Commercial Real Estate Vacancy

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boogiehead
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Joined: Wed Sep 27, 2017 11:45 pm

Commercial Real Estate Vacancy

Post by boogiehead »

I live in the downtown area of a suburb. 5 years ago most stores were predominately mom and pop shops, but most of them have closed now or have turned over at least once. One block originally had an instrument store, dance studio, and a karate studio. From reading the local newspaper, the landlord wanted to increase rent to "market" price when the leases were up, but none of them were able to pay that so its been empty for over a year now. With the pandemic looming I doubt that these stores will be rented out anytime soon, but it seems like there is no urgency in renting these units out, especially if its below "market" price. I can't imagine being a landlord and not collecting rent for a year let alone two years plus. Is there someone in the commercial real estate market that can explain how these commercial real estate owners can survive?
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Callisto
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Joined: Tue Apr 14, 2020 12:24 pm

Re: Commercial Real Estate Vacancy

Post by Callisto »

I only do residential, but from what I understand from friends that do commercial, it ends up being worth waiting for a tenant if you have a very desirable space. If you have the most (or highly) desirable space in an area, the right tenant will pay you far greater than market, and stay for a long times. If you don't have that space readily available for them, then you've completely missed out.
bkslaintesj
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Joined: Tue Jul 10, 2018 8:32 am

Re: Commercial Real Estate Vacancy

Post by bkslaintesj »

I have wondered the same thing as I often see vacancies for months or even years.

One thought is that commercial landlords probably have several properties and can afford to balance the losses against other profitable long term leases while they wait for the right tenant to fill the vacancy.
000
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Re: Commercial Real Estate Vacancy

Post by 000 »

Isn't most Commercial RE owned by investment organizations not individuals?
tim1999
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Re: Commercial Real Estate Vacancy

Post by tim1999 »

I'm familiar with a freestanding restaurant building in a prominent location, part of a larger commercial/retail strip property, that sat oddly vacant for 15 years because the owners would not lease it to anyone other than a large restaurant chain paying premium rent. Numerous small mom&pop type restaurant operators wanted the location but the owners refused. Eventually its condition was so deteriorated that they had to demolish it, and they collected zero rent during that 15 years. Weird logic to me.
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firebirdparts
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Re: Commercial Real Estate Vacancy

Post by firebirdparts »

tim1999 wrote: Mon Sep 28, 2020 8:42 pm I'm familiar with a freestanding restaurant building in a prominent location, part of a larger commercial/retail strip property, that sat oddly vacant for 15 years because the owners would not lease it to anyone other than a large restaurant chain paying premium rent. Numerous small mom&pop type restaurant operators wanted the location but the owners refused. Eventually its condition was so deteriorated that they had to demolish it, and they collected zero rent during that 15 years. Weird logic to me.
I'm totally ignorant, but going by what I see through the windshield of my car, this is totally normal. It was normal before the internet, to be honest. With amazon and Covid, there's not going to be tenants to fill everything, but there are big stores around here that have been empty for 25 years. The population is not really growing; If somebody builds a new store, then somebody has to tear one down. You can only eat in one restaurant at a time.
A fool and your money are soon partners
arsenalfan
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Joined: Mon Dec 09, 2013 12:26 am

Re: Commercial Real Estate Vacancy

Post by arsenalfan »

Part of the equation maybe that the loss is active and offsets their gains elsewhere .

Most commercial folks I know qualify as active real estate professionals (51% of working time spent on it, other criteria, etc). This enables them to count the losses as active, and can offset cap gains/other tax liabilities.

For this reason, and the larger one that I enjoy RE, I am considering getting a realtor license and actively managing my properties/developing new ones, while simultaneously decreasing my W2 day job to 2.5 days per week or less (so <49% of my work per year). This can reduce my tax burden to zero.
000
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Re: Commercial Real Estate Vacancy

Post by 000 »

firebirdparts wrote: Mon Sep 28, 2020 8:52 pm I'm totally ignorant, but going by what I see through the windshield of my car, this is totally normal. [...] there are big stores around here that have been empty for 25 years.
I can confirm I see this too IRL where I live.
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