[HN Gopher] Small Businesses in Crisis as Rising Numbers Unable ...
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Small Businesses in Crisis as Rising Numbers Unable to Pay Rent
Author : rolph
Score : 56 points
Date : 2024-06-29 19:01 UTC (4 hours ago)
(HTM) web link (www.newsweek.com)
(TXT) w3m dump (www.newsweek.com)
| jauntywundrkind wrote:
| Meanwhile there's unoccupied storefronts en-masse all over my
| city (DC). Its not something I thought I d miss in the world, but
| this small retail store thing seems like it's totally crushed
| out, between Walmart-ification & Amazon.
|
| What I haven't seen is the return of more affordable interesting
| local spots. We have a couple dive-y places that've hung on, but
| there's been very few below-average cost places that have opened.
| It seems unlikely but maybe someday there'll be some rebalancing,
| rents will go down, people will start trying to put up more down
| to earth accessible experiences & options.
| tharmas wrote:
| I don't share your view. I think rhe landlords will eat
| everyone's wages. We are entering neo feudalism.
| awksedbashesc wrote:
| Yep we just work online from home and will have to hustle to
| make rent each day
| chiefalchemist wrote:
| Residential and commercial real estate will price what the
| market can bear. Raise the min wage... Housing will follow
| suit.
|
| Commercial, as I understand it, can't lower prices because
| that devalues the unit / building. To them, empty is better
| than offering a lower lease price
| AlexandrB wrote:
| So it's a "market" where prices can only increase. Seems
| like something will have to give eventually.
| nothercastle wrote:
| Illiquid markets have poor price discovery. If the price
| drops below stated value typically transactions stop but
| prices take a long time to drop
| nothercastle wrote:
| Real estate is owned by large firms that use the real estate as
| loan collateral. If you rent out space for less than you state
| it's worth you have to restate the asset value and possibly put
| up more collateral which you don't have or is better allocated
| elsewhere. There are a lot of shell games being played and
| eventually the music stop, assets get liquidated, loses get
| realized but until then property stays empty. There is no
| natural clearing mechanism that forces firms to take market
| value losses when they happen so the incentive is to pretend
| there are no losses until they are so spectacular that the
| entire firm goes bankrupt
| kurthr wrote:
| Exactly, came here to say this. For many that do operate the
| real estate there are loans to leverage the property and
| those loans come due if rental rates (or sale prices) fall
| below a limit stated in the loan. That's part of why you'll
| get free months rather than a reduced rate, but also why so
| much is empty.
|
| Often the commercial part of 5/1 and 5/2 designs is a loss
| where all the profit is in the residential above it (and for
| code acceptance).
| AtlasBarfed wrote:
| They should just make them into storage units
| lotsofpulp wrote:
| This is not true. Lenders are not stupid, they are not
| going to be fooled by giving away 11 months free and
| charging a higher rent for 1 month. Or for giving away 1
| month and charging a higher rent for 11 months.
|
| Commercial real estate loans will have a provision to
| periodically analyze the property's revenue (not just
| monthly sticker price). See debt service coverage ratios.
|
| https://www.investopedia.com/terms/d/dscr.asp
| mjevans wrote:
| Right, those bubbles need to be popped so the cysts can be
| drained and the patient (economy) recover.
| lazide wrote:
| The size of this cyst is so large, it will likely cause
| sepsis if it gets punctured. Which is why regulators are
| being so careful around it.
| scottLobster wrote:
| So back to ZIRP, let's supersize this cyst until it pops
| all on its own, and then we can spend the entire federal
| budget on a bailout and hyperinflate the currency, but
| damn those equities will moon!
|
| I know I left the analogy, but the point is being
| "careful" and being unwilling to endure productive pain
| is what got us here.
| lazide wrote:
| Yup.
|
| So are you signing up to go bankrupt first?
| FireBeyond wrote:
| This is the perfect storm, commercial landlords versus
| small business owners. Commercial landlords doing their
| thing, while many small business owners think that they
| are a sacred cow to the country and are constitutionally
| entitled to a profitable enterprise.
| fxtentacle wrote:
| Many small business owners are just so tight on cash flow
| that trying to raise rent on them is akin to squeezing
| blood out of a stone.
|
| Fwiw, I know a small business owner who closed his
| bakery/restaurant because his landlord raised prices and
| he couldn't find another place where the financials would
| have worked for him. Raising prices isn't an option if
| your customers don't accept higher prices.
