Vacant pharmacies are holding back NYC retail
nytimes.com
nytimes.com
The tax benefits for landlords who keep a space vacant may be overstated. While it's possible that the property owner can sometimes find a tax advantage to keeping the space empty, there are a number of other scenarios that incentivize them to keep a building empty.
For example, some owners are waiting out the leases of adjacent tenants in the same property, so they can resell or redevelop the entire lot. They're betting that they will make more from a mixed-use apartment building than they would from commercial rent alone.
Others owners are simply in a holding pattern, because they are still collecting rent from a corporate tenant and have no incentive to move quickly. I've heard of a number of cases where the pharmacy landlord received appealing offers from well known brands, but turned them down, because they don't want to spend the money to reconfigure or subdivide their space.
The solution, as always, is a vacancy tax. The problem here is that these drugstores may very well still be paying rent which makes defining "vacant" a bit difficult.
While I lived there that lease ended and the new "market" rate was reportedly $250,000/year. The supermarket shut down. It's been 10 years. I thought it had been empty the whole time. I just looked through historical Street View and saw there was briefly a business there. IT's again vacant though.
The point is that high housing prices kill everything. Commercial real estate is distinct but the two are related. There are two problems:
1. Landlords can be unwilling to accept a lower rent because it lowers the book value of the property. Many commercial property owners own a huge portfolio. It doesn't really matter if some of it is vacant. In fact, it's expected; and
2. As prices go up the types of businesses that can survive there rapidly diminish. You could simulate a supermarket. There's only so high you can rise the prices before demand goes down. There's only so high the rent can go before it kills that business.
I realize the zombie stores here are the opposite problem: landowners are understandably just cashing the checks from above-market rents the owners are obligated to pay.
If someone comes along and says "I'll pay 50% of the current lease", the owner could go to the current leaseholder and say "I'll let you out of your obligation if you pay 60% of the remaining rent" (discounting for present value).
But what if the new business doesn't survive? It's a risk for the owner where CVS's rent checks are no risk at all. Plus even if you get past that, you've also just lowered your property's value on paper.
The solution here is probably for the city (or, more likely, the state) to make such long-term leases unenforceable. For example, if you abandon the property then after 1 year or 2 years or whatever, the lease just terminates.
This is a fun idea. The amount above 100% current lease value is likely 1) the risk of the new tenant vs the old tenant and 2) the optionality of the old tenant wanting this space in the future.
>you've also just lowered your property's value on paper.
Not really. you've increased the value since you're getting 110%. Plus it's not like leases are public knowledge.
>make such long-term leases unenforceable
if this were in place, all leases would be priced higher to account for the lower enforceable term.
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.
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.
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.
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.
It obviously depends on appreciation minus conversion cost, but if that figure was negative we wouldn't be talking about this at all. The arguments that you put forth are being used by the cartel to rationalize why there's so little conversion going on. In truth it's mostly because of obstruction.
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!)
That's a good point. Last company I worked for made that kind of a deal: they threw in renovations, new carpet, a bunch of other such concessions but not a lower monthly rent.
Residential property owners do this, too, and I strongly (I cannot being to convey how strongly) believe that this should be illegal. Beyond the obvious injury it does to renters and potential renters (annual rent increases are based on the stated rent, not the rate you pay after discounts), so much in the economy is based on purported property value. When you consistently have to offer "discounts" to find renters, what it means is that other aspects of the economy are being distorted by your fake property value. You're misusing or underutilizing that property, and market forces should force you to divest.
Go after banks, too, but start with this simple issue: if you can't rent at a certain price, you should have to lower the price or offer material incentives. Period.
Property value based on cash flows will be based on, well, real cash flows.
Take the contracted rent or cash flows and divide by the cap rate (tends to follow interest rates) and you get the value.
On the pro-forma plan your lowering rents to one implies lowering others and you just cut your building value in half pretty easily.
