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

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[quote=Anonymous][quote=Anonymous]As someone who works in commercial real estate, there are a number of reasons that properties sit empty.  Tenants typically want the landlord to invest a certain amount of money in tenant improvements up front and then the Landlord's investment is amortized over the term of  the lease.  That is a big upfront outlay of dollars  by a landlord, both  in paying for the tenant improvements and paying for the  leasing commission to the landlord broker and the  tenant broker.  So a landlord wants to make sure that  the tenant  is going to  be there paying rent for the long haul, otherwise that is a lot of money wasted up front.  So, especially if the landlord  owns the  property debt-free---and a lot of properties  in the Conn  and Wisc corridors have been owned by the same families for a long time, the landlord will take their time underwriting tenants to find a good credit risk.  Even pre-covid, it was difficult to get retail tenants, as the internet  has  severely impacted bricks and mortar dry use retail (like  clothing stores, etc.) and compared to downtown neighborhoods there is not enough residential density in upper NW to support endless restaurants.  
Sometimes properties sit when a building owner wants to redevelop the property to a more intensive use and is biding their time until all the tenants in the block have been bought out or had their leases expire.  And while DC's commercial landlord  tenant laws are nowhere near as hostile to  landlords as the residential L&T laws, DC is still a tougher  place to evict tenants than VA or MD so landlords are cautious about letting a "low cost" user take the  space as/is, because it may be difficult to get them out.

And finally---this is a bit of a digression but most people are unaware of it-- in 2019, DC jacked the transfer and recordation tax rate on commercial property to 5%---the highest in the country.    So in a marginal retail  leasing environment, holding a property vacant while you try to assemble enough surrounding properties  to convert to residential is a viable strategy.  This is an example of where good city planning and the anti-business tax greed of the progressive council are in direct conflict.  There are  a lot of doctors/dentists and other  professional service offices in the ground floor and basements of apartment buildings on Connecticut avenue.  They are a great amenity to the community---my kids' pediatricians occupy such space.  But because of the 5% transfer and recordation tax, it is no longer cost efficient for multi-family building owners  to continue to lease such spaces---because when they go to  sell their building they will incur a 5% tax on the entirety of the  sale rather than the 2.5% tax if the building was solely residential.  So on a $100M sale, the transfer & recordation tax is $5M if there is a drop of commercial use in the building, whereas it is $2.5M if the building is purely residential.    [/quote]

Thank you for this insight, but I don't think it really answers why commercial landlords are charging astronomical rents per month and keep raising them, even when it then drives a restaurant that does "good" business out. Ie, the restaurant would stay if the rent didn't keep soaring to unobtainable prices. In our neighborhood weve ended up with only fast food and fast express (high volume businesses). And banks. How does adding more residential density change anything? A sit down restaurant can only seat so many at a time. Perhaps the rents are what need to to be looked at, and a penalty for properties that sit empty for ages. [/quote]

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