6 ms·

It seems strikingly brazen for the landlords to start asking for full rent in this market. Even before covid, vacant storefronts were sitting on the market for

by paulgb 6y ago

It seems strikingly brazen for the landlords to start asking for full rent in this market. Even before covid, vacant storefronts were sitting on the market for months or years due to retail and banking moving online[1]. Good luck finding someone who wants to start a new restaurant in the next 9 months or so. Even if they think they can force the current tenant into bankruptcy and collect, there won't be much to collect after taking away the tenant's only income stream. It all just feels very short-sighted. [1] see, e.g., from 2018: https://www.nytimes.com/interactive/2018/09/06/nyregion/nyc-storefront-vacancy.html https://www.nytimes.com/interactive/2018/09/06/nyregion/nyc-...

qeternity 6y ago
It’s all absurdly shortsighted and instead of throwing helicopter cash around the Fed should have sat all major banks and asset managers around and said “we’ll support your principal but you agree to a moratorium on coupon payments on MBS” and then force these to be passed on to landlords and then on to tenants. Everyone gets (mostly) what they want.
- claudeganon 6y ago
  What you’re missing is that this chain represents a social hierarchy that has to be preserved above and beyond any material arrangement. Bankers > borrowers > tenants. You can bailout the upper echelons of the first two, but anything further calls into question the whole validity of the arrangement. That is forbidden.
itsoktocry 6y ago
>Even if they think they can force the current tenant into bankruptcy and collect, there won't be much to collect after taking away the tenant's only income stream. A lot of landlords have no choice. They themselves are businesses, often leveraged to the hilt, with not a whole lot of room to offer grace. And yes, I realize there are massive REITs behind some of these properties, that have large earnings and reap huge windfalls for shareholders. That doesn't mean they're equipped to receive no income for months during a pandemic. It's sort of the way our economy works: right on the edge at all times.
- paulgb 6y ago
  I agree with all that, but surely if they don't have any wiggle room to offer grace they don't have wiggle room to let the property be vacant for 6+ months, by which time there will inevitably be a glut of supply on the market.
  - bilbo0s 6y ago
    I'm almost sickened pointing this out, but legally speaking, a large part of the 6+ months would be the responsibility of the tenant they sued. It could get ugly for the small business owner.
    - hsitz 6y ago
      True generally regarding tenant responsibility if new tenant can't be found, but good luck recovering anything at all from a tenant who was evicted because they couldn't pay rent. It seems to me that any landlord who understood the economic situation would work with tenants to keep them on paying something, even if they couldn't afford full rent. I expect landlords will end up better economically in the end that way.
  - lmm 6y ago
    It should shake out that way, but sometimes there are places where the gears don't quite mesh. For example they might have loans secured on the property as x * monthly rent, and so if they rent it out cheaper then they have to post additional collateral which would be more than a few month's rent.
- chillacy 6y ago
  Keeping a tenant at 80% rent is still better than having no tenant at 100% rent. If business are having a few quarters of negative profitability, why can't the same happen to commercial real estate?
  - jedberg 6y ago
    Rent control. It makes more sense to keep the place vacant than to reduce the base rent, which could take decades to make up.
an_opabinia 6y ago
Would it shock you that the main reason that space is vacant in New York or California is due to tax policy, state and federal? If it doesn't make sense it makes dollars.
- biztos 6y ago
  Yes, it would shock me. Care to explain?
  - an_opabinia 6y ago
    There are lots of ways to come up with an answer. Any tax deduction that can be realized by a non-person entity can be securitized. "If you are a real estate professional, you can deduct any amount of rental losses, regardless of your income." Real Estate Investment Trusts (REIT) pass taxes onto owners. Occasionally you pay no capital gains on selling property. Occasionally you pay no tax on income used to pay off debt financed property. If you are a huge investor you can buy and sell properties. Normally you would pay tax like anyone else at that scale, or you can sell shares in your REIT where a lot of the value is tied up in the fact that the small-time share buyers can realize tax benefits you can't. So you securitized tax benefits. In some places, like California, the tax bill on your real estate is frozen some 30-40 fucking years ago as long as ownership doesn't change outside of family dynasties. So whereas you'd have to rent it in any other part of the civilized world, here you can just wait until grandma dies and inherit the house. It sits vacant. Some people create family dynasties by marriage. Although it's a stretch to call that, strictly speaking, a tax dodge. We don't tax vacant properties, which could encourage their use productively. Anyway let me put this another way. Would it shock you that I know a lot of people here in San Francisco with 2 or 3 houses owner-occupied by a total of 5 people because (1) they have just lived here forever, (2) their kids have moved out, and (3) the taxes are frozen in the early 90s? And you wonder why there's vacancy. 3 houses for 5 people!
    - biztos 6y ago
      Thanks for this, I hadn't thought about securitizing tax benefits. But in the SF case if you have 5 people living in 3 houses, say, as 2 / 2 / 1, and this are single-family houses, I don't think you have vacancies. "Occupants per square foot" isn't a measure of vacancy except when it's zero.
ransom1538 6y ago
Commercial landlords require huge down payments and want small business owners to sign using their own name. Any experienced commercial landlord has been burned plenty of times trying sue a "Grapes vape shop LLC". Gets! Worse! The largest asset these small business owners own is: their house -- and NOW they have no LLC protection.
- r0m4n0 6y ago
  Yes this exactly. The commercial real estate people I know aren't worried much (at least at the moment). Most of these small business leases are personally guaranteed.
cannaceo 6y ago
It's not easy to break a commercial lease. Better to drain down the tenant while you can instead of reducing rent and then they die when other contractual obligations drain them down. You likely won't be keeping the tenant alive by letting them stay on reduced rent.

