COMMENT OF THE DAY: THE RENTS ARE TOO DAMN HIGH “Finally some progressive thinking from a Houston property owner. Houston is filled with vacant junk space left over from failed retail projects priced at ridiculous, speculative prices. The kind of development necessary to pay the outrageous rent asked by property managers and owners for dilapidated spaces just isn’t supported by the market here. There are only so many Applebees etc. that can be crammed into a given area. I’ve never figured out why keeping a space vacant is better than reducing the rent and making it accessable to artists, creatives, and small business owners. If things go well for them the neighborhood becomes more viable and lively, crime goes down, rent goes up and it’s on to the next neighborhood. It’s a win for everyone.” [JE, commenting on New Arts Complex Planned for Abandoned JCPenney at West Oaks Mall]
Sign up for the Newsletter
It’s really a simple concept on why Landlords and Property Owners can’t accept low/below market rents. The overall value of the asset will drop with lower rents (sounds like a no brainer, right?). A vacant shopping center has the potential to achieve higher rents than a shopping center with below market rents and leases that are locked in for multiple years. Any future owner of the shopping center will be forced to inherit a below market income stream. That’s why most Landlord’s will settle for tolerating a vacant center.
agree. Vacant building / units is the market telling you your charging too much. Lower the rent, fill the space, and lift rents later once its an option.
So um, yeah…who pays for air conditioning?
A year ago, my business was looking for rental space. We found a really ideal spot, but the rent was unaffordable. We asked the landlord to decrease it by 30%. He said no, so we moved on.
I drove by the space yesterday, a year later, and it’s still vacant. He could have made $30,000 in one year off of my business if he’d said yes.
This seems to happen all over Houston and I simply don’t understand.
Um, The millionaires and billionaires and corporations that own them can afford to let the sit vacant for years because our tax code allows “losses” and maintenance on these vacant assets to be deducted. They are not losing a dime, just laughing all the way to the bank.
This is everywhere in real estate, not just landlords. Homeowners and commercial real estate owners do the same thing when selling. It’s definitely odd, but I guess losing extra money in order to keep telling yourself things are good is worth something to a lot of people.
@Jon, the tax benefit is 35% of the expense, at best. Unless you have gains or other income to offset that, and depending on how ownership is structured, losses aren’t a very good deal in the long run. I think a lot of it is ego, and owners thinking “there’s no way I’ll take a lower rent”. Later on, they wish they had.
Is the JC Penny at Northwest Mall still vacant? A long-time employee at the Visible Changes next door to the vacancy told me years ago that Wal-Mart wanted the space to put in one of their new, 2 story urban style Wal-marts but the landlord didn’t want a low class tenant. Much better to have both anchor stores abandoned and the rest pretty much sport shoe and teen girl clothing stores. Ego and taxes – I think you are both right.
“Artists and Creatives” (ha) tend to default.