layers of government subsidies. There is basically no way for real estate to not be a complex financial product, because almost no one can pay cash-up-front for it. If it wasn't financialized, nobody could ever afford to own anything and we'd all…
Sure we could do a better job of it though. Local banks used to be core community helpers. Now it’s just JPM branch after JPM branch.
Re: Why do commercial spaces sit vacant?
#66Okay, the problem is ultimately that banks are constrained in the Loan-To-Value ratio they can have, but the value is something they can arbitrarily determine. They're incentivised to make the loan, and the person buying the property is also incentivised to do this, so they use the lever they have: they make up the value such that the loan can be made.
Perhaps if we split off commercial lending arms, allowed them unbounded LTVs, and then allowed them to fail we would get better performance?
It does seem like a pretty complicated problem. We want banks to be reliable, we don't have a pricing mechanism because the market is illiquid, and we have incentives to keep the Potemkin story alive.
Re: Why do commercial spaces sit vacant?
#67We 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…
What about incentivizing switching the building from commercial to residential? Given that commercial brick and mortar are generally on a downward trend, and the need for housing continues to increase, it would seem better to switch the property zoning in the long run. Since I'm clueless about the financial details of commercial real estate, I'm sure this proposal is full of holes, but, as a rule, I prefer incentives rather than penalties to motivate change.
Re: Why do commercial spaces sit vacant?
#68Interesting, 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.
Re: Why do commercial spaces sit vacant?
#69Startup 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!
Re: Why do commercial spaces sit vacant?
#70Earlier quoted context omitted.
I’d support a land value tax myself so don’t take this following comment as criticism, but you don’t even need a land value tax in the case of LA. You do need to repeal Prop 13 for investment properties. I wager most of those years-vacant properties have a generous Prop 13 assessment and so the owner can just sit on it because their carrying cost is closer to zero than what it would be in any other tax regime. Then a…
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?