Hiding value drops distorts the market and makes the balance sheet of property owners seem stronger than it actually is. This "discount" regime essentially pushes the risk of an economic slowdown, which owners should naturally carry, onto renters instead.
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.
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
You can get practically everything by mail now. On Amazon you can "subscribe" to your regular consumables, so they send you some regularly and you don't have to go to Rite-Aid for it.
I will never trust Amazon with food or medicine.
What about shopping physically in WholeFoods?
FWIW, I also don’t trust the standard Amazon store with many things, but I still do use Amazon Fresh and find it fine.
Furthermore, when I ordered sliced cheese in an AF order, it arrived completely moldy... like olive drab colored completely. Amazon Fresh clearly doesn't respect cold chain or consumer safety at all.
It used to be nice to go down to your local Duane Reade 24 hours a day and get anything you needed, often for only a small premium on the Amazon price. It's a different story now.
Amazon loses you availability of access, and while it's nice to get stuff by mail, you can't get stuff by mail right now. That availability is going away.
Lack of availability isn't even my main concern though. In this environment, everyone needs to order everything online. So instead of one truck making a shipment to CVS (I'm oversimplifying), now you have additional delivery vans and ebikes making door to door shipments, each with extra packaging.
edit to clarify my stance in the context of the GP: I strongly dislike ordering things online when there is (or should be) a local alternative, and only use delivery services as a last resort
Just a single anecdote. In SF shoplifting police reports tripled one month because a single target location tested a new system where internal shoplifting incidents were also sent to the police.
It's surprising to me that employee shrink is never looked at as an issue. I personally think that is much more of an issue.
Do you really believe you can conclude this from your personal observations?
The company has all the data on theft. At the end of the day, they are motivated by profit. Don’t you think they ran the numbers and found that locking items to prevent crime, even if it’s an additional barrier to paying customers, was better for business?
edit: fixed a typo
My experience is admittedly anecdata.
> The company has all the data on theft. At the end of the day, they are motivated by profit.
One of the modern fallacies that we've all fallen victim to at one point or another is that "more data" == "logical action".
> Don’t you think they ran the numbers and found that locking items to prevent crime, even if it’s an additional barrier to paying customers, was better for business?
It prevents an aspect of shrink that they can control through an affordable means, that does not mean that it is the vast majority of shrink.
Companies are short term irrational thinkers. Thank the market for that. If they can lock everything up and say "You can expect a reduction in shrink, please pay me and my shareholders", they will. That's easier than locking up employee thieves, which is even easier than actually trying to fight Amazon (who is eating their revenue/lunch).
Yes, because none of the retailers have been willing to cough up data.
If the data supported that shoplifting is a problem and that locking things up helped, the companies would be trumpeting the data. There was a very recent article that nobody, not even the main retailers trade association, seems to know if locking things up is actually improving the situation or not.
The primary hypothesis seems to be that employee theft is the real issue and no retailer wants to admit it because it opens up a whole host of issues that are all solved with "pay money". (ie. Why aren't they paying their employees more? Why aren't they prosecuting these thefts? etc.)
It's on their financial statements and it has been discussed in their earnings calls. The euphemism for theft is "slippage."
As to whether locking things up helps, most of the thefts I have seen recently involve someone politely asking for a good to be unlocked, then walking out the door with it in hand. The lock only stops one person from taking all of it at once.
"Sales lost to locking up" is a lot harder to track, and nobody has been willing to be forthright about it.
Mostly, this is sleight of hand. None of these companies want to admit that online (even their own!) is eating their lunch.
For example: A local target here in Seattle was closed, citing retail theft. I stopped by there before closure; they had everything locked up and most of the shelves were empty. A grim sight, but the key point of the story was that said Target was also surrounded by other grocery store alternatives which did not lock items up and whose shelves were not empty. All within roughly a block or a block and a half of distance.
The empirical observation is that they closed the stores with less retail theft than the ones they kept open.
