Ready for a Commerical Real Estate Crackup?
Posted 08-24-2019 at 01:44 AM by jbgusa
The other day I was walking down Mamaroneck Avenue in White Plains, and its cross-major avenue East Post Road. The area is prosperous. The streets are well-maintained. Automobile and foot traffic is brisk. But there's something wrong with the picture. About one-fifth or more of the store fronts are vacant, some since May 2017, when my law practice moved to a Grade B commercial space.
I do believe there are a variety of culprits, including larger, more modern enclosed malls, aggressive parking enforcement and most of all the Internet. People no longer need to shop in the stores. However I believe they would if the cost structure were able to compete with the Internet. More directly put, if commercial rents were lower, the prices in stores would not be so high. There are only a handful of places that sell pizza by the slice, or that you can otherwise get out of, for lunch, at less than $12. They have to pay the rent. Ditto non-foods.
Now the landlords aren't greedy. They have to pay their mortgages, based upon long ago real estate values.
Near where I reside, in a nearby village, there is a huge, largely vacant commercial building. A developer bought it, basically, for assumption of debt. The developer needs to put in around 270 residential units. The developer, not surprisingly, is encountering major pushback from the community, particularly since the 270 units would be on one-fourth the land that 250 units currently occupy.
My point of both these vignettes is that someone is going to have to take a major bath, most likely the mortgage holders and their investors. Or are we going to sit there endlessly with deteriorating, vacant real estate, waiting for some "sucker" to pay its "true value." Don't count on that happening any time soon. The other option is an "adjustment of value" or a crash.
I do believe there are a variety of culprits, including larger, more modern enclosed malls, aggressive parking enforcement and most of all the Internet. People no longer need to shop in the stores. However I believe they would if the cost structure were able to compete with the Internet. More directly put, if commercial rents were lower, the prices in stores would not be so high. There are only a handful of places that sell pizza by the slice, or that you can otherwise get out of, for lunch, at less than $12. They have to pay the rent. Ditto non-foods.
Now the landlords aren't greedy. They have to pay their mortgages, based upon long ago real estate values.
Near where I reside, in a nearby village, there is a huge, largely vacant commercial building. A developer bought it, basically, for assumption of debt. The developer needs to put in around 270 residential units. The developer, not surprisingly, is encountering major pushback from the community, particularly since the 270 units would be on one-fourth the land that 250 units currently occupy.
My point of both these vignettes is that someone is going to have to take a major bath, most likely the mortgage holders and their investors. Or are we going to sit there endlessly with deteriorating, vacant real estate, waiting for some "sucker" to pay its "true value." Don't count on that happening any time soon. The other option is an "adjustment of value" or a crash.
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