I have a lot of vacant retail near me and they're nice spots, but the leases are all sky high. For whatever reason the folks making decisions about what goes in there are happy to sit and wait for yet another Noodles & Company or Chipotle, nails salon, but that's kinda it... and if not those places, empty.
I'd love to find good ways to encourage local shops and things beyond just the business with the highest margins.
The rent is the cherry on top and they’d rather just go for a contract with a safe mega corporation than deal with any actual work in interacting with a business.
Public benefit and the profit margin are inversely correlated. The idea that you can encourage any benefit without having public competition is laughable. There is no market effect that can encourage people to care about the public benefit over profits. The key is to remove the landlord from the equation entirely and de-commodify real estate, especially residential real estate.
I suppose it might be disappointing if the rents dropped and all it lured in were payday loan shops, and I imagine any tax enough to effect behavior will also induce some landlords to just fake occupancy to dodge the tax without the liabilities/risks of an additional business running onsite.
I'm a little skeptical (but maybe not pessimistic?) about how plausible it is to engineer public-benefit outcomes for this kind of space?
A non-vacant used property will provide a city with money in the form of sales taxes, jobs, growth, fees and in general prosperity. A town with a ton of small independently owned shops and restaurants (a side effect of forcing property on the market) is more attractive than one with strip malls filled with franchises. It will make people want to live there and drive prices up.
Why should a vacant property pay the same tax? It's taking up the same and paying less, in fact, in many cases, the vacant property is pulling down the value of the city. It's only fair for the vacant property owner to have to pay to blight his community. Such an arrangement is dealing with externalized costs, which is one of the best functions of government.
New wealth can be created, we don't need yours. If your investment real estate is contributing $1/square foot in property taxes but everyone else's occupied property is contributing $5/square foot in wages, sales tax, property tax and municipal fees... then it makes sense to charge the free loaders. This isn't even dealing with the blight and community development points. Just from a financial perspective it makes sense.
The way I see it; an added tax will just be an encumbrance on the budding entrepreneur, who worked two jobs, and begged to get the financing on that property. She has dreams, passion and a vision--she rolled the dice and will be bankrupt if she doesn't execute and have a bit of luck.
> which is one of the best functions of government
In a free society, perhaps the best function of government (which is nothing more than a random collection of random people) is to be as invisible as possible, and not to try to ram their (here again--this random collection of random people) agenda down everyone else's throat, every single chance they get.
Where I live they are elected.
And while I feel for the entrepreneur, this type of tax won't affect them if they lease it out.
There is no way for everyone to be happy. Needs have to be prioritized (like the need of the city to be prosperous over the need of the landlord to squeeze a few more cents out of a place)
Random people run for office and random people are elected. Some of these random folks Are even qualified for the posts they hold.
> this type of tax won't affect them if they lease it out.
That is simply not true. In your scenario my mythical entrepreneur has no choice, she can't afford to not lease it out to the lowest bidder.
> like the need of the city to be prosperous over the need of the landlord to squeeze a few more cents out of a place
You seem to have a bit of disdain for business owners and complete faith in your elected officials. My point of view is totally the opposite--it's the business owner's money, Not your elected random peeps money. Furthermore, do you think the business owner fervently desires her property be locted in a prosperous city--of course she does, but that doesn't mean she wants incompetent people who are smooth talking just wasting it.
If you choose to state something that is demonstratively false, then we can't converse. I truly wish you the best.
You appear to believe that there is a systematic method in place for people who may or may not decide that they want to run for a political office: I submit that no such system exists--it is truly hit-or-miss, and utterly indiscriminate, or to put it another way; random people run for office and some of them are elected.
I too wish you well... ttyl
A vacancy tax is an attempt to correct for those externalities and encourage better behavior from landlords. This is a situation where just having something is noticeably better than nothing at all.
Of course there is waste, this is part of the cycle of boom and bust. The people that mistime the market will overbuild and lose their investment.
When the frenzy passes, house may stay empty, but the market will adjust. Fewer new houses will be build and people who stayed out of the market will have a chance to buy at cheaper prices.
The market controls growth. Of course many factors manipulate the market (interest rates...). Boom/Bust is always going to be a factor because it isn't possible to know perfectly how much space we need before we need it. Boom/bust isn't even all bad, those who need space after the bust can get it cheap and start something interesting that they wouldn't otherwise) - artists for example need cheap space if they are to start a studio.
That sounds beautiful in theory. In practice, whoever has surplus capital controls it. Growth ends up a product of a few people's bets, and they can afford playing against the 'invisible hand' and making big mistakes. The human cost will be paid for by the communities where the game plays out.
In short I reject your pessimism.
> Of course there is waste, this is part of the cycle of boom and bust. The people that mistime the market will overbuild and lose their investment.
> When the frenzy passes, house may stay empty, but the market will adjust. Fewer new houses will be build and people who stayed out of the market will have a chance to buy at cheaper prices.
Why would there be new development in places with high vacancy? Wouldn't the community want new development to be hindered if most of downtown is empty already?
I want long term growth on a multi decade scale, ergo, I have to take lower immediate returns to support the ecosystem which generates those returns.
Your view is myopic, not perfectly rational.
