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Think about this. A current tenant in a rent controlled building pays rent of $1,000/mo. (with the new cap of 5% + CPI) and the rent for a new tenant to rent in the building is $2,000/mo.
I don't care at all if we're in a recession or the biggest economic boom ever experienced. If the a tenant is under market I am going to raise rent by the rent cap (5% + CPI) every single year until there is parity between market and the rent control rate. If the tenant moves out that is great news to me. Now I can rent to a new tenant at market.
Rinse, repeat post #47. I simply am not going to waste any more time on someone who does not read and/or comprehend posts before replying to them. Have a nice day.
So what's your other option? Buy the building outright. Good luck raising capital for that or ever expanding your sandwich empire with those type of costs.
When it comes to negotiation it's all about the balance of power (or at least perceived power) and your BATNA.
Of course. Everything is negotiable. Today even if you have a form boilerplate NNN lease you can negotiate a clause in there that if prop 13 goes away the tenant can have a cap on the property tax that can be passed through each year. As I said before, it comes down to the relative strength of the two parties involved.
Example 1) You have a retail property in a market that 99% leased and some mom and pop nail salon wants to rent your space, the landlord is going to call all the shots and if any concessions are made regarding the reimbursements you better believe it's going to be made up in the base rent or any TI's or other negotiated allowances.
Example 2) You have a grocery anchored neighborhood center with the primary anchor tenant (the grocery store) being vacant for the last 2 years and you haven't been able to fill it. If Safeway (investment grade credit) approaches you to lease the entire space, you will be way more amenable in the lease negotiations and willing to give them abated rent, or good renewal terms, etc in order to ink the deal.
Rinse, repeat post #47. I simply am not going to waste any more time on someone who does not read and/or comprehend posts before replying to them. Have a nice day.
That's ok. I will still give you real world assistance and factual information when it comes to RE/Development/Finance/Acquisitions. Whether you care to learn something or just bury your head in the sand is up to you.
Rinse, repeat post #47. I simply am not going to waste any more time on someone who does not read and/or comprehend posts before replying to them. Have a nice day.
Not all commercial is a true NNN... sweet for the property owner if renting to a going concern under a long term lease.
The Hospital rents a small clinic location and it is true NNN... amazing the things that pop up... I had nothing to do with the negotiations.
I manage a post office property and the boiler plate lease holds the property owner responsible for roof, gutter, downspouts and septic if applicable... at best a modified NNN.
Rent Control's effect on me is to avoid any future rentals with beds... and to continue transitioning out of residential to commercial in areas with rent control which has meant leaving the State on occasion.
One of the renovated properties going way back has only had two tenants in 35 years... the owner is now a widower and has only increased the rent once in the last 17 years... 2 bedroom, 1 bath rental duplex in the SF Bay Area is $850 per month... owner lives on the other side...
So basically being nice could very well have dire financial consequences... this is his only rental and augments his $30,000 retirement income adding another 10k to his gross before taxes...
The idea of ownership and what it means continues to erode...
As a side comment... I have often thought wouldn't it be wonderful if all the bad landlords and tenants found each other and left the rest of us out of it...
Sorry to tell you, most if not all are NNN. Even Starbucks is NNN or at best NN. So that small business owner that you have compassion for will get hurt by eliminating prop 13 for commercial. Just like this new rent control law. We’ll see how many renters are complaining a year or two from now about 7-8% annual increases.
Heck, plenty of retailers that don’t have the leverage as Bad Debt pointed out are not only on NNN but have to pay a % if gross sales to the landlord. All depends on the negotiations and demand for space. So maybe that low-cost barber can find some Class C or lower property if they’re lucky and avoid the NNN lease. Better have a good referral network in place as he won’t be getting many walk-ins.
Well SF is part of CA, Electrician. And the obvious point I was making is that rent does not increase in a linear fashion. There will be years that people can increase it that much with little risk of losing a tenant, and then there will be times when they not only would be at serious risk, but they might actually need to decrease based on market demand (thus the reason I put up the link to the graph). Again, just look at differences between 2000-2012. Rent did not go up 5% per year. That's simply not feasible during recessionary times, and perhaps during recovery it can be raised higher (in situations without rent control). We are clearly at a high right now in regards to the Economy but that doesn't last forever. To make a blanket statement like that, I believe, is without merit.
You can believe what you want. Makes no difference to me.You’re kidding....SF is part of California? Who knew?
So there is absolutely no difference between the rent control rates in SF vs La? None whatsoever. Especially when I specifically told you I’m talking LA not SF.
Rents haven’t increased in the 2000-2010? Where did you read that? Because I know I raised my rates through those years.
The decade from 2000-2010, however, was the worst for renters. They were hit by rising rents (+12%) and declining incomes (-7%), making them significantly worse off overall.
You have your own experience telling you you’re not raising rates. Ok great. Don’t translate that to everyone doing so. You have no idea what others are going to be doing. I actually spoke to LL in California and well over the half said they are raising rates. Now that’s not scientific but it’s a decent size poll. I know two apartment buildings owners who did 3% a year every year. Now theire gonna do more. I guarantee you that most will raise rents. The only difference is now it’s capped.
There was a guy at my work who was getting a $100 rent increase every other month. They got him out which was their goal. He said before he was getting a 5% yearly raise.
