Commercial landlords baffle me

[tvguy]

We have a major road that runs several miles through my community, It is lined with empty commercial buildings, some of them have been vacant for at least 10 years.
What I don't understand, is we have several businesses that are closing because they can't afford a rent increase that they face. Why would a landlord risk having ZERO rent coming in for years, instead of holding the line on the rent hike? It would be one thing if they had a new tenant lined up, but they don't.
Any insights from those involved in commercial real estate.
What prompted this post is actually a situation that appears to have a happy ending. A local restaurant officially closed Saturday because they couldn't afford a rent hike from $3,500 a month to $5,500. Today they announced the landlord approached them with an offer to buy the building with payments that are less than they are currently paying in rent.

 

[Skippy918]

I don’t get it either. There was an empty commercial building (restaurant)a couple miles away that was also vacant for 8 years. They finally got a new tenant.

 

[disney-inspired]

Is it because they can claim it as business loss?

 

[amcnj]

Is it because they can claim it as business loss?

I had heard this about some vacant buildings in my town. They were owned by a doctor who was asking really high rents and I was told he wanted the losses. Not sure if this was true or not though.

 

[longboard55]

Yes I has an office in 2009 when the market was totally dead and I asked for a reduction, they said no so I moved and it sat empty for 10 years. I think one of the issues is often they are owned by massive holding companies and the on site manager really do not care because it is not their money

 

[tvguy]

Is it because they can claim it as business loss?

I have wondered that too. One guy seems to be buying all the vacant buildings and "trying" to rent them, and many of those buildings are in the category of being vacant for 10 years. But you can only afford so many business losses before you go bankrupt.

 

[Chili327]

Is it because they can claim it as business loss?

That is what I always thought too, its a write off (or a loss) to help with taxes.

 

[NYCgrrl]

Some vacancies could be caused by anticipated changes in local zoning laws. Glad the restaurant and landlord worked out a deal that was beneficial to all parties.

 

[Sweettears]

Depends on the property and location. Some RE is basically single use property and difficult to rent. Also the property owner could be in default and the foreclosure process has begun. Depending on the circumstances this could take some time. The properties also could have been foreclosed on and are owned by a bank or large real estate conglomerate

 

[Sykes]

We ran into this a bit when I worked for a startup and it basically boiled down to a few things:

1) Commercial leases are long (often 10 years). With such long leases it is often better to leave the place vacant for an extra year or two than to lower the rent that you'll be stuck with for the next decade. This is especially true if you expect the market rate to increase in the short-to-medium term.

2) Lowering rent lowers the overall market rate and makes it more difficult to get better terms for other properties that the landlord may have in the area.

3) Commercial property values are largely tied to the rental rates. Lowering rent could decrease the value of the property by more than the income that the rent generates.

4) Some retail leases have MFN clauses where if the landlord offers a single tenant lower rent that lower rent is automatically given to (some or all) existing tenants as well, so getting a tenant in with lower rent may net out to less revenue overall.

That's not an exhaustive list, but it's a few possible reasons that may not be especially obvious to observers.

 

[tvguy]

Depends on the property and location. Some RE is basically single use property and difficult to rent. Also the property owner could be in default and the foreclosure process has begun. Depending on the circumstances this could take some time. The properties also could have been foreclosed on and are owned by a bank or large real estate conglomerate

Around here it is interesting to see how many old time gas stations have been repurposed. One around the corner from where I grew up was built as a Flying A gas station in the 1950s and in the 1980s was converted into a Title Insurance company office, then a Travel Agency and today is a Blood Donation Center
And a former KFC here that later became a Subway reopened after being vacant for 8 years, as a church.

 

[GAN]

Write off or a way to bury money. Have you noticed the new banks every hundred yards?

 

[princesscinderella]

Sometimes the buildings are “rented” and money is being washed clean.

 

[focusondisney]

I have wondered that too. One guy seems to be buying all the vacant buildings and "trying" to rent them, and many of those buildings are in the category of being vacant for 10 years. But you can only afford so many business losses before you go bankrupt.

He may have properties in another area that is making big profits. There are several out of town property companies buying dilapidated buildings around here. Make money there, write these off as losses.

 

[RedAngie]

About write-offs

 

[tvguy]

Write off or a way to bury money. Have you noticed the new banks every hundred yards?

LOL. Several of the vacant buildings here WERE banks. So not the issue here.

 

[goofyernmost]

Write off or a way to bury money. Have you noticed the new banks every hundred yards?

They are indeed plentiful and some of the names are downright unreal. One around here is named the Third Fifth Bank.

 

[goofyernmost]

The reality is for some reason (probably write-off) they continue to build more and more brick and mortar bank buildings. I financed my car recently and never stepped foot in any of them. All done via computer/internet. Signatures mean nothing because they accept a drunken looking scrawl done by your fingernail as an actual signature. One couldn't recreate that signature if they had too. It is meaningless. Most of banks write-offs must be losses from all those actual buildings. They have massive, incredibly designed lobby and multiple glass walled offices that no one ever goes in. They have branches where you can't even buy a roll of quarters and you have to go to the main office to get them and then they act like you entered the Fort Knox for $20.00 worth of quarters. If you can't get change from a bank and everything is primarily done via computers why in the plupurfect hell are they there.

 

[Moliphino]

They are indeed plentiful and some of the names are downright unreal. One around here is named the Third Fifth Bank.

I think it's Fifth Third. They handled my most recent car loan until I refinanced with my own credit union.

 

[kdonnel]

I think it's Fifth Third. They handled my most recent car loan until I refinanced with my own credit union.

The Third National Bank and Fifth National Bank merged and just merged their name as well as the business.