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Hopefully. It's unclear what value commercial property landlords bring to the table. They don't finance the development - that is done by banks. They don't d

• tristor 4y ago
  The value they bring is unlike other vultures they’ve trained themselves to quietly take your money without incessant screeching. Otherwise, they’re rather pointless middlemen.
  • seti0Cha 4y ago
    Much like the car rental agency is a pointless middleman between you and the car manufacturer.
    • rwmj 4y ago
      Car rental provides a service. They provide a clean, working car at the airport at a daily rate.
      • seti0Cha 4y ago
        Office rentals are also a service. They provide a stable office environment that you can do business in at a fixed rate.
        • ambicapter 4y ago
          Except they don't, if you have to do all the repairs yourself, as GP pointed out.
          • seti0Cha 4y ago
            A strange thing to get hung up on. The purpose of rental is not to have someone to call to get things fixed, it's to avoid having to engage in the complex legal and financial considerations that come with property ownership. A company of any size is not going to have a problem hiring people to fix things. If they don't want to do that, they can rent spaces where those amenities are included. It's purely a matter of deciding how to manage the expenses.
    • tristor 4y ago
      That would only be a true analogy if I rented a car for 10+ years. At that point, it would likely make more sense to buy. In fact, it often makes more sense to buy corporate real estate as well, however because these commercial landlords already own it and refuse to sell (or only will sell at a price far beyond the actual legitimate value of the property), businesses must either /build/ new real estate or lease, and building is far more expensive than buying due to the regulatory capture of zoning and permitting. It's a mere coincidence that major commercial landlords are good buddies with everyone at the zoning and planning office in $metro. If you want to be honest, the service commercial landlords provide is managing zoning/permitting with the city by proxy, which is mostly a corrupt institution, so it's corruption management by proxy.
      • seti0Cha 4y ago
        It would be a closer analogy, but analogies aren't true or false, they are more or less useful in making a point. As it happens, my analogy was not that useful because apparently many people didn't understand it. The point I was trying to make was that flexibility, cost and location are actual things of value being provided in both cases. The fact that the duration differs is no more germane to my point than that one of them is mobile and the other not. And in no wise does the consideration of when it becomes more prudent to buy a car bear on when it is prudent to buy a piece of property.
• piva00 4y ago
  On top of that they are choosing to default on loans to force negotiations on better terms for them. After they agreed to these loans with floating-rate with complete knowledge of the risks it entails. It's just vulturing and rent-seeking to the extreme, if markets are efficient then they should just go under, they've bet on their risks vs rewards and lost.
• seti0Cha 4y ago
  They provide rentable office space for companies that need office space. What alternative are you suggesting? Companies build their own offices? Builders retain ownership and become landlords? The banks become landlords? Companies just don't have offices?
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  • rwmj 4y ago
    > Companies just don't have offices? That seems to be what the market is choosing, yes. But coworking spaces are another possibility.
    • VWWHFSfQ 4y ago
      I'm aware that the big open office floorplans shared with 3 other companies is probably the only office environment that most HN'ers have worked in, but it's far from the norm. Most mature companies prefer to have actual private offices for their knowledge workers.
    • jasode 4y ago
      >But coworking spaces are another possibility. Co-working spaces I'm thinking of are still ultimately rented from commercial landlords. I'm not talking about the workers paying for the use of a temporary desk. It's the "brandname" of the co-working space that is still paying a lease to the landlord. Maybe I'm misunderstanding what example you had in mind.
    • seti0Cha 4y ago
      We'll see how far the whole working from home thing goes, but there are a number of types of business for which it is impractical (e.g. anything that requires expensive or bulky equipment) and many people prefer to work together in person. As for co-working spaces...co-working spaces I've seen have offered offices and suites in addition to shared space. I worked out of a private office in one for a while because I wanted to use my own equipment and didn't want to schlep it in and out every day. That same reasoning applies to larger companies.
