4 ms·

This doesn't make any sense. The value of a lease on these properties vastly outweighs any property tax deduction.

bfdm 5y ago
Yes but I think the suggestion is that the taxes ought to (eventually) exceed the gains from asset value growth. We should want active main streets, and discourage squatters with empty space.
- dionidium 5y ago
  A much better solution is to eliminate the zoning restrictions that lock properties into specific uses and ease the permitting process that makes it hard to convert these empty storefronts into something else (while also discouraging speculation by letting supply naturally grow to meet demand). But, frankly, even if I'm wrong about that, the point of my original comment is that the OPs claims make no sense, because, again, the implication that they can come out better under the current regulations by keeping the units empty is incorrect. It is arithmetically wrong. They would make much more money if they leased the units. So whatever explains these empty storefronts, it isn't this: > Fast forward to today, all of those stores and more are shuttered... the rent is still too damn high... and the absentee landlords that own these buildings are actually rewarded with property tax benefits for keeping them EMPTY! Unless what OP means by "[they're] rewarded with property tax benefits for keeping them EMPTY!" is that they lose money relative to their other options. I don't know why this explanation appeals to so many people; it doesn't survive a second of scrutiny.
notatoad 5y ago
you're correct, when considering a single property. the problem happens when an absentee landlord owns a dozen buildings on main street. if a third of their properties are empty and they lower the rent to the point where people will occupy them, it drives down the rent for the other two thirds of their portfolio. if they keep some properties empty to hold the rents artifically high, and they don't have to pay property taxes and management fees on the vacant ones, they can just hold the properties for free while the land value appreciates.
- dionidium 5y ago
  This still doesn't make any sense! Lower rent is worth more than no rent and the property appreciates either way. Keeping a unit off the market to keep the rents up is kind of a silly plan if you never end up actually renting any of the units.
  - ethbr0 5y ago
    Any tenant comes with risk. Risk has a financial cost. Ergo, lower rent is not always worth more than no rent, even all else excluded. Example: you rent your property to a tenant for $100 / month, who does $5,000 worth of damage to the property, and declares bankruptcy when you sue them for recovery, in addition to the time you spent installing them + evicting them + dealing with recovery.
    - dionidium 5y ago
      Sure, there is some number at which this becomes true. But we’re talking about landlords who have supposedly kept properties off the market for years at a time in order to rake in the tax benefits. Keeping properties off the market for years at a time in order to mitigate the risk of actually having tenants is not a very good plan.
  - deleted 5y ago
    [deleted]
  - useful 5y ago
    My understand is that commercial real estate loans require additional collateral for lower rents than what was agreed to when the mortgage was created. Building value is basically (monthly rent * constant).Accepting lower than when the mortgage was written will trigger provisions that value the property differently and require the building owner to add principal to get back to 25%. If lowering the rent by 10k a year lowers the value of the building by 100k, the building owner may have to add 25k that they don't have to keep the building from falling into default. If you have a completely empty building and you accept a lower rent in one of ten units, you could need to put down 250k it of you have many building under one loan they may want millions because of how it changes the loan valuations.
resonantjacket5 5y ago
I don't know which city johnnyApple is commenting on but if it's American ones what is happening is there a glut of commerical/retail properties https://www.bloomberg.com/graphics/2020-commercial-real-estate/ https://www.bloomberg.com/graphics/2020-commercial-real-esta... (There was excessive retail even before covid aka also why many malls are dying). However the land is still appreciating if it can be converted to residential apartments/homes though it does depending on zoning laws.

bfdm 5y ago

Yes but I think the suggestion is that the taxes ought to (eventually) exceed the gains from asset value growth. We should want active main streets, and discourage squatters with empty space.

dionidium 5y ago
A much better solution is to eliminate the zoning restrictions that lock properties into specific uses and ease the permitting process that makes it hard to convert these empty storefronts into something else (while also discouraging speculation by letting supply naturally grow to meet demand). But, frankly, even if I'm wrong about that, the point of my original comment is that the OPs claims make no sense, because, again, the implication that they can come out better under the current regulations by keeping the units empty is incorrect. It is arithmetically wrong. They would make much more money if they leased the units. So whatever explains these empty storefronts, it isn't this: > Fast forward to today, all of those stores and more are shuttered... the rent is still too damn high... and the absentee landlords that own these buildings are actually rewarded with property tax benefits for keeping them EMPTY! Unless what OP means by "[they're] rewarded with property tax benefits for keeping them EMPTY!" is that they lose money relative to their other options. I don't know why this explanation appeals to so many people; it doesn't survive a second of scrutiny.

notatoad 5y ago

you're correct, when considering a single property. the problem happens when an absentee landlord owns a dozen buildings on main street. if a third of their properties are empty and they lower the rent to the point where people will occupy them, it drives down the rent for the other two thirds of their portfolio. if they keep some properties empty to hold the rents artifically high, and they don't have to pay property taxes and management fees on the vacant ones, they can just hold the properties for free while the land value appreciates.

dionidium 5y ago
This still doesn't make any sense! Lower rent is worth more than no rent and the property appreciates either way. Keeping a unit off the market to keep the rents up is kind of a silly plan if you never end up actually renting any of the units.
- ethbr0 5y ago
  Any tenant comes with risk. Risk has a financial cost. Ergo, lower rent is not always worth more than no rent, even all else excluded. Example: you rent your property to a tenant for $100 / month, who does $5,000 worth of damage to the property, and declares bankruptcy when you sue them for recovery, in addition to the time you spent installing them + evicting them + dealing with recovery.
  - dionidium 5y ago
    Sure, there is some number at which this becomes true. But we’re talking about landlords who have supposedly kept properties off the market for years at a time in order to rake in the tax benefits. Keeping properties off the market for years at a time in order to mitigate the risk of actually having tenants is not a very good plan.
- deleted 5y ago
  [deleted]
- useful 5y ago
  My understand is that commercial real estate loans require additional collateral for lower rents than what was agreed to when the mortgage was created. Building value is basically (monthly rent * constant).Accepting lower than when the mortgage was written will trigger provisions that value the property differently and require the building owner to add principal to get back to 25%. If lowering the rent by 10k a year lowers the value of the building by 100k, the building owner may have to add 25k that they don't have to keep the building from falling into default. If you have a completely empty building and you accept a lower rent in one of ten units, you could need to put down 250k it of you have many building under one loan they may want millions because of how it changes the loan valuations.

resonantjacket5 5y ago

I don't know which city johnnyApple is commenting on but if it's American ones what is happening is there a glut of commerical/retail properties https://www.bloomberg.com/graphics/2020-commercial-real-estate/ https://www.bloomberg.com/graphics/2020-commercial-real-esta... (There was excessive retail even before covid aka also why many malls are dying). However the land is still appreciating if it can be converted to residential apartments/homes though it does depending on zoning laws.