Why do commercial spaces sit vacant? • Hacker News Board

Re: Why do commercial spaces sit vacant?

#91

Post by harmmonica » Wed, Dec 17, 2025, 10:09 PM UTC

epistasis wrote: post #48

harmmonica wrote: post #15

Earlier 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 were very close to repealing Prop 13 on commercial property a few years ago (via Prop 15). One of the biggest objections to a straight repeal Prop 13 on commercial property is that most commercial leases are triple-net, meaning that the businesses directly pay the taxes. Which means that a bunch of small businesses that are just barely on the edge of profitability will shut down when they finally have to pay their…

Yeah, I feel like the yimby's are going to take another run at repealing it for investment properties (5+ units of multifamily and all of commercially-zoned property) and it stands a much greater chance of passing the next time because of how close it was last time. The messaging will be much sharper.

Re your NNN comment, would you mind sharing a source for that? My gut says it's not accurate, but happy to be proven wrong. If you meant total square footage of leased space, that would make more sense, but having a hard time believing most leases are NNN (and since your point was about businesses going under what I think matters is the number of leases because (a bit over-simplified) 1 lease = 1 business regardless of the square footage leased by the business.

The ironic thing about this whole topic of businesses going under is that there's no rent control, for the most part, for businesses and yet Prop 13 acts as rent control (i.e., carried cost control) for landlords. If the landlords only charged the market rent that was achievable at the time they bought the property with a nominal capped annual increase that'd be pretty good for operating businesses, just not for the landlord's real estate business.

P.s. I personally benefit from Prop 13 and would be happy to have its market-distorting bullshit eliminated!

Re: Why do commercial spaces sit vacant?

#92

Post by lesuorac » Wed, Dec 17, 2025, 10:11 PM UTC

senordevnyc wrote: post #16

mistercheph wrote: post #12

This doesn't make sense to me, why is lowering rent by 30% any more "proof" that the building is not worth what's stated on the bill than having a 30% vacancy rate at the expected value? Aren't both subject to the same "market conditions" argument?

Agreed. I’ve always been skeptical of this argument, because it assumes the counterparty to these valuation models is consistently an idiot.

I've always assumed the counterparty is a computer. You have say 100 Billion of 401k moneys to invest. How are you going to invest it into real estate with a expense ratio of 0.05 and also check all of the properties in the portfolio?

Re: Why do commercial spaces sit vacant?

#93

Post by anigbrowl » Wed, Dec 17, 2025, 10:12 PM UTC

johnecheck wrote: post #84

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?

that's the joke.gif

Re: Why do commercial spaces sit vacant?

#94

Post by triceratops » Wed, Dec 17, 2025, 10:15 PM UTC

bobthepanda wrote: post #55

scifi wrote: post #39

Earlier 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.

How do they make mortgage payments without rent?

Re: Why do commercial spaces sit vacant?

#95

Post by antognini » Wed, Dec 17, 2025, 10:17 PM UTC

lordnacho wrote: post #72

It always bothered me that certain things are not marked to market. It's pretty much the point of financializing the economy, that you can then get a current value for things, instead of being able to pretend everything is fine. The problem is that if you don't update values continuously, you are surprised when you finally are forced to. Some stock on the public market that isn't doing well goes from 100 to 90, 80, 7…

Mark-to-market can create liquidity crises when coupled with capitalization requirements, though. This can happen in, e.g., bond markets.

Say a bank is sitting on a pile of very safe bonds. If the interest rate suddenly increases, the mark-to-market value of the bonds goes way down. The bank would still expect to get the full value of all the bonds at maturity. But if the bank has to mark-to-market, the current value may be low enough that capitalization requirements force the bank to sell all the bonds in a fire sale. So even though the bank in theory could have held onto the assets and gotten exactly what it had expected from the start, it instead ends up taking a big loss.

Re: Why do commercial spaces sit vacant?

#96

Post by dragonwriter » Wed, Dec 17, 2025, 10:19 PM UTC

shaftway wrote: post #89

ricksunny wrote: post #70

Earlier quoted context omitted.

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…

That's a soft cap, you get the full benefit if the value difference is up to $1m (in 2021, adjusted biennally for inflation since) or less, and if its greater you get the amount of value increase beyond the limit is added at full value (but the amount below the limit is still waived) in setting the tax basis value at transfer.

Re: Why do commercial spaces sit vacant?

#97

Post by nradov » Wed, Dec 17, 2025, 10:20 PM UTC

spankalee wrote: post #44

harmmonica wrote: post #15

Earlier 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.

Prop 13 passed originally as a taxpayer revolt against uncontrolled spending increases by local governments. I agree that reform is needed but I'll only support changes if they maintain some sort of reasonable revenue limits on local governments. Otherwise the money will just be wasted giving fat raises to public employees.

Re: Why do commercial spaces sit vacant?

#98

Post by anigbrowl » Wed, Dec 17, 2025, 10:22 PM UTC

jayd16 wrote: post #83

Why can you bullshit about an empty building but not a temporarily low rent building? Why doesn't this just lead to "Month-to-month and Pretend"?

Because rent on the books is dollars and cents. If you (a landlord) pretend to rent a building to me at $1m/year but give me a $500k 'rebate' that's arguably a fraud on the bank and/or tax fraud. Doing it month-to-month might be a workaround but any commercial operation will want to write off the rent against tax, which makes it official again.

You could probably make this work by donating office space to nonprofit organizations while maintaining high nominal rent (and maybe this already happens) but it's not as practical for storefronts etc.

Re: Why do commercial spaces sit vacant?

#99

Post by atmavatar » Wed, Dec 17, 2025, 10:23 PM UTC

ryandrake wrote: post #54

toast0 wrote: post #30

Earlier quoted context omitted.

> 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 > 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…

> This just seems like everyone involved is playing make-believe about the actual value of their property.

That's precisely what's going on.

It's a common theme among wealthy individuals/organizations to treat property as having value X for some purposes and Y for others - e.g., like pretending stock holdings are worth X for the sake of taxation while being able to secure loans by representing the stock valuation as Y.

Re: Why do commercial spaces sit vacant?

#100

Post by spwa4 » Wed, Dec 17, 2025, 10:27 PM UTC

spankalee wrote: post #51

spwa4 wrote: post #32

Earlier quoted context omitted.

How does land value tax change the scenario in the article? It plays out exactly the same way with and without land value tax.

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 ...