4 ms·

I'd say it's like a gambler's addiction. They want to hold the property open because "Someday <SomeBigCo> is going to call me and say they need 30,000 sq ft of

I'd say it's like a gambler's addiction. They want to hold the property open because "Someday <SomeBigCo> is going to call me and say they need 30,000 sq ft of retail space by next Tuesday, and I can't afford to lose that deal because there's a Halloween store using 500 sq ft this week and a Christmas tree shop in the parking lot next month"

notyourday 8y ago
If a commercial space is owned by the landlord free and clear, then the landlords have zero incentive to rent it to collect smaller than desired revenue unless property taxes are so high that the landlord must lease the space to at least cover the property taxes. If course that means that the rents skyrocket for all properties as the property taxes now eat majority of the rent. If the landlord has a fairly regular commercial mortgage, it is probably IO + balloon in 10-15 years. The landlord's bet is that the property would appreciate enough that the landlord can refinance it for the next IO + balloon, kicking the can down the road for another 8-10 years. Pretty much no one operates commercial buildings with the idea of paying off the loans on them, which is why as long as the real estate continues to go up in a long term it is makes sense not to engage with small time tenants. The only time landlord has to engage with small time tenants is if appreciation of the property won't create enough equity to refinance the balloon payment.
- bostonvaulter2 8y ago
  That makes me feel sick. As a society we really shouldn't be operating based on expecting property to constantly appreciate, it's going to do us in.
  - notyourday 8y ago
    We were about to re-learn that lesson during the previous crash but decided that it was better to kick the can down the road. The thing that I cannot wrap my head around is how we can at the same time believe that real estate goes up over the long term and allow it to be depreciated on financial statements.

notyourday 8y ago

If a commercial space is owned by the landlord free and clear, then the landlords have zero incentive to rent it to collect smaller than desired revenue unless property taxes are so high that the landlord must lease the space to at least cover the property taxes. If course that means that the rents skyrocket for all properties as the property taxes now eat majority of the rent. If the landlord has a fairly regular commercial mortgage, it is probably IO + balloon in 10-15 years. The landlord's bet is that the property would appreciate enough that the landlord can refinance it for the next IO + balloon, kicking the can down the road for another 8-10 years. Pretty much no one operates commercial buildings with the idea of paying off the loans on them, which is why as long as the real estate continues to go up in a long term it is makes sense not to engage with small time tenants. The only time landlord has to engage with small time tenants is if appreciation of the property won't create enough equity to refinance the balloon payment.

bostonvaulter2 8y ago
That makes me feel sick. As a society we really shouldn't be operating based on expecting property to constantly appreciate, it's going to do us in.
- notyourday 8y ago
  We were about to re-learn that lesson during the previous crash but decided that it was better to kick the can down the road. The thing that I cannot wrap my head around is how we can at the same time believe that real estate goes up over the long term and allow it to be depreciated on financial statements.