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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

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.
- ShamelessC 6y ago
  I'm not familiar with how rent control works. If they lowered prices due to the pandemic would they really have to keep them that low indefinitely?
  - AdrianB1 6y ago
    Rent control in most places means you cannot increase the rent more than x% per year, where x is fairly low. If the rent is decreasing, you are not allowed to put it back to the original level if the difference is larger than x, so you need to do x% per year for several years just to revert to previous levels.
    - sullyj3 6y ago
      That seems like a seriously perverse incentive if kicking people out and leaving the building vacant becomes more economically prudent in the long run
  - tick_tock_tick 6y ago
    Depending on how they do it and the location for many areas temporary "discounts" do not effect the "base rent" but in many areas discounts are considered altering the "base rent" and would basically permanently ruin any chance of making money on a piece of property. Can't even sell it if you get stuck with a low base rent as normally rent control forces the rate to pass between owner with very few exceptions meaning no one would buy the land off you.
    - ShamelessC 6y ago
      Has there been any consideration by state/city governments to temporarily lift these restrictions until the pandemic is over so long as prices don't exceed the prepandemic price once we return to normalcy? Again, I'm uniformed on this issue as I live in an area that doesn't practice rent control. Happy to hear if this is a bad idea for some reason I'm not thinking of.
      - zeveb 6y ago
        > Has there been any consideration by state/city governments to temporarily lift these restrictions until the pandemic is over so long as prices don't exceed the prepandemic price once we return to normalcy? Can't you imagine the headlines? 'Sweetheart deal for politicially-connected landlords allows rent-control evasion for the next year!'
        ShamelessC 6y ago
        I thought the whole point of rent-control was to keep prices from going up? In this instance they would be going down. How could you spin that as a good thing for landlords? Ignoring blatantly false news, that is.
        zeveb 6y ago
        The idea was to allow prices to quickly return to their current level after going down, in what would normally be a violation of rent-control policies. That would easily be spun as allowing landlords to raise rent more quickly than they normally could.
- PhantomGremlin 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. Huh? Does NYC have rent control for businesses? I doubt it. That's for apartments.
  - kevin_thibedeau 6y ago
    Lowering rates drops resale value. That's why discounts are tacked on so that the official rate remains inflated.
renewiltord 6y ago
I mean, many of these guys can't handle 4 months of no cash flow. 100% rent or 80% rent, they're going under anyway. You might as well get what you can out of them.
- s5300 6y ago
  I'm excited for your world. The world where we get what we can out of people already struggling. Sounds like a nice world.
- chillacy 6y ago
  That's exactly what I'm saying. If you run my proposed scenario on a hypothetical rent of $10k a month then it becomes "which is greater 80% of 10 or 100% of 0" do you want $8,000 or $0". "You might as well get what you can out of them." might mean lowering rents.
  - renewiltord 6y ago
    I think that's the difference. I'm saying they're going out of business anyway and you're going to have to line up with the other creditors. The question is whether you get $8000 for 4 months and zero after or $10000 for 4 months and zero after. You lower your rent and you don't get more because your tenant is going to die anyway. It's a no-brainer.
    - chillacy 6y ago
      I have a friend who started a bar in the past 2 years and his landlord reduced his rent to 0 during the peak of the pandemic. He's still afloat. He also said that if his landlord had charged him his full rent or would want the full rent paid back he'd go under.
      - renewiltord 6y ago
        Sure, if I made it sound like I meant "There is no instance where it makes sense to not eat your customer alive" then that is not correct. I am certain these cases exist.
anitil 6y ago
I can't speak for NYC, but in Sydney commercial properties are typically valued at a fixed multiple of the rent. This matters because if they change the rent, any loan they've taken out now gets revalued, which could put them underwater. So in that case 80% is much worse than empty but at 100%. This is why you'll see landlords giving a month's free rent, making rebates etc, while technically still charging 'full price'.

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.

ShamelessC 6y ago
I'm not familiar with how rent control works. If they lowered prices due to the pandemic would they really have to keep them that low indefinitely?
- AdrianB1 6y ago
  Rent control in most places means you cannot increase the rent more than x% per year, where x is fairly low. If the rent is decreasing, you are not allowed to put it back to the original level if the difference is larger than x, so you need to do x% per year for several years just to revert to previous levels.
  - sullyj3 6y ago
    That seems like a seriously perverse incentive if kicking people out and leaving the building vacant becomes more economically prudent in the long run
- tick_tock_tick 6y ago
  Depending on how they do it and the location for many areas temporary "discounts" do not effect the "base rent" but in many areas discounts are considered altering the "base rent" and would basically permanently ruin any chance of making money on a piece of property. Can't even sell it if you get stuck with a low base rent as normally rent control forces the rate to pass between owner with very few exceptions meaning no one would buy the land off you.
  - ShamelessC 6y ago
    Has there been any consideration by state/city governments to temporarily lift these restrictions until the pandemic is over so long as prices don't exceed the prepandemic price once we return to normalcy? Again, I'm uniformed on this issue as I live in an area that doesn't practice rent control. Happy to hear if this is a bad idea for some reason I'm not thinking of.
    - zeveb 6y ago
      > Has there been any consideration by state/city governments to temporarily lift these restrictions until the pandemic is over so long as prices don't exceed the prepandemic price once we return to normalcy? Can't you imagine the headlines? 'Sweetheart deal for politicially-connected landlords allows rent-control evasion for the next year!'
      - ShamelessC 6y ago
        I thought the whole point of rent-control was to keep prices from going up? In this instance they would be going down. How could you spin that as a good thing for landlords? Ignoring blatantly false news, that is.
        zeveb 6y ago
        The idea was to allow prices to quickly return to their current level after going down, in what would normally be a violation of rent-control policies. That would easily be spun as allowing landlords to raise rent more quickly than they normally could.
PhantomGremlin 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. Huh? Does NYC have rent control for businesses? I doubt it. That's for apartments.
- kevin_thibedeau 6y ago
  Lowering rates drops resale value. That's why discounts are tacked on so that the official rate remains inflated.

renewiltord 6y ago

I mean, many of these guys can't handle 4 months of no cash flow. 100% rent or 80% rent, they're going under anyway. You might as well get what you can out of them.

s5300 6y ago
I'm excited for your world. The world where we get what we can out of people already struggling. Sounds like a nice world.
chillacy 6y ago
That's exactly what I'm saying. If you run my proposed scenario on a hypothetical rent of $10k a month then it becomes "which is greater 80% of 10 or 100% of 0" do you want $8,000 or $0". "You might as well get what you can out of them." might mean lowering rents.
- renewiltord 6y ago
  I think that's the difference. I'm saying they're going out of business anyway and you're going to have to line up with the other creditors. The question is whether you get $8000 for 4 months and zero after or $10000 for 4 months and zero after. You lower your rent and you don't get more because your tenant is going to die anyway. It's a no-brainer.
  - chillacy 6y ago
    I have a friend who started a bar in the past 2 years and his landlord reduced his rent to 0 during the peak of the pandemic. He's still afloat. He also said that if his landlord had charged him his full rent or would want the full rent paid back he'd go under.
    - renewiltord 6y ago
      Sure, if I made it sound like I meant "There is no instance where it makes sense to not eat your customer alive" then that is not correct. I am certain these cases exist.

anitil 6y ago

I can't speak for NYC, but in Sydney commercial properties are typically valued at a fixed multiple of the rent. This matters because if they change the rent, any loan they've taken out now gets revalued, which could put them underwater. So in that case 80% is much worse than empty but at 100%. This is why you'll see landlords giving a month's free rent, making rebates etc, while technically still charging 'full price'.