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Most businesses while closed could have very minimal costs. Let's take a restaurant. Few people dining, so minimal labor costs, reduced deliveries, so minimal

Most businesses while closed could have very minimal costs. Let's take a restaurant. Few people dining, so minimal labor costs, reduced deliveries, so minimal cost of goods/foods. But they still have enormous rent costs. My guess is that 90% of businesses could have gone on outside, easily weathered this storm, and picked right back up where they left off if we had simply paused rent payments. This would have meant property owners wouldve been short money to pay mortgages, so we simply hold off on mortgage payments. Banks can weather that without issue, or receive govt loans to tide them over and structure of the economy is ready to pick up where it left off. A similar solution in residential housing could've also worked well.

mooneater 6y ago
Its not all mortgages though. What do you tell the property owner who paid off mortgage, and uses the rent as primary income? Should the govt pay these people? I suppose they could get the banks to loan the money interest free...
- Daishiman 6y ago
  They're not gonna be getting rent if businesses close anyway so telling to them to get stuffed because rentier capitalists are lower in the hierarchy of business to preserve doesn't sound like a bad idea to me.
- naringas 6y ago
  maybe people shouldn't be able to make a living out awating rent? this is pure 'rent-seeking', I understand the appeal tho... wouldn't it be nice if I didn't have to do anything at all for a living but wait for my tenants to pay up?
  - betterunix2 6y ago
    "maybe people shouldn't be able to make a living out awating rent?" It's not exactly free money -- landlords do have to deal with the maintenance of the property, fixing/replacing broken appliances, and so forth. Before a landlord goes bankrupt they will cut back on maintenance that is not absolutely essential (something I lived through in my younger years, seeing benches fall apart, trash not being removed, and weeds taking over the front and back yards of the building), and eventually would not be able to pay for maintenance that actually is essential (good luck getting your plumbing fixed when your landlord cannot pay the plumber). There is also the matter of cascading bankruptcies when large numbers of landlords are not being paid, resulting in their loans no longer paying (likely dinging retirement accounts and pension funds). The fact is that a major shake-up in how we organize housing e.g. getting rid of rent-seeking landlords would be difficult in normal times. Doing such a thing during a deepening economic crisis would make everything worse for everyone, including people not directly involved.
    - tdeck 6y ago
      Sure, but are they doing $1k+ worth of maintenance work a month per unit? Certainly not. Many landlords probably spend more time sending out bills than they do on maintaining the property.
      - betterunix2 6y ago
        I doubt many landlords are making $1k+ in profits each month. Most of the rent is paying for the mortgage, property taxes, and other fees (all of which you would have to pay if you owned your own home). A landlord also needs to set aside money to cover costs on properties that are vacant (and even a landlord who only rents a single property will still face occasional vacancy in the best of times) or whose tenants are not paying rent. Then there are all the other things, like maintenance, insurance, and so forth. Whatever is left over after all that is the landlord's profit.
      - zeveb 6y ago
        > Sure, but are they doing $1k+ worth of maintenance work a month per unit? There ain't no such thing as a free lunch. In a market with units for sale and for rent, prices tend to reach an equilibrium. The only difference is that rent includes a premium for the relative ease with which one can move. Another way of looking at it is that traditionally it was considered reasonable for annual rent to be 1/20th of the purchase price of a property. Likewise, 5% annual maintenance was considered reasonable. Unsurprisingly … 1/20th == 5%. > Many landlords probably spend more time sending out bills than they do on maintaining the property. That was certainly not my experience when renting. My most recent apartment had multiple full-time employees maintaining it and had an annual improvements budget. I won't claim that it had all the amenities I would have liked, but the landlord was definitely not just letting the cash roll in.
  - coredog64 6y ago
    “Rent-seeking” does not mean “collects rent”. It’s a specific term that describes someone who inserts themselves into economic transactions without providing value. The classic example is someone who puts a chain across a path and then charges to move the chain out of the way. WRT landlords, you can still describe some of their behavior as “rent-seeking” if they are perpetuating a social or political environment where they get greater returns for doing nothing (e.g. NIMBY/BANANA)
  - refurb 6y ago
