Banks prefer empty storefronts to lower rents?

[md-2000]

@LSLGuy

The landlord may make more total revenue with higher rents and 90% occupancy than they do with lower rents and 100% occupancy

@UltraVires

On of the things that they don’t believe is a good plan is lowering rents. Many others have touched on the reasons why. To the bank it looks like a failing property for which the bank is simply delaying the inevitable foreclosure. Other long term tenants are going to want lower rents as well.

I would also guess that the problem the bank sees, if they are in control or exercising a tight reign on an imperiled landlord - if they own mortgages with a number of other commercial properties in the area, the last thing they want is a failing business offering lower rents and depressing the entire rental market. That could cause problems for all the buildings they have mortgages on.

[jjakucyk]

@k9bfriender

Especially if the vacant space is still paying on it.

If you sign a lease, then you are responsible for fulfilling it. You may go out of business, but you still owe on it. Even if you aren’t paying, your landlord may still be charging you, with the theory of recovering that rent down the line, one way or the other. So, some of these vacant properties may still be under lease. If the landlord rents them out to new tenants, then the previous tenant is off the hook.

However, if the tenant has a “percentage rent” lease where there’s a lower fixed base rent and and an additional charge based on gross revenue, then leaving the storefront empty isn’t such a great deal for the landlord. These sorts of arrangements are apparently fairly common in restaurants and especially retail where the majority of a year’s revenue can come in just the holiday shopping season. The November/December windfall covers an otherwise below-market rent for the rest of the year.

[Snipe70e]

If the rents are lowered the value of a building will be lowered. A new building with 100,000 sq feet of rentable space that is renting at $2.00 a sq ft is worth more than an idenical building that is renting $1.00 a sq ft. The loan is based on the value of the building. If the rents lower the buildings value below loan value the the bank is holding a bad loan.

I worked in a old high rise building. A lot of our new tenants were tenants that the bank would not approve the leases on in sthe new building the company owned.

[aceplace57]

I saw this happen locally after Montgomery Wards went backrupt. The store was in the mall. They had a Service shop that sold and installed tires and batteries and did minor repairs.

All the Wards and Sears had that separate shop in the parking lot.

A buddy of mine looked into renting the old Wards service shop. It had already set empty several years. He had a terrible time even reaching anyone to discuss renting the space. Someone finally quoted an outlandish number. My buddy was already renting commercial space in another part of town. My buddy just laughed at what the Mall wanted.

That building sat empty for 10 years. The entire mall was finally razed and they built a large Target store there and a couple other businesses. It’s not a mall.

I’d just shake my head whenever I drove by and saw that wasted space. It was an ideal location and had 4 service bays. No one had any interest in leasing it. It never had a for Lease Sign on the building.

Look around at all the Sears and KMarts that have closed. Is anyone using the old Tire/Service shop in the parking lot?