And is an example of what goes wrong with hill climbing algorithms: local gradients can lead to globally unwanted outcomes.
Btw I also think excessive rents are strangling society, but it’s not as simple as it seems to fix.
> Btw I also think excessive rents are strangling society, but it’s not as simple as it seems to fix.
But if the property is vacant, isn't the effective rent $0? I have no experience with commercial mortgage lending and appreciate more details on the Bad Things and why they don't occur without repricing rent.
Of course this means in some cities you have entire blocks with half the store fronts for lease at "market rate" sitting there for years. This is clearly lousy for everyone, so these perverse incentives ought to be fixed, but to be honest I have no idea how to do that practically and equitably.
Here’s how that would work: 1. A couple stores owned by a landlord close down due to a recession or something.
2. Landlord has to keep the vacancies for awhile while he finds other renters.
3. He get’s levied the extra taxes due to the vacant properties. Now he really needs to get it off his books or find a renter.
4. He can’t find a renter because the economy is bad. So he tries to sell the properties.
5. He either doesn’t sell it, or sells it a big discount because the buyer needs to price in the tax premium.
6. Rinse and repeat.
> Here’s how that would work: 1. A couple stores owned by a landlord close down due to a recession or something.
> 2. Landlord has to keep the vacancies for awhile while he finds other renters.
> 3. He get’s levied the extra taxes due to the vacant properties. Now he really needs to get it off his books or find a renter.
> 4. He can’t find a renter because the economy is bad. So he tries to sell the properties.
> 5. He either doesn’t sell it, or sells it a big discount because the buyer needs to price in the tax premium.
> 6. Rinse and repeat.
If this is truly "rinse and repeat", since each subsequent sell results in a price discount, wouldn't the price eventually settle on what the market can bear?
I see articles all of the time saying the US has too much retail space: https://www.businessinsider.com/the-retail-apocalypse-has-of... https://www.forbes.com/sites/bisnow/2017/04/05/even-develope...
It is not clear to me, why their asset prices are going to go up if there is too much supply.
Also does the building owner actually "own" the building or are they paying off a commercial loan?
Also, the kind narrative you are proposing - and that is taking more acceptance in society lately - only makes building owners more weary and afraid of renting directly to someone that might decide they are entitled to the space without paying their due rent, so yes, of course they choose more and more to have the protection from a safe mega corporation.
We aren't talking about the stock market here. If someone buys property that means someone else doesn't get it. Vacant properties have a negative impact on communities.
You mean like a savings account? Or a treasury bond? Or stocks? Or gold? There is such a thing as opportunity cost. The money that went into buying the property, as well as the money continually spent in maintaining it (from repairs, to taxes, to insurance, to advertising for renters, to managing renters) could have been spent on something else, like an index fund - which, without any effort, could net you a nice 7% return.
You're also missing the risk profile. Property values could crash at any moment, and take all the capital along with it. It happened in 2008 to many people. Could happen again at any time. Historically, real estate hasn't been the best store of value nor provided the best rate of return on your investment.
If you think it's that easy, you should try it.
https://nypost.com/2014/04/26/the-hidden-proof-the-economy-i...
https://www.theguardian.com/business/2017/dec/24/new-york-re...
> In addition, he says, banks will devalue a property if it’s occupied by a small business, and increase it for a chain store. “There’s benefit to waiting for chain stores. If you are a hedge fund manager running a portfolio you leave it empty and take a write-off.”
It really sucks as it seems like economic activity just waiting to ... happen, but naw.
For me personally I'm making a decision about where to move after I graduate and I'm planning on living a little farther from where I work specifically to get away from all the samey chain restaurants (holy cow they're depressing) to be in a more densely populated area with more small businesses. I have a hard time imagining I'm alone.
Say a business signs a 2 year lease. They go out of business after 1 year.
They got ~1 year of lease payments compared to ... nothing.
That still seems like something.
So that risk is worse than ... being stuck with an empty storefront?
And I'd imagine the risk is broadly similar to residential rentals, e.g. trouble evicting tenants, the tenant damaging your property.
Some strip malls in less desireable areas work they way a residential lease would, but those wouldn't be the best place to do it.
Not well. Retail is hard in the best of times.
>For whatever reason the folks making decisions about what goes in there are happy to sit and wait for yet another Noodles & Company or Chipotle, nails salon, but that's kinda it
Maybe the owners can't get anyone to rent the properties?
I doubt they are 'happy to sit and wait' for anyone. They still have to pay property taxes.
Maybe if they copy B&N's model and turn themselves into a coffee shop that sells books on the side, it might work. But they'd need the scale of B&N and locations near major universities with wealthy privileged students willing shells out lots of money for lots of books that their professors recommend.
In an environment of online shopping and expanding library services, bookstores face a lot of headwind. Why would you go to a bookstore when you can go to the library? Why would you buy can carry a bunch of books home when you can just order it online? If you can solve these problems, you could make a lot of money opening up bookstores all over the country.
In the United States at least, many commerical real estate owners _will_ perform a build-out conditional on a lease agreement. Of course, if the business folds earlier than expected it is the real estate owners who have to eat the cost.
As a store owner, you have exposure to wage laws, property values, foot traffic, etc.
I would personally argue that you would have to irrational to open a mom-and-pop store in this day and age.