    No, collecting rent is not “rent seeking”. Rent seeking is collecting “rents” (which is different than rent for a home) from either a public good (like land) or through lobbying for legal changes that prevent competition and increase earnings. A house built on a piece of land is an improvement and doesn’t fall under “rent seeking”. You could make the argument that the land the house is on is rent seeking, sure, but that would mean only a part of the income would be considered rent seeking.
    - 1-more 6y ago
      Once the property is paid off everything over property tax and maintenance is rent seeking though, right?
      - refurb 6y ago
        I would say no, as the owner is still profiting based on the value offered (the home for rent). I wouldn't think that whether it's financed or not would change that. So the rent seeking would remain constant. If the home+land is value at $500k, but the land is worth $200k, then 40% of the income could be regarded as "rent seeking".
        1-more 6y ago
        But really they're profiting off of their ability to control access to that property with the backing of the state.
  - raducu 6y ago
    Obviously, someone has to hold the bag, but who? You cannot just expect everybody to receive their guaranteed returns on investment as if nothing happened. But who and how much -- that is a very tough decision.
  - Nasrudith 6y ago
    The result would be an even greater lack of housing supply and vastly worse quality (including disaster safety and hygene), as without renting only immediate capital is available for assets which currently take decades to generate funding to build. Going with trailers as middle class residencies would also be more wasteful as they are built to last and outright depricate in value to "have to pay to get rid of even with salvage rights" levels. The whole point of money is that it is fungible so it would just go elsewhere. Not a very good outcome. Imperative "shoulds" don't mean a thing in emergent systems and problem solving. Parents should love and nurture their children but we still have child abuse unfortunately.
- Ericson2314 6y ago
  They can live off unemployment like everyone else. And guess what, mortgage payments were already suspended in NY. Yup, they fucked over renters just like that.
- headsupernova 6y ago
  "get a job, landlord" or "apply for unemployment" but really there should be some minimum UBI so that nobody starves or lives on the streets.
- tomp 6y ago
  What's the alternative? Evict the tenant, no rent money, it's not like you're getting another tenant until the economy recovers...
  - betterunix2 6y ago
    There are still plenty of employed people, and a landlord would rather offer a big discount to someone who can pay rent than continue to deal with a tenant who is unable to do so.
    - loktarogar 6y ago
      It takes time to get a new restaurant off the ground. It's not an overnight fix.
    - josephcsible 6y ago
      > a landlord would rather offer a big discount to someone who can pay rent than continue to deal with a tenant who is unable to do so No they wouldn't, because of rent control. Once they accept a lower rent, they're stuck with it for the long haul. In most cases, rent control makes you significantly better off going without rent for long periods of time than lowering rent.
hourislate 6y ago
>But they still have enormous rent costs This here is one of the most important things anyone who wants to open a restaurant needs to consider. With Restaurants location is incredibly important and being in a great location carries significant costs. Unless you own your space, you will have a difficult time making it a in the Restaurant business. you have to sell a lot of food to pay 5k-15k of rent every month leaving little in profit and savings. The Restaurant business is brutal, even if your semi successful.
- acomjean 6y ago
  Its difficult. The times had an interesting article at the beginning of Covid about a restaurant closing. A closure ripples through the economy. Salaries/ suppliers and rent. Crazy high rents are going to be a casualty of this virus I suspect. https://www.nytimes.com/2020/04/23/magazine/closing-prune-restaurant-covid.html https://www.nytimes.com/2020/04/23/magazine/closing-prune-re... I though paying everyone unemployed $600 dollars in unemployment while not a perfect system, was pretty good as that money was going right back into the economy, keeping it from collapsing completely.
Cshelton 6y ago
So you need to understand how the commercial real estate world works to know you can’t just “hold off on mortgage payments” for very long. Most loans backed by CRE are securitized. So they are packaged into bonds. These bonds are not just banks, they are funds. Funds that hold and generate monthly payments for millions of American’s pensions/retirement/etc. This isn’t just rich old landlords won’t get their money, it is a large number of Americans, the money will stop. Bonds will simply default from lack of loan payments. Yes, the Gov can keep it afloat for a short period, but we’re talking trillions of dollars. This is the giant elephant in the room right now that the “Main Street’ is unaware of. It could potentially be very nasty. What happens if 50 million+ Americans stopped receiving/had cut significantly their pension/retirement payments? CRE is a top asset class, one of the biggest.
- electricviolet 6y ago