Your biggest mistake is that you’re not taking in account that there is a finite amount of available rental units. And still there are more renters than available rentals. now while you’re mulling that over LLs have been raising rates astronomically our here. 15-20-25% right.....so what exactly do you think is gonna make them worry about raising it a minimum of 5% and a max of 10%? If the tenant leaves.......they can ask more.
Before a rent control tenant had a edge as their rents were significantly lower. So those guys are gonna get hit with max raises. Along with other tenants. Sorry man but you’re living in La-La land if yo7 think LL are going to tremble at raising rents.
I’ve raised my rates every 2-3 years keeping a little under going rate and if a tenant moved I brought it close to going rate. I just vacated two rentals that I’m selling. If they dont sell they're going back up for rent at close to going rate. If they sell they sell. That’s two units off the market.
Last edited by Electrician4you; 11-05-2019 at 09:14 AM..
Sorry to tell you, most if not all are NNN. Even Starbucks is NNN or at best NN. So that small business owner that you have compassion for will get hurt by eliminating prop 13 for commercial. Just like this new rent control law. We’ll see how many renters are complaining a year or two from now about 7-8% annual increases.
Heck, plenty of retailers that don’t have the leverage as Bad Debt pointed out are not only on NNN but have to pay a % if gross sales to the landlord. All depends on the negotiations and demand for space. So maybe that low-cost barber can find some Class C or lower property if they’re lucky and avoid the NNN lease. Better have a good referral network in place as he won’t be getting many walk-ins.
Actually, just like when minimum wage shot up in SF, the cost is passed onto the customer base through increase in prices, or with a decrease in staff, or a decrease in quality. Or, just like what happened all over SF, if the business is borderline successful, they’ll just close shop. Don’t listen to anyone telling you that rent is a factor for how it played out here, generally by those in denial about the consequences of MW. Most CRE rent escalators is 1-3%, a very minor factor in overhead expenses.
That being said, even though I have a rock solid NNN in my CRE in SF I am still ready to cash out. Too many potential changes too fast, and all very very bad. This change by itself could be devastating for everyone involved, and not just for the targeted property owners. These things have a tendency to escalate. For instance, with paragraph above consequences, if my tenant can’t weather the tripling of the property tax payment and I lose the tenant, I’m screwed. No doubt no one would shed a tear for me, but believe it or not I pay a **** load into the system. It’s not wise to kill off those who are true contributors just so you can take a little more.
I’m sure I’m not the only one seeing the writing on the wall and are looking to sell (I suppose this could be intentional since this will cause the property tax to be adjusted upwards for the new owner anyway). CRE is a great investment when things are going well and when the free market is allowed to have its way naturally. Things tend to be more stable, and believe it or not, more affordable for everyone. But throw more government into the mix, and lots of government greed that goes with it that leads to forced change, and things become unpredictable, and never with positive potential.
I’ll say it again, but as your lord and savior Obama said, elections have consequences. I’m planning for these consequences. Anyone with a brain (and something to lose) understands this and is preparing well beforehand, which is exactly what is happening in the OP. The alternative is too costly.
You can believe what you want. Makes no difference to me.You’re kidding....SF is part of California? Who knew?
So there is absolutely no difference between the rent control rates in SF vs La? None whatsoever. Especially when I specifically told you I’m talking LA not SF.
Rents haven’t increased in the 2000-2010? Where did you read that? Because I know I raised my rates through those years.
You have your own experience telling you you’re not raising rates. Ok great. Don’t translate that to everyone doing so. You have no idea what others are going to be doing. I actually spoke to LL in California and well over the half said they are raising rates. Now that’s not scientific but it’s a decent size poll. I know two apartment buildings owners who did 3% a year every year. Now theire gonna do more. I guarantee you that most will raise rents. The only difference is now it’s capped.
There was a guy at my work who was getting a $100 rent increase every other month. They got him out which was their goal. He said before he was getting a 5% yearly raise.
Your biggest mistake is that you’re not taking in account that there is a finite amount of available rental units. And still there are more renters than available rentals. now while you’re mulling that over LLs have been raising rates astronomically our here. 15-20-25% right.....so what exactly do you think is gonna make them worry about raising it a minimum of 5% and a max of 10%? If the tenant leaves.......they can ask more.
Before a rent control tenant had a edge as their rents were significantly lower. So those guys are gonna get hit with max raises. Along with other tenants. Sorry man but you’re living in La-La land if yo7 think LL are going to tremble at raising rents.
I’ve raised my rates every 2-3 years keeping a little under going rate and if a tenant moved I brought it close to going rate. I just vacated two rentals that I’m selling. If they dont sell they're going back up for rent at close to going rate. If they sell they sell. That’s two units off the market.
Lot of conjecture there Electrician.
You supplied your charts and I supplied mine. Feel free to take a look at it if you want. No, rents did not go up at an average of 5% per year between 2000-2012 across the board in CA. I think it's quite silly to think that way (they seldom do go up in a linear fashion like that). Your own chart even proves that (Did you actually read your link?). Had most landlords attempted to raise rents by over 15% for the 3 years starting in 2000, they would have in all likelihood lost a tenant as that was not the going rate (is that really so hard to understand?).
" I actually spoke to LL in California and well over the half said they are raising rates."
That's very scientific of you. Somehow I'm thinking the LLs you spoke to isn't a representative sample of all LLs in CA.
I'm really not concerned about how much you raised your rates either. The point I'm making is quite simple. To "guarantee" that LLs will raise the rent the maximum allowable 5% without taking into account the economy and the market rate of rent is without merit.
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