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Perhaps they're hoping that the property value goes up so that they can one day sell it?
by Mirioron 8y ago
Perhaps they're hoping that the property value goes up so that they can one day sell it?
- privacypoller 8y agoCommercial properties are valued based on their cap rate, so while vacancy is important to a potential buyer the seller is going to take the current square-foot rental rate and multiply it by the total size to get the projected annual revenue. They can then offer an 8% cap rate or other attractive return on a much higher asking price. As soon as they lower lease rates to increase occupancy the asset value is impacted moving forward, so if you've got a big inventory of commercial real estate that you're looking to sell it may be worth it to keep it largely vacant for years. As a buyer you need to watch for new tenants at attractive rates as well. Sometimes the seller signs a 5 or 10 year lease with a connected company to drive up the cap rate, then a few months after selling the tenant defaults. As the landlord your recourse is limited, slow and expensive.