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Usually these market inefficiencies have some market-based solution to mitigate the problem. I wonder why the pharmacies don't sublease, or buy themselves out o

Usually these market inefficiencies have some market-based solution to mitigate the problem. I wonder why the pharmacies don't sublease, or buy themselves out of the remaining lease at a discount. IOW - I feel like there's a way for SOMEONE to make a bit more money by putting the space to use. It could be that the original lease doesn't allow subleasing. And maybe there is also a mortgage that would get called if the rents fall (by subleasing or buying out the existing lease). I don't know - just seems like there must be some kind of reason.

colechristensen 2y ago
Maybe less so New York, but around the country there is a huge amount of extremely overpriced commercial real estate/leases. Owners are going to want to bleed everything they can out of their existing long term renters who are going to have a hard time exiting because nobody is going to be particularly eager to pick up their overpriced leases. It's a bit strange to be in an economy where businesses are empty and failing because their prices are too high to accommodate for rent which is too high. I just had breakfast in an entirely empty restaurant. It was excellent and I was the only person there. There are tons of just empty storefronts that nobody can make use of because the overhead is too high. I had lunch on Saturday at noon in an empty restaurant with one group sitting outside. There are just a lot of commercial real estate owners which need to go bankrupt. Then cities need to implement and enforce severe tax penalties for commercial vacancy to incentivize rent reductions.
- bluGill 2y ago
  It is the banks which in turn respond to federal rules at fault here. If you reduce rents to attract customers you can potentially fill up the building - but at the reduced rate which means the building is worth less and so the bank will reduce the value of the building and then declare you don't have enough equity and foreclose on you. If you maintain too high rents you can tell the bank that this is a temporary issue of rent too low and they will keep the high validation. The above is why you can't negotiate the monthly rent, but you can often get a few months free rent - change the rent you pay and the building value changes, while a few months free is just a marketing thing. If you don't like the above you need to start with federal bank and accounting rules.
  - com2kid 2y ago
    But under the current system, banks also lose. Banks need to realize they are better off earning 80% now and helping the economy recover so they can earn 120% later, then earn 100% now and earn zilch later. However I'm willing to bet there are some misaligned incentives within the large banks that prevent this from happening. (I only say that because misaligned incentives are seemingly the cause of 90% of the issues that plague the actions of any group of people beyond a couple dozen!)
    - Projectiboga 2y ago
      Yep the narrow focus on the next few quarters is a root cause of these short term focused blunders
    - rincebrain 2y ago
      There's a sort of prisoner's dilemma here, where the banks that don't take the 80% now make out better in both cases - they get 100% now and 100% later, or 100% now and 120% later, versus 80% now and 120% later.
  - worstspotgain 2y ago
    A lot of the locales where commercial is underwater are the same locales where residential prices are through the roof. This is because of decades of regulatory capture by the housing cartel. Supply has been strangled through various land-use regulations, particularly height and volume limits, byzantine red tape, and the anti-sprawl push. Now many of those municipalities are flirting with residential conversion of commercial buildings. Obviously this only works in the densest areas, but would be a great exit plan for many properties. If the regulations were streamlined enough, it could take a nice bite out of the residential pyramid scheme. Which is why these plans are being sabotaged behind the scenes. Conversion is pretty much guaranteed to be limited to a trickle. Commercial owners have a lot less political leverage than the residential cartel.
    - underlipton 2y ago
      I've noticed quite a bit of astroturfing on this matter, for certain.
- sroussey 2y ago
  The cost of building is so high now, that based on what you said, no building should be built anywhere. People will pay for residential though, so best to tear it all down and remove commercial real estate from cities. Local banks will need to fail.
ahmeneeroe-v2 2y ago
> SOMEONE to make a bit more money by putting the space to use That someone needs to be the landlord + the tenant since those two parties would both need to agree to change the status-quo (the lease). >It could be that... I agree that your examples are both likely culprits. Anything can be changed, though, it just needs to benefit both parties (landlord and tenant) more than the status quo

colechristensen 2y ago

Maybe less so New York, but around the country there is a huge amount of extremely overpriced commercial real estate/leases. Owners are going to want to bleed everything they can out of their existing long term renters who are going to have a hard time exiting because nobody is going to be particularly eager to pick up their overpriced leases. It's a bit strange to be in an economy where businesses are empty and failing because their prices are too high to accommodate for rent which is too high. I just had breakfast in an entirely empty restaurant. It was excellent and I was the only person there. There are tons of just empty storefronts that nobody can make use of because the overhead is too high. I had lunch on Saturday at noon in an empty restaurant with one group sitting outside. There are just a lot of commercial real estate owners which need to go bankrupt. Then cities need to implement and enforce severe tax penalties for commercial vacancy to incentivize rent reductions.

bluGill 2y ago
It is the banks which in turn respond to federal rules at fault here. If you reduce rents to attract customers you can potentially fill up the building - but at the reduced rate which means the building is worth less and so the bank will reduce the value of the building and then declare you don't have enough equity and foreclose on you. If you maintain too high rents you can tell the bank that this is a temporary issue of rent too low and they will keep the high validation. The above is why you can't negotiate the monthly rent, but you can often get a few months free rent - change the rent you pay and the building value changes, while a few months free is just a marketing thing. If you don't like the above you need to start with federal bank and accounting rules.
- com2kid 2y ago
  But under the current system, banks also lose. Banks need to realize they are better off earning 80% now and helping the economy recover so they can earn 120% later, then earn 100% now and earn zilch later. However I'm willing to bet there are some misaligned incentives within the large banks that prevent this from happening. (I only say that because misaligned incentives are seemingly the cause of 90% of the issues that plague the actions of any group of people beyond a couple dozen!)
  - Projectiboga 2y ago
    Yep the narrow focus on the next few quarters is a root cause of these short term focused blunders
  - rincebrain 2y ago
    There's a sort of prisoner's dilemma here, where the banks that don't take the 80% now make out better in both cases - they get 100% now and 100% later, or 100% now and 120% later, versus 80% now and 120% later.
- worstspotgain 2y ago
  A lot of the locales where commercial is underwater are the same locales where residential prices are through the roof. This is because of decades of regulatory capture by the housing cartel. Supply has been strangled through various land-use regulations, particularly height and volume limits, byzantine red tape, and the anti-sprawl push. Now many of those municipalities are flirting with residential conversion of commercial buildings. Obviously this only works in the densest areas, but would be a great exit plan for many properties. If the regulations were streamlined enough, it could take a nice bite out of the residential pyramid scheme. Which is why these plans are being sabotaged behind the scenes. Conversion is pretty much guaranteed to be limited to a trickle. Commercial owners have a lot less political leverage than the residential cartel.
  - underlipton 2y ago
    I've noticed quite a bit of astroturfing on this matter, for certain.
sroussey 2y ago
The cost of building is so high now, that based on what you said, no building should be built anywhere. People will pay for residential though, so best to tear it all down and remove commercial real estate from cities. Local banks will need to fail.

ahmeneeroe-v2 2y ago

> SOMEONE to make a bit more money by putting the space to use That someone needs to be the landlord + the tenant since those two parties would both need to agree to change the status-quo (the lease). >It could be that... I agree that your examples are both likely culprits. Anything can be changed, though, it just needs to benefit both parties (landlord and tenant) more than the status quo