More profitable for DC landlords to "sit" on empty storefronts than rent at market rate??

[Anonymous]

See that another restaurant on Conn Ave is closing due to rent .. (UDC is landlord). Brings to mind so many empty storefronts in Wisconsin Ave and Conn, from Georgetown to Friendship Heights, from Dupont Circle to Chevy Chase. I've heard there's a tax loophole that allows large landlords to "wash" $ as write offs through empty holdings, when they could be earning astronomical rent from businesses they STILL come out ahead of the property sits empty. Why would the Mayor and Council not pass laws to discourage this? What gives?

[Anonymous]

Really interesting, do you have any sources that document this situation?

[Anonymous]

Anonymous wrote:See that another restaurant on Conn Ave is closing due to rent .. (UDC is landlord). Brings to mind so many empty storefronts in Wisconsin Ave and Conn, from Georgetown to Friendship Heights, from Dupont Circle to Chevy Chase. I've heard there's a tax loophole that allows large landlords to "wash" $ as write offs through empty holdings, when they could be earning astronomical rent from businesses they STILL come out ahead of the property sits empty. Why would the Mayor and Council not pass laws to discourage this? What gives?

Same thing happens with residential, where the problem is even worse, not just in DC but all over.

[Anonymous]

Anonymous wrote:See that another restaurant on Conn Ave is closing due to rent .. (UDC is landlord). Brings to mind so many empty storefronts in Wisconsin Ave and Conn, from Georgetown to Friendship Heights, from Dupont Circle to Chevy Chase. I've heard there's a tax loophole that allows large landlords to "wash" $ as write offs through empty holdings, when they could be earning astronomical rent from businesses they STILL come out ahead of the property sits empty. Why would the Mayor and Council not pass laws to discourage this? What gives?

Nope I don't. This is how it's been explained to me, and I may be competent wrong. But have you ever wondered why so many properties sit empty when they can command high rents? Or what a.landlord will charge a rent that is so unreasonable that no one ends up renting it... For years? There must be some incentive at play? I'm actually hoping someone can explain it. I can't bieve how many properties are empty for years at any given time on "valuable"?corridors.
..

[Anonymous]

I just googled this question and there are lots of reasons, none of which seem to be generating tax losses. While tax losses are not idea, because you cannot recoup 100% of the loss and therefore you still lose money, it may provide at least some perverse incentive in that it reduces your losses that allows you to hold to a vacant storefront with the hope of getting a higher rent on a long-term tenant in the future.

https://www.washingtonpost.com/local/i-always-wonder-why-retail-storefronts-sit-empty-why-dont-they-just-cut-the-rent/2017/06/06/9c43e074-4ac4-11e7-9669-250d0b15f83b_story.html

[Anonymous]

Anonymous wrote:I just googled this question and there are lots of reasons, none of which seem to be generating tax losses. While tax losses are not idea, because you cannot recoup 100% of the loss and therefore you still lose money, it may provide at least some perverse incentive in that it reduces your losses that allows you to hold to a vacant storefront with the hope of getting a higher rent on a long-term tenant in the future.

https://www.washingtonpost.com/local/i-always-wonder-why-retail-storefronts-sit-empty-why-dont-they-just-cut-the-rent/2017/06/06/9c43e074-4ac4-11e7-9669-250d0b15f83b_story.html

I saw the same article... I wonder if this is the same idea. I wonder why the Mayor + Council wouldn't go after perverse incentives. If you have folks willing to pay some set rental rate -let's not be socialist, something really decent, a high bar, and you hold out, increasins penalties as time passes? We've all seen them....those prime properties empty for years. Someone is somehow benefitting from that as opposed to simply operating it as an ongoing retail property at a decent rent.

[Anonymous]

Anonymous wrote:See that another restaurant on Conn Ave is closing due to rent .. (UDC is landlord). Brings to mind so many empty storefronts in Wisconsin Ave and Conn, from Georgetown to Friendship Heights, from Dupont Circle to Chevy Chase. I've heard there's a tax loophole that allows large landlords to "wash" $ as write offs through empty holdings, when they could be earning astronomical rent from businesses they STILL come out ahead of the property sits empty. Why would the Mayor and Council not pass laws to discourage this? What gives?

This happens in Columbia Heights, too

[Anonymous]

Anonymous wrote:

Anonymous wrote:I just googled this question and there are lots of reasons, none of which seem to be generating tax losses. While tax losses are not idea, because you cannot recoup 100% of the loss and therefore you still lose money, it may provide at least some perverse incentive in that it reduces your losses that allows you to hold to a vacant storefront with the hope of getting a higher rent on a long-term tenant in the future.

https://www.washingtonpost.com/local/i-always-wonder-why-retail-storefronts-sit-empty-why-dont-they-just-cut-the-rent/2017/06/06/9c43e074-4ac4-11e7-9669-250d0b15f83b_story.html

I saw the same article... I wonder if this is the same idea. I wonder why the Mayor + Council wouldn't go after perverse incentives. If you have folks willing to pay some set rental rate -let's not be socialist, something really decent, a high bar, and you hold out, increasins penalties as time passes? We've all seen them....those prime properties empty for years. Someone is somehow benefitting from that as opposed to simply operating it as an ongoing retail property at a decent rent.

