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"I think the issue is more with capital appreciation." From the commercial landlords I have talked with SF, the lease term length is the main contributor to va
by ransom1538 5y ago
"I think the issue is more with capital appreciation."
From the commercial landlords I have talked with SF, the lease term length is the main contributor to vacant retail spaces. When a retail shop moves in the lease term can be 5-7 years. Retail shops invest up to 50-100k fixing up the space - they need the guarantee they can rent the place for a lengthy time. Thus, the landlord needs to be sure the retail tenant has the capital and credit to last. So, landlords will hold out - rather than risk a bad tenant for 7 years. And quite frankly, there just aren't enough business models that work in retail spaces. If you have a brand new tenant with a 7 year long lease - this could also wreck your chances of a sale if the new owner wants the space cleared out.
Also! Commercial tenants have the protection of LLC (or c-corps, etc) - so if their "Grape vape LLC" doesn't work out - they can just walk - and as a landlord you can't go after them personally.
- Aeolun 5y agoHow is this a problem? As far as I can see the landlord takes on zero risk there. In the best case scenario the landlord gets a 7 years of steady rent. In the worst case, they get a few months and the store goes out of business (breaking the lease). I see no reason why you couldn’t repeat that ad infinitum?
- fredophile 5y agoSome commercial real estate deals will expect the landlord to contribute some amount for tenant improvements. So if you get a bad tenant you might be out that money. In addition, before they go out of business they probably stop paying rent. So if the business fails in the first year that could easily be a net loss to the landlord compared to waiting for a better tenant.
- IG_Semmelweiss 5y agoTransaction costs. Everytime a lease is signed there are transaction costs and they are not immaterial.