  It sounds like the main issue you're addressing is that mortgages need to keep getting paid. New York City suspended mortgage payments however, so how were they able to do that without causing all the problems you're describing?
  - Cshelton 6y ago
    So the way these Deals are structured, you have "people in charge" of each deal, in simple terms. They also monitor all of these properties (Asset Managers) all the time. Right now they are basically marking them as "COVID" Forbearance. But that has been going on for some time now, and we are at risk of the bonds starting to default. I expect the Gov. to step in soon on this even more, but that will only buy a small amount of time. What needs to happen is to get tenants paying. It is a very complicated system that was never designed to handle something like this.
    - betterunix2 6y ago
      Except, of course, that tenants are not paying because the economy is being shut down in response to COVID. The better solution would be for the government to take over some fraction of the loans, large enough to prevent contagion but small enough to avoid zombie businesses. Not an easy balance to strike but probably the only way to see this through to the end of the crisis.
jonfw 6y ago
> Banks can weather that without issue citation definitely needed on that. I don't think the banking system is set up to see Billions of dollars in monthly revenue disappear every night. This could take ALL of the slack out of the system and would almost certainly prompt a run on the banks Messing with the banking system to this extent is one of few conceivable ways you could see the USA have a total economic collapse
- Cshelton 6y ago
  Yes. See my comment in this same reply thread. It isn't the banks. It is the funds who invested in these AAA bonds backed by a very diverse CRE portfolio. Who owns these funds? Avg. Americans. Pensions/retirement/etc. They are already close to the breaking point with the forbearance. The fed/Fannie/Freddie will need to step up next, but that won't last long either.
  - williamtwild 6y ago
    So what is a layperson to do ? Should I take out the money now while it is still there?
    - jonathanliu 6y ago
      We're not at that point yet.
      - aurelius12 6y ago
        Once it's clear to everyone that we're there, it's too late though.
        jonathanliu 6y ago
        True, so just make sure you're one of the first few to panic.
    - humaniania 6y ago
treis 6y ago
> My guess is that 90% of businesses could have gone on outside, easily weathered this storm, and picked right back up where they left off if we had simply paused rent payment You can't go home again, though. Meaning that the world pre-Covid is gone and it's not something we can return to. We will always need dentists and daycares and so on, but much of the retail was already on its way out. And then if Covid marks a shift to WFH then lots of restaurants that depended on office workers are no longer viable. The world is changing and creative destruction, while painful, is needed.
- Frondo 6y ago
  If millions are evicted and there are no jobs for them to find, and there's no safety net from the government (the one group that can print money), the destruction won't probably creative, unfortunately.
  - AniseAbyss 6y ago
    This is where things can get dangerous for the US, there is no safety net that guarantees people $1000 a month so that they don't starve or have to sleep on the street.
mathattack 6y ago
Banks can’t weather it that easily. They’re levered up at least 10 to 1, in many cases more. If they’re levered 10 to 1 and expecting 5% mortgage payment, in one year half their equity is wiped out, and in two years they’re insolvent. It gets worse... if the value of the mortgages goes down by 10% because people become worse credits, they become insolvent. This is why the govt is propping them up. (Same is she and solution in 2008)
- dredmorbius 6y ago
  TBTF. Risk is ultimately assumed by states / CBs.
Osiris 6y ago
> Most businesses while closed could have very minimal costs. For me, my mortgage on the property is my biggest expense and my bank offered my no forebearance. So, no, most couldn't have minimal costs unless you can address lease/mortgage payments. Edit: If you disagree that mortgage/lease is the biggest expense for many businesses and doesn't need to be addressed, I'm really interested in your point of view. I may be using anecdotal evidence for me that doesn't translate to other businesses.
cmurf 6y ago
All those mortgages are wrapped into bonds. No mortgage payment, bonds can't pay. It's a default. Or haircut. Those bonds in turn are people's retirement income. It doesn't just end at a bank.
- supertrope 6y ago
  Then the Federal Reserve buys MBS (mortgage backed securities). Or we bail out banks again. So eventually we all end up paying the corner store's rent through taxes and inflation?
cmclaughlin 6y ago
We can't expect property owners to pause rent payments without the government pausing property tax payments.
viraptor 6y ago
> so minimal labor costs That seems to apply only in places with minimal protection. In most of the EU they're simply employees so all the standard rules about firing would apply.
Natsu 6y ago
Pausing does awful things to employment for people who can't survive on some minimal part-time hours that are possibly unpredictable as well, making it hard to work additional jobs to keep income stable.

