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> Pharmacy companies are seeking to cut their losses by shuttering unprofitable stores that have high labor costs, Mr. Hill said, but in most cases they are obl

by bko 2y ago

> Pharmacy companies are seeking to cut their losses by shuttering unprofitable stores that have high labor costs, Mr. Hill said, but in most cases they are obligated to continue paying the rent long after the store closes, or goes dark. > Most of the pharmacies that have closed in recent years were signed to 10-, 15- or even 20-year leases, at rents that often exceed today’s rates, brokers said. > In these cases, a landlord has almost no incentive to seek a new tenant, allowing the store to sit empty for months or years, said Aric Trakhtenberg, an associate director at Newmark, a real estate firm. This seems odd to me. Sure they're stuck paying rent but I imagine they could buy out their lease to some mutually agreed upon sum or sublease it. I just don't buy it that this is the reason. I'm waiting for the NY real estate guy to reply how this article is completely backwards and reference Gell-Mann amnesia [0] . https://www.epsilontheory.com/gell-mann-amnesia/ https://www.epsilontheory.com/gell-mann-amnesia/

downrightmike 2y ago
This is just to constrain supply to keep rent prices as artificially high as possible.
sroussey 2y ago
A really good lease would have a clause to not allow going dark. It makes the lessee more likely to go bankrupt, but it’s good for everyone else.
- ahmeneeroe-v2 2y ago
  >but it’s good for everyone else. Probably not good for the two parties negotiating the lease though
ahmeneeroe-v2 2y ago
>they could buy out their lease with lower prevailing market rents, the landlord would be silly to accept any buyout less than the full rental amount (with some discounting for time) and at that cost, the tenant should just continue to pay rents over time on the off chance that they want to use it later. In other words, it doesn't benefit the tenant to pay full price AND not have the option to use the space for the remainder of the lease term. >or sublease it We have to ask how this benefits the landlord above the current lease. If it doesn't add value to the landlord, there is no reason for them to accept a change
- bko 2y ago
  If I owe you $1k per month for the next 12 months. Let's say the market rate is $500 per month. I contractually owe you $12k. But say I offer you $10k, but you can rent out the space now. So now you get my $10k + $6k from the new tenant over the next 12 months. That's a much better deal than my 12k, plus you get $10k of that up front. That's all to say, there's almost always some beneficial arrangement you can make when the alternative is one party paying for something they're not using and the other party not being able to repurpose that resource
  - ahmeneeroe-v2 2y ago
    Yes, I agree that this works in theory. You need to drill deeper to see where it falls apart (and why we're not seeing these deals come together in real life) from the landlord perspective: they would want a new tenant lined up or have a data showing they're likely to secure a tenant and have rental stream begin in time to recover the $2k they're leaving on the table. from the tenant perspective: at full price, they always have the option to re-open a storefront if economic conditions change, so the value of the buyout has to overcome the value of the option. In other words, is saving $2k on rent worth not having the option to re-open a store here for the next year? This ignores the time value of money, which you allude to, but doesn't fundamentally change the LL or tenant perspectives, only changes the specific amounts.

by bko 2y ago

downrightmike 2y ago

This is just to constrain supply to keep rent prices as artificially high as possible.

sroussey 2y ago

A really good lease would have a clause to not allow going dark. It makes the lessee more likely to go bankrupt, but it’s good for everyone else.

ahmeneeroe-v2 2y ago
>but it’s good for everyone else. Probably not good for the two parties negotiating the lease though

ahmeneeroe-v2 2y ago

>they could buy out their lease with lower prevailing market rents, the landlord would be silly to accept any buyout less than the full rental amount (with some discounting for time) and at that cost, the tenant should just continue to pay rents over time on the off chance that they want to use it later. In other words, it doesn't benefit the tenant to pay full price AND not have the option to use the space for the remainder of the lease term. >or sublease it We have to ask how this benefits the landlord above the current lease. If it doesn't add value to the landlord, there is no reason for them to accept a change

bko 2y ago
If I owe you $1k per month for the next 12 months. Let's say the market rate is $500 per month. I contractually owe you $12k. But say I offer you $10k, but you can rent out the space now. So now you get my $10k + $6k from the new tenant over the next 12 months. That's a much better deal than my 12k, plus you get $10k of that up front. That's all to say, there's almost always some beneficial arrangement you can make when the alternative is one party paying for something they're not using and the other party not being able to repurpose that resource
- ahmeneeroe-v2 2y ago
  Yes, I agree that this works in theory. You need to drill deeper to see where it falls apart (and why we're not seeing these deals come together in real life) from the landlord perspective: they would want a new tenant lined up or have a data showing they're likely to secure a tenant and have rental stream begin in time to recover the $2k they're leaving on the table. from the tenant perspective: at full price, they always have the option to re-open a storefront if economic conditions change, so the value of the buyout has to overcome the value of the option. In other words, is saving $2k on rent worth not having the option to re-open a store here for the next year? This ignores the time value of money, which you allude to, but doesn't fundamentally change the LL or tenant perspectives, only changes the specific amounts.