by paulgb 6y ago

qeternity 6y ago

It’s all absurdly shortsighted and instead of throwing helicopter cash around the Fed should have sat all major banks and asset managers around and said “we’ll support your principal but you agree to a moratorium on coupon payments on MBS” and then force these to be passed on to landlords and then on to tenants. Everyone gets (mostly) what they want.

claudeganon 6y ago
What you’re missing is that this chain represents a social hierarchy that has to be preserved above and beyond any material arrangement. Bankers > borrowers > tenants. You can bailout the upper echelons of the first two, but anything further calls into question the whole validity of the arrangement. That is forbidden.

itsoktocry 6y ago

>Even if they think they can force the current tenant into bankruptcy and collect, there won't be much to collect after taking away the tenant's only income stream. A lot of landlords have no choice. They themselves are businesses, often leveraged to the hilt, with not a whole lot of room to offer grace. And yes, I realize there are massive REITs behind some of these properties, that have large earnings and reap huge windfalls for shareholders. That doesn't mean they're equipped to receive no income for months during a pandemic. It's sort of the way our economy works: right on the edge at all times.

paulgb 6y ago
I agree with all that, but surely if they don't have any wiggle room to offer grace they don't have wiggle room to let the property be vacant for 6+ months, by which time there will inevitably be a glut of supply on the market.
- bilbo0s 6y ago
  I'm almost sickened pointing this out, but legally speaking, a large part of the 6+ months would be the responsibility of the tenant they sued. It could get ugly for the small business owner.
  - hsitz 6y ago
    True generally regarding tenant responsibility if new tenant can't be found, but good luck recovering anything at all from a tenant who was evicted because they couldn't pay rent. It seems to me that any landlord who understood the economic situation would work with tenants to keep them on paying something, even if they couldn't afford full rent. I expect landlords will end up better economically in the end that way.
- lmm 6y ago
  It should shake out that way, but sometimes there are places where the gears don't quite mesh. For example they might have loans secured on the property as x * monthly rent, and so if they rent it out cheaper then they have to post additional collateral which would be more than a few month's rent.
chillacy 6y ago
Keeping a tenant at 80% rent is still better than having no tenant at 100% rent. If business are having a few quarters of negative profitability, why can't the same happen to commercial real estate?
- jedberg 6y ago
  Rent control. It makes more sense to keep the place vacant than to reduce the base rent, which could take decades to make up.

an_opabinia 6y ago

Would it shock you that the main reason that space is vacant in New York or California is due to tax policy, state and federal? If it doesn't make sense it makes dollars.

biztos 6y ago
Yes, it would shock me. Care to explain?
- an_opabinia 6y ago
  There are lots of ways to come up with an answer. Any tax deduction that can be realized by a non-person entity can be securitized. "If you are a real estate professional, you can deduct any amount of rental losses, regardless of your income." Real Estate Investment Trusts (REIT) pass taxes onto owners. Occasionally you pay no capital gains on selling property. Occasionally you pay no tax on income used to pay off debt financed property. If you are a huge investor you can buy and sell properties. Normally you would pay tax like anyone else at that scale, or you can sell shares in your REIT where a lot of the value is tied up in the fact that the small-time share buyers can realize tax benefits you can't. So you securitized tax benefits. In some places, like California, the tax bill on your real estate is frozen some 30-40 fucking years ago as long as ownership doesn't change outside of family dynasties. So whereas you'd have to rent it in any other part of the civilized world, here you can just wait until grandma dies and inherit the house. It sits vacant. Some people create family dynasties by marriage. Although it's a stretch to call that, strictly speaking, a tax dodge. We don't tax vacant properties, which could encourage their use productively. Anyway let me put this another way. Would it shock you that I know a lot of people here in San Francisco with 2 or 3 houses owner-occupied by a total of 5 people because (1) they have just lived here forever, (2) their kids have moved out, and (3) the taxes are frozen in the early 90s? And you wonder why there's vacancy. 3 houses for 5 people!
  - biztos 6y ago
    Thanks for this, I hadn't thought about securitizing tax benefits. But in the SF case if you have 5 people living in 3 houses, say, as 2 / 2 / 1, and this are single-family houses, I don't think you have vacancies. "Occupants per square foot" isn't a measure of vacancy except when it's zero.

ransom1538 6y ago

Commercial landlords require huge down payments and want small business owners to sign using their own name. Any experienced commercial landlord has been burned plenty of times trying sue a "Grapes vape shop LLC". Gets! Worse! The largest asset these small business owners own is: their house -- and NOW they have no LLC protection.

r0m4n0 6y ago
Yes this exactly. The commercial real estate people I know aren't worried much (at least at the moment). Most of these small business leases are personally guaranteed.

cannaceo 6y ago

It's not easy to break a commercial lease. Better to drain down the tenant while you can instead of reducing rent and then they die when other contractual obligations drain them down. You likely won't be keeping the tenant alive by letting them stay on reduced rent.