The recent double stabbing near 14th & 1st was a mentally ill guy in a drug deal dispute in which he was paying via stolen merchandise. People interviewed described him as a regular who would barter his stolen goods for whatever he needed (in the NYT before someone accuses me of reading the wrong sources).
Who said that there wasn't? Prior to current history, people sold boosted goods out of the back of cars or in the back of the same bodegas.
> The recent double stabbing near 14th & 1st was a mentally ill guy in a drug deal dispute in which he was paying via stolen merchandise. People interviewed described him as a regular who would barter his stolen goods for whatever he needed (in the NYT before someone accuses me of reading the wrong sources).
This still is not a brazen robbery, so it doesn't address what I said at all. Addicts have been fighting and killing each other in this city for literally decades.
thank god that facts don't care about your personal opinions on the matter[1]
https://www.newsnationnow.com/crime/criminals-pharmacies-bur...
The article you shared highlights smash and grabs of controlled pharmaceuticals from small mom and pop pharmacies. That's not the type of theft I have any experience with. You're also the only person who invoked drugs.
The article only references one pix11 article, which itself only references a single bust... in Texas... of a ring operating in Arkansas... outside of New York.
> What am I misunderstanding from your posts?
The entire context of the thread above you.
The state being, in the article, NY. They just happen to mention Arkansas in a related fashion.
As for pharmacies locking up small items as well, it's very obvious why it happens, it's becauase of a high occurence of theft. Is this rocket science? Do you think they do it because they can't get enough of the operational overhead of dealing with customers every time they need an item? I bring drugs into the mix because this is all interrelated. Robberries love pharmacies, or at least historically have until they started locking everything up. Drugs are a big factor, and by extension the small stuff gets taken too.
What's the idea there? I hear that those stores overexaggerate the risk. Ok, but why spend the time, effort and money actually locking things down and making it hard for their paying customers to shop.
I can imagine if the threat is not real, they'll just issue press releases, write public letters to the governor, buy ads somewhere, etc, but not actually put plexiglass and locks everywhere, which makes it harder for them to do business in the end.
EDIT: also, cheers to the fellow assembly language HN user name holder :-)
It’s basically now ok to walk into any store in nyc, and just take stuff worth less than $1k, and walk out. Nothing will happen, and police can’t do much since it’s been decided stealing is not a crime here. The people doing this then will sell that same stolen stuff on a street corner a block away for half price.
1) Pharmacies don't want workers going after shoplifters. It's a liability if the worker gets hurt, and even if the shoplifter gets "caught", now the witness needs to show up at the trial for it to mean anything criminally. In other words, the company has to pay the worker NOT to be in the store. The LEA has to pay the cop that responds to be in court. They don't want this. The company's goal is to get the police involved only insofar as is necessary to get an insurance payout.
2) No one wants to go to jail for stealing shampoo. They're doing it because the options for decent work are limited. A shoplifter grabbing $200 of merchandise and selling it for $100 is making 3/4 a day's worth of the cashier's pay in like an hour (partly because corporate workers for that company are overpaid and making that in 1-20 minutes).
The solution has always been and remains to stop f*cking around with income inequality and opportunity hoarding, as a society.
In my case, I used to go to a Rite-Aid for my meds, even though it was less convenient, because (1) they recognized me when I walked up, (2) if there was a problem, a human would take care of it, and (3) there was never much of a wait.
The store was always near empty, which was the mark of doom. They closed it and sent me over to a Walgreen's, which sucked big time. So now I get stuff by mail. The customer service is not any worse, really.
If we had a culture that scandalized theft, and a justice system that penalized such behavior with real teeth, then goods wouldn't have to be locked up and "customers" treated with suspicion.
I will never stop being amazed by the ability of "smart" people to be so illogical
Personally, I agree with you that this is a response to theft and the brazen disregard of law enforcement. I now live in a smaller city that takes theft very seriously and almost nothing is locked up.
I care if my local, family-run pharmacy gets robbed. If someone steals from some corporate behemoth, one that treats me like a criminal regardless of whether I steal from them or not, well, what do I care?
