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thegoodsgt
Citizen
Username: Thegoodsgt
Post Number: 845
Registered: 2-2002
| | Posted on Wednesday, June 15, 2005 - 8:03 am: | 
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In the discussion here about the latest supermarket delay, someone mentioned the right of a property owner to open, close, build, demolish a business. That begs the question about how someone can afford to do that.
Example. If I own a storefront, I assume I have to pay taxes on that property, which around here must be substantial (at least without a PILOT in hand). Similarly, if I'm leasing a property, I must make a monthly payment to the owner. If I'm not generating revenue from that property, I'm losing money. I think it's that simple, but I'll ask anyone out there to correct me if I'm wrong.
That said, how can someone allow a building or storefront to go vacant for a long period of time? Is there some kind of tax "incentive" that they can take advantage of, a tax break similar to that which allows us private investors to offset a capital gain with a loss? If that's the case, this issue of slow development is bigger than Calabrese & Friends. It's a systemic problem that will be difficult to solve.
If someone out there is familiar with commercial real estate law and taxation, please enlighten us! |
cmontyburns
Citizen
Username: Cmontyburns
Post Number: 928
Registered: 12-2003
| | Posted on Wednesday, June 15, 2005 - 8:56 am: |
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What do you mean by "allow" a storefront to go vacant? Are you saying there are empty stores that aren't available for rent?
The commercial market is not like the residential market. There aren't car loads of businesses owners streaming into South Orange every Sunday to check out all the listing. Business leases tend to be long-term contracts. It's very tough to say "some money is better than no money," because you're going to be locking yourself into that lower, undesirable rent for a long, long time.
So yes, of course building owners are losing money. But there's more to the calculus than just monthly rent. Building owners want stable businesses who will fit well in the building (not require many structural changes) and will stay for a long time. That's hard to find in any market. Likewise, business owners are incredibly picky about locations and landlords. Sure, putting a million dollars into your building may make it more appealing, but who then can move in and afford the rent?
Not to mention the torches-and-pitchforks crowd that comes out of the woodwork any time something like a nail salon moves in. And God forbid a highly profitable fast-food restaurant should set its sights on South Orange. There would be riots in the streets. (With protesters wearing tasteful riot clogs and nannies in tow.)
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Spitz
Supporter
Username: Doublea
Post Number: 1160
Registered: 3-2003
| | Posted on Wednesday, June 15, 2005 - 9:17 am: |
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I'm not sure how the tax situation works out. I think there are a couple of experts out there who can verify this.
I have heard some business owners/downtown property owners suggest that some landlords ask high prices for rent and in fact do keep their storefronts empty because it does reduce their taxes.
About a year ago the owner of the building where Dunkin' Donuts is located (Ted Lowy) wrote a letter to the News Record stating this and suggested there be a revaluation to address this problem with the commercial properties downtown.
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Bob K
Supporter
Username: Bobk
Post Number: 8779
Registered: 5-2001
| | Posted on Wednesday, June 15, 2005 - 9:24 am: |
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Vacant properties can get their taxes reduced either voluntarily by the Assessor or by filing a tax appeal with the County Tax Board.
While I have no first hand knowledge, there have been posts here indicating that some landlords are keeping storefronts vacant in hopes of getting higher rents once the new construction is completed. Again, this is rumor.
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Phenixrising
Citizen
Username: Phenixrising
Post Number: 833
Registered: 9-2004
| | Posted on Wednesday, June 15, 2005 - 11:50 am: |
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And God forbid a highly profitable fast-food restaurant should set its sights on South Orange. There would be riots in the streets. (With protesters wearing tasteful riot clogs and nannies in tow.)
 This reminds me of the Kentucky Fried Chicken fiasco in Maplewood! |
argon_smythe
Citizen
Username: Argon_smythe
Post Number: 598
Registered: 5-2001
| | Posted on Wednesday, June 15, 2005 - 2:51 pm: |
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Keeping a storefront vacant to reduce your tax burden is about as smart as asking your boss to lower your salary so you don't have to pay as much income tax.
More likely: a vacant storefront could potentially be written off as a business loss to offset profits of other business you own operating elsewhere.
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Tom Reingold
Supporter
Username: Noglider
Post Number: 7605
Registered: 1-2003
| | Posted on Wednesday, June 15, 2005 - 3:19 pm: |
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Are we still guessing? Because there is some secret to keeping an empty storefront, and I'd love to know what it is. If we knew what it is, we might be able to get people to fill them.
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Two Sense
Citizen
Username: Twosense
Post Number: 218
Registered: 7-2004
| | Posted on Thursday, June 16, 2005 - 9:18 am: |
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The market value of a commercial building rationally might be 8x-10x its rent rolls. So, 5,000' square at $25/foot/year might equate to a market value of $1.25 million, but at $20/foot, its value is only $1 million -- $250,000 less. Forgoing $20/foot for a year costs $100,000 before taxes, but maybe only $60K-$70K after taxes. Importantly, at the end of the vacant year, market rents may be $27/foot, which might equate to a market value of $1.35 million. So, while holding out for the "right tenant" in an appreciating market may result in foregoing income in the short-term, it easily can be eclipsed by higher market valuations for a property.
If a landlord settles, in this example, for the $20/foot tenant, tied to a 5- to 10-year lease, he/she has set the value of his/her building for the next 5-10 years. Unfortunately, many of S.O.'s major commercial landlords are absentee and older, and care more about minimizing current income and taxes, and appreciating value of their real estate portfolios, than the retail mix of our downtown.
The arguement about suppressing real estate taxes is specious, since most leases are triple-net, requiring tenants to pay all taxes, even as they increase. |
mrosner
Citizen
Username: Mrosner
Post Number: 2006
Registered: 4-2002
| | Posted on Thursday, June 16, 2005 - 11:59 am: |
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Two Sense: Good post and well said.
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