mooneater 6y ago

Its not all mortgages though. What do you tell the property owner who paid off mortgage, and uses the rent as primary income? Should the govt pay these people? I suppose they could get the banks to loan the money interest free...

Daishiman 6y ago
They're not gonna be getting rent if businesses close anyway so telling to them to get stuffed because rentier capitalists are lower in the hierarchy of business to preserve doesn't sound like a bad idea to me.
naringas 6y ago
maybe people shouldn't be able to make a living out awating rent? this is pure 'rent-seeking', I understand the appeal tho... wouldn't it be nice if I didn't have to do anything at all for a living but wait for my tenants to pay up?
- betterunix2 6y ago
  "maybe people shouldn't be able to make a living out awating rent?" It's not exactly free money -- landlords do have to deal with the maintenance of the property, fixing/replacing broken appliances, and so forth. Before a landlord goes bankrupt they will cut back on maintenance that is not absolutely essential (something I lived through in my younger years, seeing benches fall apart, trash not being removed, and weeds taking over the front and back yards of the building), and eventually would not be able to pay for maintenance that actually is essential (good luck getting your plumbing fixed when your landlord cannot pay the plumber). There is also the matter of cascading bankruptcies when large numbers of landlords are not being paid, resulting in their loans no longer paying (likely dinging retirement accounts and pension funds). The fact is that a major shake-up in how we organize housing e.g. getting rid of rent-seeking landlords would be difficult in normal times. Doing such a thing during a deepening economic crisis would make everything worse for everyone, including people not directly involved.
  - tdeck 6y ago
    Sure, but are they doing $1k+ worth of maintenance work a month per unit? Certainly not. Many landlords probably spend more time sending out bills than they do on maintaining the property.
    - betterunix2 6y ago
      I doubt many landlords are making $1k+ in profits each month. Most of the rent is paying for the mortgage, property taxes, and other fees (all of which you would have to pay if you owned your own home). A landlord also needs to set aside money to cover costs on properties that are vacant (and even a landlord who only rents a single property will still face occasional vacancy in the best of times) or whose tenants are not paying rent. Then there are all the other things, like maintenance, insurance, and so forth. Whatever is left over after all that is the landlord's profit.
    - zeveb 6y ago
      > Sure, but are they doing $1k+ worth of maintenance work a month per unit? There ain't no such thing as a free lunch. In a market with units for sale and for rent, prices tend to reach an equilibrium. The only difference is that rent includes a premium for the relative ease with which one can move. Another way of looking at it is that traditionally it was considered reasonable for annual rent to be 1/20th of the purchase price of a property. Likewise, 5% annual maintenance was considered reasonable. Unsurprisingly … 1/20th == 5%. > Many landlords probably spend more time sending out bills than they do on maintaining the property. That was certainly not my experience when renting. My most recent apartment had multiple full-time employees maintaining it and had an annual improvements budget. I won't claim that it had all the amenities I would have liked, but the landlord was definitely not just letting the cash roll in.
- coredog64 6y ago
  “Rent-seeking” does not mean “collects rent”. It’s a specific term that describes someone who inserts themselves into economic transactions without providing value. The classic example is someone who puts a chain across a path and then charges to move the chain out of the way. WRT landlords, you can still describe some of their behavior as “rent-seeking” if they are perpetuating a social or political environment where they get greater returns for doing nothing (e.g. NIMBY/BANANA)
- refurb 6y ago
  No, collecting rent is not “rent seeking”. Rent seeking is collecting “rents” (which is different than rent for a home) from either a public good (like land) or through lobbying for legal changes that prevent competition and increase earnings. A house built on a piece of land is an improvement and doesn’t fall under “rent seeking”. You could make the argument that the land the house is on is rent seeking, sure, but that would mean only a part of the income would be considered rent seeking.
  - 1-more 6y ago
    Once the property is paid off everything over property tax and maintenance is rent seeking though, right?
    - refurb 6y ago
      I would say no, as the owner is still profiting based on the value offered (the home for rent). I wouldn't think that whether it's financed or not would change that. So the rent seeking would remain constant. If the home+land is value at $500k, but the land is worth $200k, then 40% of the income could be regarded as "rent seeking".
      - 1-more 6y ago
        But really they're profiting off of their ability to control access to that property with the backing of the state.
- raducu 6y ago
  Obviously, someone has to hold the bag, but who? You cannot just expect everybody to receive their guaranteed returns on investment as if nothing happened. But who and how much -- that is a very tough decision.
- Nasrudith 6y ago
  The result would be an even greater lack of housing supply and vastly worse quality (including disaster safety and hygene), as without renting only immediate capital is available for assets which currently take decades to generate funding to build. Going with trailers as middle class residencies would also be more wasteful as they are built to last and outright depricate in value to "have to pay to get rid of even with salvage rights" levels. The whole point of money is that it is fungible so it would just go elsewhere. Not a very good outcome. Imperative "shoulds" don't mean a thing in emergent systems and problem solving. Parents should love and nurture their children but we still have child abuse unfortunately.
Ericson2314 6y ago
They can live off unemployment like everyone else. And guess what, mortgage payments were already suspended in NY. Yup, they fucked over renters just like that.
headsupernova 6y ago
"get a job, landlord" or "apply for unemployment" but really there should be some minimum UBI so that nobody starves or lives on the streets.
tomp 6y ago
What's the alternative? Evict the tenant, no rent money, it's not like you're getting another tenant until the economy recovers...
- betterunix2 6y ago
  There are still plenty of employed people, and a landlord would rather offer a big discount to someone who can pay rent than continue to deal with a tenant who is unable to do so.
  - loktarogar 6y ago
    It takes time to get a new restaurant off the ground. It's not an overnight fix.
  - josephcsible 6y ago
    > a landlord would rather offer a big discount to someone who can pay rent than continue to deal with a tenant who is unable to do so No they wouldn't, because of rent control. Once they accept a lower rent, they're stuck with it for the long haul. In most cases, rent control makes you significantly better off going without rent for long periods of time than lowering rent.