• johngladtj 4y ago
  Chesterton's fence? Have you considered the possibility that perhaps it makes sense to have certain businesses specialized in certain things? Say there is a sale-leaseback agreement with a supermarket business. Clearly the supermarket wants to do it, right? It allows them to free up capital that would otherwise be allocated to owning the land, and they can use that capital to expand the business they are actually good at, operating supermarkets. For the corporate that is now the landlord, the benefits are also clear, they get a steady stream of income. Both businesses specialized in different things, so they have different costs of capital, time horizons and cashflow needs to it makes sense for them to both do business with each other and for both to exist.
  • rwmj 4y ago
    But this is a totally inflexible 10 year lease with no value provided. It would literally be better to have a mortgage on the property for 10 years, because then at least we'd get part of our money back at the end. There would be almost no other difference, we'd still be calling the plumber and the shop fitter ourselves.
    • seti0Cha 4y ago
      A long term lease is beneficial for the renter in many circumstances. They don't want to have the conditions of the lease renegotiated every year because moving a company is a lot more disruptive than moving to a new apartment. They also often don't even want to own the property. I worked a place that paid a builder to build them an office complex, sold it to a management company, then rented it back from them. Why? Because the company did not want to tie up all it's assets in a piece of real estate, and wanted to focus on their actual business.
      • youngtaff 4y ago
        > A long term lease is beneficial for the renter in many circumstances. That really depends… Take a well know British retailer (was either Debenhams or House of Fraser can't quite remember) Until the 80/90s it owned most of it's stores but a PE company bought the retailer and split the property into a separate company which them leased the stores to the retailer on an ever increasing rent The property company was then sold off for a good price as it had assets and a 'good' income stream The retailer now unable to cope with the rent levels become unprofitable and eventually went bust
• gfsetgcc 4y ago
  The middleman in this case is completely necessary. Commercial real estate investors raise and take on the equity financing. Banks or other debt investors provide the more senior debt capital and take on much less risk (generally…)
• lordnacho 4y ago
  Risk. Someone has got to take the risk of owning the property. Don't take it as some kind of moral imperative, I don't mean it that way. It's not inherently good or bad. But simply put if a thing has value, people need to decide how to structure access to it. You can't get around having some entity that has the thing on its balance sheet, and that entity decides how to finance the maintenance of the thing. Do you pay in cash? Do you get a mortgage? Do you rent it to mom and pop, or some large corporation? What do you allow in the contracts? These kinds of decisions have an effect on what the thing will be worth, and in the end there's a risk taker who gets rewarded or punished for doing it well or doing it badly. You can roll the risk into some larger conglomerate that does other things like building the stuff in the first place, or a financial entity that has some financing advantage, or some entirely other thing that might make sense. But in the end, the risk is there somewhere in some entity and needs to be dealt with.
  • nordsieck 4y ago
    > But simply put if a thing has value, people need to decide how to structure access to it. You can't get around having some entity that has the thing on its balance sheet, and that entity decides how to finance the maintenance of the thing. I mean, you can. The property system isn't the only way to structure access to rival goods; it's just the best way[1]. Of course, without an owner, the property is immediately subject to the tragedy of the commons which is almost always worse than even the worst landlords. --- 1. For most things. Some stuff is... weird. I don't know a lot about water rights, but I've heard that's one of the least good areas of property law. And some things (ocean dwelling fish for example) can't really be property in a meaningful way.
    • lordnacho 4y ago
      Absolutely, I'm just saying this is what the rental company does in the modern economy. We have this world where we assign ownership to everything and let the owners decide what to do. Of course it could be different.
    • tivert 4y ago
      > Of course, without an owner, the property is immediately subject to the tragedy of the commons which is almost always worse than even the worst landlords. IIRC, the "tragedy of the commons" is basically a fiction, at least when it comes to things like the example literal plot of common grazing land. People aren't the stupid, pathologically self-centered and antisocial agents simple economics often assumes they are. If they're in a community, they work out systems to prevent overgrazing. IMHO, "tragedy of the commons" only really happens when no community can form and no community coordination can happen. https://en.wikipedia.org/wiki/Tragedy_of_the_commons#Criticism https://en.wikipedia.org/wiki/Tragedy_of_the_commons#Critici...
• rapsey 4y ago
  They provide the means to move office cost from capex to opex.