They can use the tax code to increase tax on vacant commercial real estate. However, that may also lead to suboptimal outcomes. I think most people don’t mind if a storefront is vacant for 6 months to a year if it means that the next tenant is an Apple Store or something. Instead of having an endless parade of pop up Halloween costume stores, Christmas decoration stores, etc.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I just googled this question and there are lots of reasons, none of which seem to be generating tax losses. While tax losses are not idea, because you cannot recoup 100% of the loss and therefore you still lose money, it may provide at least some perverse incentive in that it reduces your losses that allows you to hold to a vacant storefront with the hope of getting a higher rent on a long-term tenant in the future.

https://www.washingtonpost.com/local/i-always-wonder-why-retail-storefronts-sit-empty-why-dont-they-just-cut-the-rent/2017/06/06/9c43e074-4ac4-11e7-9669-250d0b15f83b_story.html

I saw the same article... I wonder if this is the same idea. I wonder why the Mayor + Council wouldn't go after perverse incentives. If you have folks willing to pay some set rental rate -let's not be socialist, something really decent, a high bar, and you hold out, increasins penalties as time passes? We've all seen them....those prime properties empty for years. Someone is somehow benefitting from that as opposed to simply operating it as an ongoing retail property at a decent rent.

They can use the tax code to increase tax on vacant commercial real estate. However, that may also lead to suboptimal outcomes. I think most people don’t mind if a storefront is vacant for 6 months to a year if it means that the next tenant is an Apple Store or something. Instead of having an endless parade of pop up Halloween costume stores, Christmas decoration stores, etc.

Yes, but what's happened a lot is decent restaurants or fixtures like hardware stores are "run out"by rising rent, refusal to maintain the property on the part of the landlord, or both - and then the property sits empty for much more than 6 mo a year. An example is the Cafe Deluxe site on Wisconsin Ave near cathedral Commons...it's been empty for what, 3-4 years? They are just getting something in now.

[Anonymous]

In the commercial world ten years is a short lease. When businesses lease space they want to be able to count on being there as long as they need to. If a landlord believes that current rates are below the long term future rate, it makes sense to hold out for higher rates in the future.

As we come out of COVID nobody knows what the future holds. Commercial rents are low right now. Waiting to see what happens makes perfect sense.

Vacant storefronts create what economists would call a negative externality, it makes perfect sense for the city to tax vacant commercial property at a higher rate and enforce it aggressively to encourage landlords not to leave their property vacant.

[Anonymous]

There is retail in Columbia Heights and Petworth that sat vacant for a DECADE. Was scratching my head about this too. Seems ripe for some targeted tax policy.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I just googled this question and there are lots of reasons, none of which seem to be generating tax losses. While tax losses are not idea, because you cannot recoup 100% of the loss and therefore you still lose money, it may provide at least some perverse incentive in that it reduces your losses that allows you to hold to a vacant storefront with the hope of getting a higher rent on a long-term tenant in the future.

https://www.washingtonpost.com/local/i-always-wonder-why-retail-storefronts-sit-empty-why-dont-they-just-cut-the-rent/2017/06/06/9c43e074-4ac4-11e7-9669-250d0b15f83b_story.html

I saw the same article... I wonder if this is the same idea. I wonder why the Mayor + Council wouldn't go after perverse incentives. If you have folks willing to pay some set rental rate -let's not be socialist, something really decent, a high bar, and you hold out, increasins penalties as time passes? We've all seen them....those prime properties empty for years. Someone is somehow benefitting from that as opposed to simply operating it as an ongoing retail property at a decent rent.

They can use the tax code to increase tax on vacant commercial real estate. However, that may also lead to suboptimal outcomes. I think most people don’t mind if a storefront is vacant for 6 months to a year if it means that the next tenant is an Apple Store or something. Instead of having an endless parade of pop up Halloween costume stores, Christmas decoration stores, etc.

Yes, but what's happened a lot is decent restaurants or fixtures like hardware stores are "run out"by rising rent, refusal to maintain the property on the part of the landlord, or both - and then the property sits empty for much more than 6 mo a year. An example is the Cafe Deluxe site on Wisconsin Ave near cathedral Commons...it's been empty for what, 3-4 years? They are just getting something in now.

+1. This is exactly the problem. It's bad for the community to lose desirable businesses just because landlords want more, more, more so they blight the neighborhood. We need updated tax code to incentive keeping commercial sites rented.

[Anonymous]

Anonymous wrote:There is retail in Columbia Heights and Petworth that sat vacant for a DECADE. Was scratching my head about this too. Seems ripe for some targeted tax policy.

DC is very hard on private landlords (housing rentals) but seems to give businesses a pass? I don't want them taxed to kingdom come, but something seems to be working out a little too well for them in terms of sitting on vacant commercial real estate.

[Anonymous]

There already is a vacant property tax rate in DC. It is roughly 3x higher than the normal commercial property tax rates ($5 per $100 assessed value vs. ~$1.65 per $100).

The problem with commercial landlords is that they know how to get out of the penalty property tax system. If they pull a permit for any type of repair, they don't have to pay the penalty rate. If they put up a listing to sell the property at a ridiculous price, they don't have to pay the penalty. There's a ton of loopholes to avoid the penalty tax rate.

A lot of the vacant landlord are simply land bankers just hoping to ride the wave of price increases and sell one day in the future when they are ready to realize their gain.

[Anonymous]

Anonymous wrote:There is retail in Columbia Heights and Petworth that sat vacant for a DECADE. Was scratching my head about this too. Seems ripe for some targeted tax policy.

There were commercial properties in Shaw and H Street NE that sat vacant for 40 years after the 1968 riots.

The calculation was always the same: the upside of being able to capture future high rents was greater than the downside of forgoing puny rents right now.