hourislate 6y ago

>But they still have enormous rent costs This here is one of the most important things anyone who wants to open a restaurant needs to consider. With Restaurants location is incredibly important and being in a great location carries significant costs. Unless you own your space, you will have a difficult time making it a in the Restaurant business. you have to sell a lot of food to pay 5k-15k of rent every month leaving little in profit and savings. The Restaurant business is brutal, even if your semi successful.

acomjean 6y ago
Its difficult. The times had an interesting article at the beginning of Covid about a restaurant closing. A closure ripples through the economy. Salaries/ suppliers and rent. Crazy high rents are going to be a casualty of this virus I suspect. https://www.nytimes.com/2020/04/23/magazine/closing-prune-restaurant-covid.html https://www.nytimes.com/2020/04/23/magazine/closing-prune-re... I though paying everyone unemployed $600 dollars in unemployment while not a perfect system, was pretty good as that money was going right back into the economy, keeping it from collapsing completely.

Cshelton 6y ago

So you need to understand how the commercial real estate world works to know you can’t just “hold off on mortgage payments” for very long. Most loans backed by CRE are securitized. So they are packaged into bonds. These bonds are not just banks, they are funds. Funds that hold and generate monthly payments for millions of American’s pensions/retirement/etc. This isn’t just rich old landlords won’t get their money, it is a large number of Americans, the money will stop. Bonds will simply default from lack of loan payments. Yes, the Gov can keep it afloat for a short period, but we’re talking trillions of dollars. This is the giant elephant in the room right now that the “Main Street’ is unaware of. It could potentially be very nasty. What happens if 50 million+ Americans stopped receiving/had cut significantly their pension/retirement payments? CRE is a top asset class, one of the biggest.

