I've been going out to a burger joint by my office for about 15 years now. The area used to be a bustling retail and industrial area. The big retailers (Walmart, Sams, small mall) have all shut down and moved to the new latest and greatest retail area (I-20). The industrial part is still going well, but there is not much traffic through the area anymore.
The last two proprietors of the burger joint have gone out of business in fairly short order, and the present one told me today that, barring a miracle, he will close this week after 4 months. The place does a great lunch business, but after about 3:00 PM (when the industrial crowd has had their lunch), there is just no traffic because all the retail business are gone. One thing that both this and the previous proprietor have told me is that the rent on the place is way too high relative to the revenue that can be generated by a restaurant business in that area, and the nature of the property (owner does not keep it in good shape causing the proprietors to spend money on things they shouldn't have to), and relative to what other commercial property is renting for in the area.
Yet the owner will not relent on the rent, and insists that the right business model will succeed there such that the high rent can be paid. The past three businesses have tried different approaches. The previous proprietor owns two quite successful burger shops in nearby cities, so he knows how to make them work. The present proprietor would be content to work a lunch only business, but can't afford the rent and the maintenance costs to fix the building and equipment. It seems rather unlikely that someone else is going to open up shop given the three recent quick failures.
A friend of mine owns a bakery and sandwich shop in a nearby town. His business does very good because of catering and cakes, but the area in general is declining from a traffic standpoint because retail is moving out to a major highway. There is a larger abandoned KFC very near his bakery that he would like to rent because he could use more space. The property owner jacked the rent up, and KFC bailed. This place has been empty for six years, and my friend has approached him repeatedly with novel offers to entice him into renting (as have others), but the guy is asking such ridiculous rent for the site and won't budge, so the place just sits empty. The guy owns several other fast food sites, but all in much better areas.
There is quite a bit of commercial property around my office that has sat empty for extended periods. I've heard similar stories from businesses who have tried to rent those spaces as well.
My question is, isn't it better to make at least some money from a property than none at all? I can't quite fathom paying property taxes on a site year after year without that site generating any income. I don't understand the the rationale behind sticking to a desired rental rate to the point that you make nothing for long periods, especially in declining areas. Is it a tax write-off? Maybe there are just a bunch of stubborn property owners around here.
Last edited by jbhtexas; 06-18-2009 at 06:38 PM.
"Don't worry Boss...they can't do nothin' 'til they're through sparklin'..."
I'm curious how this works too. There are several places in the Des Moines area that I would consider to be pretty good locations for certain business and they have sat vacant for several years. You'd think at some point the owners would have to reduce the prices in order to turn some money on the properties.
I think it's pretty simple. The owner has plenty of money and doesn't need anymore.
I agree with you some rent is better than none, but I guess it's like an average guy holding out to go out on a date with an above average girl. Sometimes it works, sometimes it doesn't.
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