| lazide wrote:
| Yup, and a lot of them have been burning what little cash
| they have remaining trying to do the same thing the
| commercial landlords have been trying to do - get
| business going again post-COVID.
| charlie0 wrote:
| This 1000%. The only real solution is to let it all crash and
| burn, but they keep getting bailouts.
| underseacables wrote:
| Where? I live in Dupont Circle. Are you talking about in
| Southeast? I'm not seeing empty storefronts except in really
| high crime areas.
| downrightmike wrote:
| poverty creates crime
| adamcoolguy wrote:
| fun
| ethbr1 wrote:
| Relevant bits:
|
| >> _A majority of 54 percent of small business owners surveyed by
| Alignable said that their landlords were charging them more now
| than six months ago, with 11 percent saying their rent has
| increased by over 20 percent._
|
| >> _According to Alignable, only 32 percent of small businesses
| founded before March 2020 are now earning as much every month as
| they were before the pandemic._
|
| So landlords are probably rotating financing onto higher rates
| and trying to pass their interest charges to tenants, who haven't
| sufficiently increased prices to compensate.
| entangledqubit wrote:
| From what I understand, commercial real estate is also going
| through some devaluing so maybe those rents _should_ be going
| in the other direction? This seems like a last ditch attempt to
| keep things together long enough until rates come down (I 'm
| not sure they'll come down enough in the near term.). I'm
| hoping businesses choose to move - or maybe go storefront free
| for a while - to speed up the correction. (I've noticed several
| businesses operating (purely?) out of a nearby storage place
| for a while now.)
| downrightmike wrote:
| Yes, the delay and deflect mentality is in full swing in CRE
| and in the other bubbles as well. CRE has been a zombie since
| 2008.
| chatmasta wrote:
| Intuitively, it seems rare for any rent-seeking business
| (such as a landlord) to _decrease_ prices, especially for an
| active tenancy. But even for a vacancy, they will only do
| that when they are absolutely forced to, and they will delay
| it for as long as possible (better to wait two months to fill
| a $1k /month vacancy than to reduce it to $800/month).
|
| On the other hand, they will happily increase prices without
| being forced to, especially since they can do that while they
| have an active tenant.
|
| Why would a landlord ever decrease the price of an active
| tenancy? It would only happen if the tenant threatened to end
| the tenancy. That's more likely for commercial tenants than
| residential, but it still requires a higher "activation
| energy" than its corollary, where the landlord increases the
| price on a whim.
| mnky9800n wrote:
| I suppose then you are simply arguing for strict regulation
| on when a landlord can increase rents.
| lazide wrote:
| The answer is when the market turns - from going up or
| steady, to down.
|
| If they can.
|
| The big issue with rents right now IMO, is that commercial
| real estate typically has short length adjustable rate (or
| even ballon) financing, which causes catastrophic problems
| when you have a combination of:
|
| + rising vacancies and/or decreasing rents (aka reduced
| cash flow)
|
| + increasing finance costs.
|
| Which is common when we enter a recession due to increasing
| borrowing costs.
|
| The landlord either has to burn their free cash hoping for
| a recovery, or default. If it's a short period of time, the
| first can happen. If it's a fake out, then they're left
| with no cash and still go bankrupt - so then need to
| liquidate, but it's often when a bunch of other folks are
| doing the same, so prices go through the floor and it's a
| bloodbath for existing investors.
|
| And since the low interest rate environment was going on so
| long (with QE even!) almost everyone was leveraged to the
| gills on cheap credit, often to the point they had little
| to no free cash flow even at that point. It wasn't just
| commercial of course - residential properties stopped
| having positive cash flow in some cases nearly a decade
| ago, but still kept going up. Residential financing offers
| more opportunities to insulate oneself from this kind of
| crazy though.
|
| It happens normally of course due to the business cycle,
| but this has been an exceptionally long time without real
| monetary tightening (since well before '08), so the
| overhang is bigger.
|
| It's why all those dead malls are still sitting there.
|
| So, in the fashion of wil-e-coyote off the cliff, no one
| wants to look down. Because it's a long way down.
| marcosdumay wrote:
| That's basically the reason why many people claim a bit of
| inflation is good for an economy.
|
| The same thing happens on lots of different contracts.
| dugmartin wrote:
| When I had a commercial building mortgage it was on a 30-year
| note that rate adjusted every 5-years. Landlord's whose
| mortgages are adjusting this year are going to have to increase
| rents to keep their cash flow in place as rates are a _lot_
| higher than 5 years ago.