• trabant00 4y ago
  Yes, some profiteering a-holes who brought nothing to the table just made up the rules for commercial property and everybody else: banks, developers, city halls, tenants, just played along for the sake of enriching said a-holes. /s Just because you don't know what they do they must do nothing, right? And as this situation proves there's also no risk involved, right? How does a childish comment like this get to the top?
  • ImPostingOnHN 4y ago
    the topic isn't the poster you're responding to, and discussion isn't helped by trying to make it so simply address each of the points of their post if you intend to educate/convince people, insulting won't
• maxerickson 4y ago
  How did you conclude that the paper owner of the property is not involved in financing the development of the property?
• the_optimist 4y ago
  You know someone owns the property, right? Someone like you and me. It’s in your S&P index, in your retirement fund, and in your corporate pension. The value you bring is maintaining the value for yourself.
  • rwmj 4y ago
    I'm certainly not arguing that it's a way to make money. If I put a fence across a river I can make money from that too.
    • the_optimist 4y ago
      Your interpretation is off. Any “asset” is valuable to own because what the owner chosen to do with it that creates value for others. In order to be valuable, you have to create value. You don’t get to trap people in your commercial real estate as prisoners and force them to pay you rent, as your net analogy implies.
• jerf 4y ago
  Right, so, let's do a little exercise. You've decided to start a business. Not necessarily a HN startup, but a business. Let's say you're going to do a little insurance franchise. You've scraped together the, I dunno, let me guess $50K for the franchise fees and you're all ready to go. You just need an office. So, obviously, commercial real estate landlords are just greedy middlemen who provide no value, so, you can't even imagine a world where you'd rent office space, so you're going to acquire it on your own. Naturally, you don't have $300K to buy an office outright. So you seek a mortgage. Oops! It turns out your experience of buying houses in a zero interest rate environment and loose credit doesn't apply to commercial real estate. Banks know (or knew, at least) they can liquidate houses relatively easily, though often still at a bit of a loss; commercial real estate is often significantly harder to liquidate, even in a good market (let's not think about how hard it may be in the next couple of years; I'm trying to be generic here, not specific to the current situation). So they're somewhat less excited about taking it as collateral, and they want much, much more from your company than you're used to providing for a house-type purchase. Unfortunately, your business is three weeks old, has no current cash (or what cash there is you need to dedicate to acquiring customers, and you've got precious little of that), and has no positive cash flow it can demonstrate while it can easily demonstrate the negative cash flow of expenses. The bank says no. So, this is HN so of course we're going to financially hustle. You decide to sell equity in your little business to get the $300K to purchase something outright. Unfortunately, at the present time, a polite and gracious valuation of your business ranges from between $0, and maybe $30K at the top end (a discounted acknowledgement of the franchise you bought), so nobody is going to provide you the money to buy a building outright. So in the end, it turns out you wasted $50K on your franchise fee because you can't actually buy an office. Oh, if only there was some business you could patronize that would be able to own a commercial building, even if it just had a track record with a bank so it could get loans to own things, and was willing to rent the space out to you and take on the risk that you might disappear so they may have an empty building for a while that they're still paying on. Fortunately, in this enlightened thought experiment country, the populace rose up and declared they are all scum sucking parasites and banned them, so instead of your business having some money extracted from it for an office, it just went out of business instead. What a close call! As you scale up, the story shifts some. Larger and older businesses have a better track record with a bank, but, on the other hand, also the business acumen to know that owning buildings is not always their core business, core competency, or something they want to spend lots of money on. This doesn't mean all commercial landlords are good by any means. In fact if you're reading this as a moralistic tale you've missed the point. It's a story about business. Many of the businesses you see driving down the road couldn't exist, or couldn't have started, if there was a barrier placed in front of them where they had to own a building to get started, just as it would be very difficult for anyone to find a place to live if they had to jump straight to owning a house as their only housing option, and especially if they had to own a house the instant they started their economic life, before they even had a job, and nobody was willing to loan to them. If you, as a business, don't want a landlord, by all means buy your own building. But by the time your business gets to the size where that's an option, you'll also understand why it's very likely not what you want to be doing with your capital.