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Comment by johngladtj | Hacker News Reader

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.

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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.

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.

> 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

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.

If no value was provided, why do corporations lease from them?

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.

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?

Because they're the ones who own the property.

They don't provide value; they gatekeep resources.

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.

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.

> 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.

Why? The setup you described seems strictly worse than the one we have now. Currently a business can, but does not have to, buy property. You propose a world where they must buy property, claim it will be OK because banks won't mind lending them more money, then put scare quotes around things instead of refute them. Why do you think there is no risk or complexities in buying and owning real estate?

You're looking at the situation very narrowly.

Zoom out a little, and you see that in the current situation, we have companies buying up large amounts of property, then using that monopoly on physical space to extract rent (both literally and figuratively) from others in perpetuity, sometimes without having to do any additional work to justify that rent. While obviously not the sole contributor, it is a significant factor in the housing crisis in many parts of America right now.

Making this kind of landlord position either illegal or much less feasible (for instance, allow individuals to own one extra rental property, or something, if that kind of flexibility is determined to be beneficial, while barring companies from doing the same or anyone from owning larger numbers of non-owner-occupied properties) would have significant effects outside the direct relationship you are describing.

Housing for people and office space for corporations are very different issues. I agree that companies buying all the personal homes is problematic, mostly because people are not business entities, they live in communities and they have needs and desires beyond "this makes the most financial sense". I agree that some legislation might be enacted to curb the problem, although I suspect it would go away on its own if communities facilitated the process of building houses. Greatly increasing the housing supply would make buying large numbers of houses a bad investment.

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?

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-o...

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