ELI5 the DC loophole that makes it more attractive to have vacant DC commercial real estate
![[Post New]](/jforum/templates/default/images/icon_minipost_new.gif){kind=icon}
Anonymous
|
Why is it more attractive to a property owner to have a vacant building than a tenant paying slightly less than the owner would have liked to have charged.
In DC you see it all the time. The property owner raises rent. The tenant business owner cannot afford the new rate so they close and go out of business. Then the property in question sits vacant for years. How can the property owner of that property absorb that loss of revenue but could not afford to not increase the rent that was charged which drove the business out? Isn't losing $20K a month more impact to the bottom line than not being able to raise the rent $5K a month. |
Anonymous
| Many commercial landlords raise the rent because they don’t want the tenant to be able to afford a new ten-year lease. They think that if the value of the property is increasing, they might be able to get a different high-paying tenant done the road |
Anonymous
So the landlords have pockets deep enough to be able to miss out on over a quarter million dollars a year? Interesting. So they look at it in ten year chunks? Rather than I am potentially losing millions over the next few years, they see it as I am depriving myself of potentially a few million? |
Anonymous
I guess that it depends on whether or not they own the property outright and how many other properties that they own and have rented. If you own 50 properties and have 45 rented, you can probably eat that lost revenue pretty easily if you want to. If you are signing ten year leases or plan to sell or redevelop it’s worth it to wait. If the rent is $5k/mo and you increase rent by $5k/month (doubling your income), that’s $600k extra over a ten year lease….so what if you lose $60k in a year? Or more? You’ll just write it off against the income on your other properties, anyway. |
Anonymous
| It creates blights for the city. I wonder if it changes now that landlords are loosing more money than usual. |
Anonymous
| Commercial Real Estate tax is based on occupancy. If you have no tenants then your property tax owed goes down which decreases your most significant carrying cost. So if you want to preserve optionality to extract potentially more $$$ from your commercial property down the road, the tax structure is aligned with helping you do that by keeping your building vacant. |
Anonymous
|
I don't think there's any "loophole," just basic math.
If you think you can rent your place for X% more 12 or 24 months down the line, and those X% equal more than your current tenant is willing to pay to renew right now it makes sense to stay vacant until you get a higher paying tenant. |
Anonymous
| DC should disincentivize a property sitting vacant long term. |
Anonymous
They do - there’s a penalty tax rate for vacant or blighted commercial and residential properties https://otr.cfo.dc.gov/page/real-property-tax-rates |
Anonymous
That is not enforced. |
Anonymous
Oh it’s definitely enforced. I’m living through a renovation and the incompetent “vacant buildings” department of DCRA has repeatedly harassed me by “deeming my property vacant” just because it looks like a construction site at the moment. I’ve repeatedly demonstrated that I live here, and they agree, and then another DCRA inspector comes and slaps another sticker on threatening to tax me at exorbitant rates. |
Anonymous
That must be a recent development. https://wamu.org/story/17/09/21/d-c-failed-enforce-law-vacant-blighted-homes-says-audit/ |
Anonymous
Correct. They should charge a high vacancy tax. |
Anonymous
| DC does tax at a much higher rate for chronically vacant and blighted homes for sure. ANd also auctions off homes that have delinquent bills over years. A house on my block was charged the blighted hate which is like 10 times more than regular residential tax rate. It took 8 years but it was finally flipped and sold for over a million |
Anonymous
DC doesn’t auction off blighted homes. They auction tax liens. |