Neighbors Got Together to Buy Vacant Buildings. Now, Renting to Bakers and Brewers
yesmagazine.org
yesmagazine.org
In my hometown, approximately 50% of the retail space in our downtown has been vacant and listed "For lease" for I'd say about the past 2 years now.
The owners are very wealthy, continually raise rental prices, eventually driving everybody out.
The problem is, they never intend to sell.
I witnessed an old bank building sit vacant for literally 20 years before they found a new tenant who was willing to renovate and start paying. Somebody was paying the property taxes on it the entire time, and they weren't even actively marketing it's lease as much as they could have been.
Another old store went under about 2 years ago, and it has been empty ever since with a for-lease sign on it. Nobody has entertained the new lease, but the owners refuse to lower the price or sell the property.
In fact, I have never in the life of me seen a for sale sign on any of the downtown retail properties. It just doesn't happen.
Old money can be one hell of a burden on old communities, it would seem.
Though I guess stuff like this happens even in sf. Que Tal -- a coffee shop in mission -- got kicked out by their landlord massively increasing rent in August 13. I walked past their old location a month ago and it was still empty, and it didn't look like there was construction going on. So the landlord has eaten 17+ months of rent so far.
Everybody just walked past it for decades saying "I wonder what if anything they'll ever do with that place?".
I'm assuming you had to know the "right people" to even get an appointment to purchase or lease, but I'm not sure why.
The power of government should never be used to force people from their property. Eminent domain is already horribly abused with seizure laws no person's property is safe. Why do others become so draconian when its other people's stuff? It is easy being generous when its not your pocket that is being emptied.
This is about a building with a certain code (retail) which has a particular purpose, and that purpose isn't being fulfilled. Taxing to change this mis-behavior is good.
If you want to talk about using the law to prevent situations like this, then it needs to be a law unto itself rather than something incorporated into the tax code.
Agreed. I know that the businesses still surviving in my Downtown are doing just that. Surviving.
If property taxes increased on all retail buildings in the downtown, rents would surely increase as a result, and the businesses that can make a buck currently would probably have to close up shop and move farther out into the city.
Perhaps raising retail property taxes on buildings that sat empty might be a better solution? But then I suspect that all of those empty buildings would become filled with "fake" retail businesses... like a shoe shop that only opens up for 1 day a month or something.
Where my town in concerned, there is indeed a LOT of old money and I suspect that the current owners are too busy spending their family fortune... which will run out eventually if they neglect the family's historic rental properties.
It's like tuning the inflation rate or monster respawn rate of an MMORPG to get the most enjoyable game. Property taxes should be high enough to discourage ineffective use of space, but low enough so as not to discourage effective use of space. Too far in either direction and you end up with empty buildings.
http://www.theguardian.com/society/2014/jan/31/inside-london...
I think the more typical downtown vacancy problem is better characterized by 'Someone' in the comment above.
For example, suppose you have buildings valued at 10 million, 8 million in mortgages, and 2 million in the bank. That looks like a healthy company. Now, a tenant leaves. If you lower the rent, you have to lower the value of the building in your books and, possibly, for other buildings in the neighborhood.
Before you know it, you have buildings valued at 6 million, 8 million in mortgages, and 2 million in the bank. That's close to bankruptcy.
Another approach is to guess that the lack of demand at the asked price is temporary and sit it out. That may cost you a few hundred k in lost rents a year, but keeps your balance sheet healthy for at least a few years. Problem, of course, is that your pockets may not be deep enough to outlast the bust period.
Is that denying reality? You only know after a few years. If the market rebounded soon, it was a good business move. If it doesn't, you are on a slow trajectory to nowhere.
It's interesting, I think there's a lot of psychological parallels between the Japanese "lost decade" and these investors in the US. In both cases, large nonperforming assets (loans, or buildings) were held for a long time because the owners didn't want to admit defeat by selling at a big markdown -- in the case of the banks, due to capital requirements where a significant remarking of their assets might cause regulatory non-compliance.
Valuing things is hard.
The homeowners who are members know that the healthier the commercial corridor is, the more their homes are worth.
Indeed, and I hope this continues. I spent a lot of my childhood driving to rural Minnesota, Iowa, and South Dakota and doing those drives now can be depressing. The failure of community banking has left the towns dotting the 212 between Minneapolis and Watertown destitute. Curious if there's any way to adapt this model to rural areas that are faced with things like the forced-consolidation of school districts, among other issues.
Or am I just living in a bubble where people aren't in massive consumer debt and have disposable income?
[1] I know that sounds ridiculous, because being a bank is anything but simple, but back in the 90's I watched some investment "clubs" become large enough to attract the attention of the SEC which then required a bunch of legal work and various other financial regulation compliance issues until it seemed like they had morphed into banks.