electricviolet 6y ago
It sounds like the main issue you're addressing is that mortgages need to keep getting paid. New York City suspended mortgage payments however, so how were they able to do that without causing all the problems you're describing?
- Cshelton 6y ago
  So the way these Deals are structured, you have "people in charge" of each deal, in simple terms. They also monitor all of these properties (Asset Managers) all the time. Right now they are basically marking them as "COVID" Forbearance. But that has been going on for some time now, and we are at risk of the bonds starting to default. I expect the Gov. to step in soon on this even more, but that will only buy a small amount of time. What needs to happen is to get tenants paying. It is a very complicated system that was never designed to handle something like this.
  - betterunix2 6y ago
    Except, of course, that tenants are not paying because the economy is being shut down in response to COVID. The better solution would be for the government to take over some fraction of the loans, large enough to prevent contagion but small enough to avoid zombie businesses. Not an easy balance to strike but probably the only way to see this through to the end of the crisis.

jonfw 6y ago

> Banks can weather that without issue citation definitely needed on that. I don't think the banking system is set up to see Billions of dollars in monthly revenue disappear every night. This could take ALL of the slack out of the system and would almost certainly prompt a run on the banks Messing with the banking system to this extent is one of few conceivable ways you could see the USA have a total economic collapse

Cshelton 6y ago
Yes. See my comment in this same reply thread. It isn't the banks. It is the funds who invested in these AAA bonds backed by a very diverse CRE portfolio. Who owns these funds? Avg. Americans. Pensions/retirement/etc. They are already close to the breaking point with the forbearance. The fed/Fannie/Freddie will need to step up next, but that won't last long either.
- williamtwild 6y ago
  So what is a layperson to do ? Should I take out the money now while it is still there?
  - jonathanliu 6y ago
    We're not at that point yet.
    - aurelius12 6y ago
      Once it's clear to everyone that we're there, it's too late though.
      - jonathanliu 6y ago
        True, so just make sure you're one of the first few to panic.
  - humaniania 6y ago

treis 6y ago

> My guess is that 90% of businesses could have gone on outside, easily weathered this storm, and picked right back up where they left off if we had simply paused rent payment You can't go home again, though. Meaning that the world pre-Covid is gone and it's not something we can return to. We will always need dentists and daycares and so on, but much of the retail was already on its way out. And then if Covid marks a shift to WFH then lots of restaurants that depended on office workers are no longer viable. The world is changing and creative destruction, while painful, is needed.

Frondo 6y ago
If millions are evicted and there are no jobs for them to find, and there's no safety net from the government (the one group that can print money), the destruction won't probably creative, unfortunately.
- AniseAbyss 6y ago
  This is where things can get dangerous for the US, there is no safety net that guarantees people $1000 a month so that they don't starve or have to sleep on the street.

mathattack 6y ago

Banks can’t weather it that easily. They’re levered up at least 10 to 1, in many cases more. If they’re levered 10 to 1 and expecting 5% mortgage payment, in one year half their equity is wiped out, and in two years they’re insolvent. It gets worse... if the value of the mortgages goes down by 10% because people become worse credits, they become insolvent. This is why the govt is propping them up. (Same is she and solution in 2008)

dredmorbius 6y ago
TBTF. Risk is ultimately assumed by states / CBs.

Osiris 6y ago

> Most businesses while closed could have very minimal costs. For me, my mortgage on the property is my biggest expense and my bank offered my no forebearance. So, no, most couldn't have minimal costs unless you can address lease/mortgage payments. Edit: If you disagree that mortgage/lease is the biggest expense for many businesses and doesn't need to be addressed, I'm really interested in your point of view. I may be using anecdotal evidence for me that doesn't translate to other businesses.

cmurf 6y ago

All those mortgages are wrapped into bonds. No mortgage payment, bonds can't pay. It's a default. Or haircut. Those bonds in turn are people's retirement income. It doesn't just end at a bank.

supertrope 6y ago
Then the Federal Reserve buys MBS (mortgage backed securities). Or we bail out banks again. So eventually we all end up paying the corner store's rent through taxes and inflation?

cmclaughlin 6y ago

We can't expect property owners to pause rent payments without the government pausing property tax payments.

viraptor 6y ago

> so minimal labor costs That seems to apply only in places with minimal protection. In most of the EU they're simply employees so all the standard rules about firing would apply.

Natsu 6y ago

Pausing does awful things to employment for people who can't survive on some minimal part-time hours that are possibly unpredictable as well, making it hard to work additional jobs to keep income stable.