| theptip wrote:
| Additionally, I believe you can also get a margin call on
| your financing if you lower the rent, so there are perverse
| incentives to keep spaces empty which can push against a
| correction in prices.
| jrmg wrote:
| Calling out stats like this makes me suspicious about the
| quality of the statistical analysis:
|
| >> _A majority of 54 percent of small business owners surveyed
| by Alignable said that their landlords were charging them more
| now than six months ago_
|
| Doesn't rent, even at the best (worst?) of times, basically
| always rise every year, at least matching inflation? Half of
| businesses experiencing a rent rise in half a year would be
| normal.
| uxp100 wrote:
| It doesn't have to match inflation, and there is a little
| circularity here, since (residential) rent is factored into
| inflation. I don't have any insight into commercial rents,
| but my experiences in residential renting in the 2000s and
| 2010s would indicate no, yearly rent increases are not
| expected. They happened from time to time, but far from
| yearly. Maybe Twice in 10 years? And rents have gone down
| when the housing market drops, though you might have to move.
| I'm not sure this really means anything though. It's more
| like, how often do you want to evaluate the market. It's made
| easier by (possibly cartel creating) software that automates
| the process now though, so things could be different. But the
| survey question does seem like it doesn't mean that much on
| its own to me as well.
| fxtentacle wrote:
| Bankruptcy by greedy landlord is also becoming more common in
| Germany, for example
|
| "owner of iconic Berlin department store KaDeWe has filed for
| bankruptcy, citing drastically increase renting costs"
|
| https://www.dw.com/en/germany-kadewe-department-store-group-...
| listenallyall wrote:
| > who haven't sufficiently increased prices to compensate
|
| Increasing prices doesn't automatically result in more revenue
| for the business. Customers have choices, and small businesses
| are the most vulnerable.
| petermcneeley wrote:
| A country that stops making things will eventually stop buying
| things.
| whoknowsidont wrote:
| When are we going to address the landlord problem? Utilizing
| places as assets is so incredibly damaging to our society.
| nathanaldensr wrote:
| That depends on what you mean by "the landlord problem." Are
| you alluding to ending private property ownership (communism)
| or something else?
| lotsofpulp wrote:
| Marginal land value taxes, with even higher taxes the longer
| the space stays empty.
|
| Wonder if enough young/working people will ever wake up to
| realize earned income tax is penalizing them for working, and
| flat (and extremely low) land value taxes with myriad
| loopholes like 1031 exchange, senior discounts, and faux
| exemptions for things like agriculture are basically a feudal
| system to maintain the socioeconomic order.
| _heimdall wrote:
| That's a proposed solution not a problem definition. What's
| the "landlord problem" that needs to get fixed and why is a
| land value tax the best option?
| drekk wrote:
| I'll just quote from Adam Smith as to the problem. I
| think the proposed solution is good. I think "best
| option" is needlessly specific, and subjective. No need
| to let the perfect be the enemy of the good.
|
| "As soon as the land of any country has all become
| private property, the landlords, like all other men, love
| to reap where they never sowed, and demand a rent even
| for its natural produce. The wood of the forest, the
| grass of the field, and all the natural fruits of the
| earth, which, when land was in common, cost the labourer
| only the trouble of gathering them, come, even to him, to
| have an additional price fixed upon them. He must then
| pay for the licence to gather them, and must give up to
| the landlord a portion of what his labour either collects
| or produces. This portion, or, what comes to the same
| thing, the price of this portion, constitutes the rent of
| land, and in the price of the greater part of
| commodities, makes a third"
|
| -- Adam Smith, Wealth of Nations
| FactKnower69 wrote:
| every individual who gets their money by taking it from
| someone else through withholding shelter is a drain on
| the economy when they could be working a job that
| produces goods or services like everyone else
| clob wrote:
| FWIW communism speaks more to ownership of the means of
| production than home ownership.
|
| Home ownership doesn't produce anything.
|
| Even without leaping to a hypothetical economic system it's
| possible to allow owning one home for your residence and not
| another for renting out.
|
| I don't advocate anything here particularly
| fizx wrote:
| I think we're alluding to making private property ownership
| more accessible, by making it more favorable, tax and
| otherwise, to own one house or small-business-zoned property,
| but less favorable to own many.
