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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 mak

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.
- jonahbenton 6y ago
  See another answer to the parent. Also, there are ways that large owners can claim vacancies as losses from a tax perspective. This isn't really tax policy, though- yes, there are tax rules around this, but it's not like the IRS woke up one day and was like- You know what's unfair? Large property owners feeling the pain from potential lessees not fully appreciating the value they're getting for the price. Merely setting a price is a legitimate business risk, and large owners deserve to be recognized for that risk and for their losses. That isn't what happened.
gamblor956 6y ago
It's not tax policy. It's finance. Real estate is about cash flow, not tax. A property owner can finance a real property based on the actual or putative rental market value, using the leasable property as collateral. An empty space can theoretically rent for top dollar if a national chain rents the space, but a leased space must be valued at the actual lease value. Consequently, many developers choose to keep spaces vacant unless they are actually able to lease them at or close to the lease value assumed in their financing arrangements.
- throwaway0a5e 6y ago
  The margins on the financial instruments that affect real estate are generally slim enough that a couple percent here or there as a result of tax is the deciding factor.
abathur 6y ago
In case there's some motive for picking NY or CA, what about all of the empty space in Houston? Why would the rents go up, along with vacancy? I haven't gone counting, but I've been unnerved by how many storefronts, warehouses, lots, and human houses remained empty after what the narrative would like us to believe is a protracted economic expansion. (Serious question. It's obvious enough that the owners perceive them to be of more value empty than full.)

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.
jonahbenton 6y ago
See another answer to the parent. Also, there are ways that large owners can claim vacancies as losses from a tax perspective. This isn't really tax policy, though- yes, there are tax rules around this, but it's not like the IRS woke up one day and was like- You know what's unfair? Large property owners feeling the pain from potential lessees not fully appreciating the value they're getting for the price. Merely setting a price is a legitimate business risk, and large owners deserve to be recognized for that risk and for their losses. That isn't what happened.

gamblor956 6y ago

It's not tax policy. It's finance. Real estate is about cash flow, not tax. A property owner can finance a real property based on the actual or putative rental market value, using the leasable property as collateral. An empty space can theoretically rent for top dollar if a national chain rents the space, but a leased space must be valued at the actual lease value. Consequently, many developers choose to keep spaces vacant unless they are actually able to lease them at or close to the lease value assumed in their financing arrangements.

throwaway0a5e 6y ago
The margins on the financial instruments that affect real estate are generally slim enough that a couple percent here or there as a result of tax is the deciding factor.

abathur 6y ago

In case there's some motive for picking NY or CA, what about all of the empty space in Houston? Why would the rents go up, along with vacancy? I haven't gone counting, but I've been unnerved by how many storefronts, warehouses, lots, and human houses remained empty after what the narrative would like us to believe is a protracted economic expansion. (Serious question. It's obvious enough that the owners perceive them to be of more value empty than full.)