What if its a local owner but you met the guy and think he is a jerk?
What if he votes differently than you like?
Do you think the various groups committing robbery care who owns the store, and if so, care in the same way as you? Would they stop if the pharmacy became locally owned? Would they give up shoplifting if there were no big box stores nearby?
> Do you think the various groups committing robbery care who owns the store, and if so, care in the same way as you?
In the same way as me -- no, probably not. But does the owner of the store matter to groups committing robbery? I wouldn't be so confident that it does not. I don't have any statistics to back this up, but I'd guess that loss to robbery among chain stores is higher than among mom-and-pop businesses.
Nationally, clearance rates are abysmally low. Everyone knows calling the cops for personal theft is useless. Why aren't they doing their job?
And don't point to those cops in California claiming that it was a lax DA, as that doesn't explain the abysmal clearance rates in the rest of the nation, including in states with DAs who enthusiastically do their job, to a fault. The DA in California does not explain why the cops in my state are utterly incompetent.
Cops don't want to do their jobs
Looked at the guy's profile (and I had his name and address, as he'd sold my phone to someone who was annoyed that it was locked) and it was blindingly obvious that it was all stolen goods:
50+ cell phones, "no charger", "no accessories", some even flagged as locked.
Another 50+ Macbooks - also "no chargers", "no accessories".
Called my local PD (non-emergency) as I'd filed a police report. Told them what I'd found.
PD: Well, he probably didn't steal them himself...
Me: I'm fairly sure that selling stolen goods is still a crime?
PD: ...
Me: ...
My tax dollars, hard at work.
Maybe go after wage theft and employment discrimination?
It's strange to me that people think that the source of "low trust" is the people with rather less power in society, versus the people with more. Most people begin life more than willing to trust. It's when someone who is supposed to be looking out for them betrays that trust that they become embittered.
I do buy more and more shelf-stable “grocery” type items off Amazon every year.
Tell me you don't shop at Whole Foods without telling me you don't shop at Whole Foods.
Whole Foods is actually cheaper than many (most?) grocery stores for staple items. Sure, the grass fed organic beef is expensive, but stuff like rice, pasta, ketchup, snacks, hell even a lot of produce, is way cheaper than other grocery stores. At least in an urban environment like NYC.
Trader Joes is cheaper.
Trader Joes and Whole Foods are comparable on price for staples, at least the last I checked, which is admittedly a few years ago. Things like store brands of olive oil, canned beans, frozen foods are cheaper at TJs, yes, but usually by less than a dollar.
Trader Joes will always be cheaper given how they work.
One of the few categories of store I still visit in person. Often it's stuff I want immediately, sometimes I wanna hold and look at packages, sometimes it's prescriptions and it's easier to just pick those up.
I used to live in Dubai, which is the "instant app delivery" capital of the universe, in my experience -- nowhere else I've been comes close, including SE Asian capitals -- I even got my annual flu jab from a nurse I ordered online from an Everything App and had it during a Zoom call. Anyway, the one type of retail that remains absolutely ubiquitous there? Drug stores, admittedly ones that you can also just WhatsApp and will deliver to you.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3745069/
https://www.thenationalnews.com/uae/health/survey-finds-abu-...
https://www.pharmacytimes.com/view/retail-pharmacy-practice-...
https://www.researchgate.net/publication/305425201_Antibioti...
> Self- medicated ABs [antibiotics] is an issue in many countries especially among middle income people regardless of the variation of regulation, guidelines, culture or region. 60% of children patients in Yemen received ABs without prescription12 and 56% of population in Abu Dhabi, UAE according to Abasaeed et. al.7.
> In Jordan two studies showed a close estimation for dispensing ABs without prescription among the Jordanian population. Here, Yousef and co-workers estimated the percentage to be around 42.5% of the population10 while Bakri and co-workers estimated the percentage around 46%
I will never get medication or food from Amazon. I don't even trust them to not sell dangerous counterfeit electronics.