| swayvil wrote:
| Maybe communism, or something, is the way to go. The economy
| is the lifeblood of our society. Surely we don't want its
| form to be dictated by something as whimsical as a
| marketplace.
| cscurmudgeon wrote:
| > Surely we don't want its form to be dictated by something
| as whimsical as a marketplace
|
| Yep, much better to be dictated by something less
| whimsical, e.g., a party committee. /s
| swayvil wrote:
| Assuming that distributed control is invariably going to
| turn into a fight (spending every available resource in
| the process), yes, centralized control seems to be the
| answer.
| cscurmudgeon wrote:
| > centralized control seems to be the answer
|
| Yep, worked perfectly for East Germany, USSR and works
| great for North Korea.
|
| An omniscient committee of a dozen party members will
| know better than hundreds of millions what is better for
| the hundreds of millions because humans are alike and
| predictable. /s
| dzink wrote:
| How about building places? My grandfather built his own house.
| The Zoning system restricts where and how houses can be built.
| Open up more land and incentivize people to build - maybe
| eliminate capital gains on first home construction for first
| time home buyers. You would have a lot more people who gain
| experience building homes and thus a lot more home building
| happening as they may continue after the first one.
| bcrosby95 wrote:
| Lots of people can't change a light bulb much less build a
| home. Most of the cost of building one is labor - the
| underlying materials are actually pretty cheap. I've seen
| home kits for as low as $8k that includes the lumber,
| trusses, cabinets, siding, etc.
| yial wrote:
| I'm not doubting you - I just don't think I'm looking in
| the right places. But where have you seen these home kits ?
|
| I say this having just built cabinets, an 8x12 shed, and a
| few other things where the lumber alone... for example, the
| subfloor for a room I redid the flooring in was $400 alone.
| But I may be buying things the wrong way and I would love
| to find a better way!
| poldk wrote:
| Birth rates dropping means we may just end up wasting energy
| and materials which we can't really afford to do given
| environment
| joe_the_user wrote:
| I think the situation you allude is something like the "buying
| without caring whether you are a landlord" problem. A
| combination of speculation and the US printing money to
| backstop property values results in a situation where large and
| small investors buy property primarily for the appreciation
| and, sure, they'd like to get rental income but getting rental
| income is a high priority so they're OK pricing tenants out of
| the market and behaviors that result in empty buildings that
| still increase in value.
| cscurmudgeon wrote:
| When are we going to address the government overregulation
| problem?
|
| > Utilizing places as assets is so incredibly damaging to our
| society.
|
| That only happens because the govt. in cahoots with NIMBYies
| restricts new development while we have a rising population.
|
| This is simple math and economics.
| clob wrote:
| urbanization not sprawl though
|
| simple transportation and ecology
| cscurmudgeon wrote:
| Either will help, but Nimbyies block one and call for the
| other to happen!
| text0404 wrote:
| > That only happens because the govt. in cahoots with
| NIMBYies restricts new development while we have a rising
| population.
|
| there is plenty of unused housing inventory. the problem is
| that people can no longer afford rents.
|
| > When are we going to address the government overregulation
| problem?
|
| don't worry, the supreme court just overturned the chevron
| doctrine. hope you weren't for right-to-repair or net
| neutrality! but pesky "overregulation" right? it's all bad if
| it comes from "the government."
| cscurmudgeon wrote:
| Respectfully, plenty of data below disproving what you say.
|
| > there is plenty of unused housing inventory
|
| False: https://www.reddit.com/r/badeconomics/comments/musne
| 8/dispro...
|
| What do you say about cities losing literally hundreds of
| millions on housing funds?
|
| https://www.mercurynews.com/2024/04/13/audit-san-jose-
| failed...
|
| > the problem is that people can no longer afford rents
|
| And that is because supply is low. Go to the root cause of
| that:
|
| https://sfstandard.com/2024/04/08/san-francisco-new-
| housing-...
|
| > San Francisco approved just 7 new homes in 2 months. Why?
|
| https://scott-wiener.medium.com/yes-supply-demand-apply-
| to-h...
|
| Supply/demand is proven science in housing.
|
| > it's all bad if it comes from "the government."
|
| The other side of the coin is:
|
| It's all good if it comes from "the government."!
|
| https://southpark.cc.com/video-clips/9bipvp/south-park-
| the-g...
| poldk wrote:
| Simple math and economics take is its old people caretaking
| the regulations and the nimbyism to insulate their own lives
|
| Your take is still filled with euphemism for such things
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