What I'm wondering is why PE has traditionally been practiced only by high-net worth households/institutions. I wonder what it would take to get a $50k neighborhood investment club together. My father told me his father used to do this with a few friends back in Illinois in the 50s and 60s, but it seems less common now, maybe because more people have brokerage accounts and commissions are lower? Hard to say. But I don't like how "professionalized" investment has become, there's so much more to it than that, and I know for sure there's lots of small-town restaurant/grocery store/real estate deals happening that are small-scale and organized by a few friends.
> why PE has traditionally been practiced only by
> high-net worth households/institutions.
So your Father might not do this with his friends, if they were not qualified investors and he was, because if the friends lost money they might choose to sue your Father to cover their losses and they would have a decent shot of winning that case. At the very least it would cost your father a lot of time and energy and probably wipe out any gains at all the project came up with, or worse amplify any losses.
So to put together your $50k neighborhood investment club is simple if your tolerance for risk is high, and harder if you don't want to be sued by the other members. A simple partnership can often work (liability is spread around to everyone) but consult competent legal counsel before proceeding. Investing in real estate and then structuring it as a landlord deal gives you a level of protection between the investment group and the tenants, that can be handy if you get bad tenants.
[1] Caveat that anyone can sue anyone, and there are gross negligence issues that have carve outs, but generally it shields the partnership from liability.
If everything is mass market then there's no individualism
or culture.
I ask in the context of the larger debate of who deems a commercial establishment - a place of commerce - culturally relevant and which ones culturally distracting.
Does the neighborhood take a poll on a NextDoor bulletin board as to whether let a Wine bar set up shop, down the street but not a Gastropub, because you know it attracts a culturally misfitting crowd? So the majority wins? As simple as that?
Then what's stopping a billionaire buying up some four blocks and instilling his own brand of culture, you know cigar shops, vintage firearms shops and a boutique golf shop, through a bunch of proxies and trusts?
These are very valid questions that need answering if we want to meaningfully advance the debate of who gets to manufacture "individualism" and what is vended as "culture".
The constitution of a thing is partially dependent on the infrastructure behind it.
For instance, I have a local grocer who owns the grocery shop. I have asked the grocer to stock things I'd like to buy which aren't there. The grocer has stocked them. I buy them so predictably that the grocer sets a quantity aside for me individually.
These patently obvious social courtesies at a corporate level become policy decisions with a marketing campaign. If some big chain did it, they'd give it some stupid name like "YouChoose" and then have a jingle and some commercial to go along with it. The idea of engaging with the customer in this way would be commoditized an shoved down our throats.
If some entrepreneur thought of it, they'd turn it into some consumerist share-style phone app backed by $10 million in VC capital.
The first one is totally different from the last two. It's not the same thing. Quantifying a value is not the same as Qualifying an experience.
Starbucks has done this recently - trying to fight independent coffee shops, not with hiring competent people and giving them liberty to make purchasing decisions and take control of the means of producing coffee, no. They have introduced a new machine called the "clover" that supposedly makes better coffee. They are going up against local roasters and people trying to take food service seriously with yet another shitty little product from corporate america. big fucking whoopdie doo - that's all they do.
so when you have a distant billionaire try to come up with a new variation of westfield and then structure it like a process based corporation, it simply won't work.
people are sick of being characterized as consumers, the culture of consumption, sick of being advertised to where everything becomes a product with a sanitized, transactional exchange of goods and money, to go about some soulless mechanized existence. Capitalism and community are enemies.
The classic structure of neo-liberal consumer capitalism is completely incompatible with this movement - it's a fundamentally different constitution of culture, control, and capital.
I remember all the cool coffee shops used to have a Clover machine 5 or 6 years ago. I also remember it making pretty great coffee. Then they kind of disappeared and everybody went back to espresso based coffee drinks.
I actually kind of miss the Clover and the french press style coffee it made, and would be happy to frequent any coffee shop that reintroduced it.
I am clean cut, drug free, and have a regular job.
Desiring a substantive community is becoming a mainstream thing - just like community-based open source free software is now in use, well, everywhere.
This is just a total misunderstanding of what culture is.
I've been thinking about creating a tech platform to facilitate coinvestment. I have a brother who lives in Houston and we often talk about buying a rental property together, I'd like a way to track that.
Just the mechanical process of processing the payments and doing accounting for shared stuff like this can be a real pain. But I think it's a really good thing when neighbors get together and buy stuff like local buildings; rental real estate ownership (especially commercial) has been seen as something only the rich do for a long time in US, and I have no idea why that's the case.
"TL;DR: White folks stay winning."
This is not a sustainable model and I really don't get why people think because a place once had people it always should have people.
Some people fear change I guess, things should stay the same as it has always been within their life span, this realy isn't aimed at the poor who can't afford to move.
The white bit is purely about dumb rich white people thinking the world is about them because their hundreds of thousands dollar morgage weighs them down.
The two billion on 2 dollars per day are mostly not white
I've actually been poor in my life. Like on welfare government cheese Appalachian coal-mining-town-went-busto poor. And for some reason, these people improving their own neighborhood doesn't make me feel bad at all.