So you insist that "it's just me" be added to every declaration of preference? I would have thought that was understood.
It does indeed seem America has been overrun by narssasisits.
The OP was not about you.
and people who can't spell "narcissist"
> 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] .
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
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
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.
Probably not good for the two parties negotiating the lease though
Pharmacy benefit managers (PBMs), which reimburse their own pharmacies at a higher payout rate than independent pharmacies, are causing smaller ones to go out of business:
https://www.medpagetoday.com/pharmacy/pharmacy/111338
Those obvious antitrust violations exacerbate the record prescription drug shortages we're experiencing, as customers hop between pharmacies trying to get drug refills:
https://www.cnn.com/2024/04/12/health/drug-shortage-record-h...
Which are caused by artificial limits on the quantity of drugs manufactured, specifically ones popular on the black market like Adderall, which are stopped by an out of control War on Drugs:
https://www.additudemag.com/adderall-shortage-dea-stimulants...
Leaving smaller pharmacy owners forced to sell many drugs at or even below cost, which they can't get anyway, so their customers leave for bigger chains and online sellers at Amazon etc.
Driving prescription drug hoarding behavior when patients can't get the medication they need and skip days in order to save up for eventual shortages. Is it ironic that the DEA doesn't seem to mind creating addiction this way? I don't know, I'm not surprised by anything anymore.
So the wealthy and powerful people driving this catastrophe outside of law enforcement because they lobbied through regulatory capture to legally have this monopoly are making bank while the rest of us suffer.
Which is just exactly the situation I find myself in as I scramble to find treatment for my ADHD symptoms. I can't believe it's come to this in the good old US of A, but here we are.
Edit: I meant to add that if you're in a similar situation, it's worth seeing if raising your dopamine level helps, and not just medicating a hormone receptor issue. You can boost your levels by eating L-phenylalanine and L-tyrosine, which the body uses to make dopamine (every hormone comes from a specific protein, which you can find by asking an LLM like https://iask.ai). I have had success with eating a 2-4 egg and bacon breakfast every day, taking L-theanine, and supplementing with maca root and hormone balancers like RESTOR from Nutrishop (no affiliation). It also helped a great deal to reduce inflammation by addressing low thyroid, adrenal fatigue and high cortisol levels by taking supplements for those (you might need to see a nurse or doctor) and turmeric powder. My symptoms feel like having depression and anxiety simultaneously, and I've found that they've worsened with age as testosterone levels naturally decline, which is often caused by having too much belly fat, which contains aromataze which converts it to estrogen. So weight training is extremely beneficial, along with reducing stress through meditation. Healing the gut with a giant looseleaf lettuce salad and a cup of kefir every day also helps raise serotonin levels for better mental health. Just give yourself 2-6 weeks to feel improvement, and keep a journal. Hope this helps someone.
Surprised that the leases weren't tied to some shell company that could go bankrupt and release that liability.
Obviously there are a lot of factors that go into a negotiation and sometimes landlords are not able to secure those rental streams through one of those methods.
For the GP: Even though these leases are above current market value, they were probably cheaper at the time they were signed due to being long-term and bring signed by a higher credit rated tenant who would likely not default (vs a short-term lease with a riskier tenant)
As the article points out, the big box pharmacies have been replaced by smaller more drug focused ones, it's just the big chain heavy retail footprint places that are fewer in number. But those new pharmacies aren't going into the big spaces of the old, and it's possible that the needs for C2 storage, cold storage, etc. make it more difficult to work with the space for a purely retail or food concept.
Though the “we just do meds” pharmacies are dying out in Canada as the margin is increasingly in the unregulated (price) over-the-counter products and you increasingly need the buying power of being a part of a chain for both meds and over-the-counter stuff.
Sure if you can specialize in something you can survive against the chains, but it’s a slog.
1: She works in a hospital now, so she's not directly exposed to this, but she's worked in retail before and has plenty of friends who still do.