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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 s

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
    - seti0Cha 4y ago
      Obviously it makes sense for some companies and not for others, and so you see some buying real estate and others leasing. The point isn't that no company should ever own property, it's that it makes sense for many to rent.
- mardifoufs 4y ago
  If no value was provided, why do corporations lease from them?
  - rwmj 4y ago
    Because it's financial engineering. You get to sell off the property, get a one time bonus, and next year paying the rent becomes somebody elses problem while you're sipping margaritas around your new swimming pool.
    - seti0Cha 4y ago
      I'm confused. The company engineered the right to some office space, the landlord engineered a stable income to pay the mortgage, and the bank engineered a loan that pays them interest. Who has what problem? And who got a bonus and retired?
  - danaris 4y ago
    Because they're the ones who own the property. They don't provide value; they gatekeep resources.
    - seti0Cha 4y ago
      Land ownership is not free money. It usually involves taking on debt for purchase, then trying to recoup that money through rental. They take risk from the possibility that the land value will go down, they won't be able to service the debt, and they may have to sell at a loss. The service it provides is that it allows businesses to do business in a particular area without having to take out loans to buy land or buildings and incur those risks themselves. Businesses find that valuable.
      - danaris 4y ago
        I'm not saying there's no benefit whatsoever, but the benefit is not commensurate to the drawbacks these days. If being a landlord were outlawed or made unprofitable by significant new taxes or whatever tomorrow, most businesses that rent today would relatively quickly be able to put together loans to buy the properties. Yes, starting a new business would require getting more capital together—but since this would be a change across the board for real estate, it's hard to imagine that banks would be unwilling to provide mortgages on such properties. It might mean that slightly fewer small businesses get started that already have very little chance of success, but honestly, we need to be solving those issues by different, more systemic, means anyway. At some point we have to stop accepting this narrative that monopolists and other rentiers are doing us all a favor by "taking on the risk" of actually owning things, freeing us of that "burden" and graciously allowing us to pay them for the privilege of that freedom...forever.
- johngladtj 4y ago
  Why do you think the supermarket wants to tie up a bunch of assets in some real estate for 10 years? They're in the supermarket business not the real estate business. Also, who loses here? This is a voluntary transaction between capable companies out to make a profit. If they both think it's a good idea, who are we to say it isn't?
tobylane 4y ago
Some of the supermarkets who have made a sale-leaseback agreements are owned by hedge funds looking for a short term deal. Morrisons are, Waitrose aren’t, Sainsburys are a bit of both. https://www.theguardian.com/business/2022/dec/09/morrisons-owner-sale-leaseback-warehouses-supermarkets-retail https://www.theguardian.com/business/2022/dec/09/morrisons-o...

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
  - seti0Cha 4y ago
    Obviously it makes sense for some companies and not for others, and so you see some buying real estate and others leasing. The point isn't that no company should ever own property, it's that it makes sense for many to rent.
mardifoufs 4y ago
If no value was provided, why do corporations lease from them?
- rwmj 4y ago
  Because it's financial engineering. You get to sell off the property, get a one time bonus, and next year paying the rent becomes somebody elses problem while you're sipping margaritas around your new swimming pool.
  - seti0Cha 4y ago
    I'm confused. The company engineered the right to some office space, the landlord engineered a stable income to pay the mortgage, and the bank engineered a loan that pays them interest. Who has what problem? And who got a bonus and retired?
- danaris 4y ago
  Because they're the ones who own the property. They don't provide value; they gatekeep resources.
  - seti0Cha 4y ago
    Land ownership is not free money. It usually involves taking on debt for purchase, then trying to recoup that money through rental. They take risk from the possibility that the land value will go down, they won't be able to service the debt, and they may have to sell at a loss. The service it provides is that it allows businesses to do business in a particular area without having to take out loans to buy land or buildings and incur those risks themselves. Businesses find that valuable.
    - danaris 4y ago
      I'm not saying there's no benefit whatsoever, but the benefit is not commensurate to the drawbacks these days. If being a landlord were outlawed or made unprofitable by significant new taxes or whatever tomorrow, most businesses that rent today would relatively quickly be able to put together loans to buy the properties. Yes, starting a new business would require getting more capital together—but since this would be a change across the board for real estate, it's hard to imagine that banks would be unwilling to provide mortgages on such properties. It might mean that slightly fewer small businesses get started that already have very little chance of success, but honestly, we need to be solving those issues by different, more systemic, means anyway. At some point we have to stop accepting this narrative that monopolists and other rentiers are doing us all a favor by "taking on the risk" of actually owning things, freeing us of that "burden" and graciously allowing us to pay them for the privilege of that freedom...forever.
johngladtj 4y ago
Why do you think the supermarket wants to tie up a bunch of assets in some real estate for 10 years? They're in the supermarket business not the real estate business. Also, who loses here? This is a voluntary transaction between capable companies out to make a profit. If they both think it's a good idea, who are we to say it isn't?

tobylane 4y ago

Some of the supermarkets who have made a sale-leaseback agreements are owned by hedge funds looking for a short term deal. Morrisons are, Waitrose aren’t, Sainsburys are a bit of both. https://www.theguardian.com/business/2022/dec/09/morrisons-owner-sale-leaseback-warehouses-supermarkets-retail https://www.theguardian.com/business/2022/dec/09/morrisons-o...