124 replies to this topic

[Mike K.]

Can you explain why many landlords prefer to maintain an empty storefront rather than lower their lease rate to fill a spot? Does it have to do something with lower taxes if a retail/commercial space is vacant?

[Mike K.]

Bump?

[Urbanistco]

Can you explain why many landlords prefer to maintain an empty storefront rather than lower their lease rate to fill a spot? Does it have to do something with lower taxes if a retail/commercial space is vacant?

 

Market rents can be complex but often times they are a basic set of comparables for like product. So larger institutional landlords maintain an empty storefront because they do not want to set a precedent on market rents. Future rental increases are typically done by CPI or options to renew at prescribed rates starting from the base rate. This is why new leases often have lots of TI, free rent, and options built in to mask the actual rental rate. Additionally, large landlords answer to investors who do care about cashflow as a surrogate of vacancy but they care more about appreciation of the asset. So as long as the triple net (NNN) rents cover expenses of the asset, the appreciation is maintained by keeping a high asking base rent for the overall building. I know it seems counter intuitive but large players can afford the game as in the long run, it works out. Similarly, how can Morguard site on an empty site at Uptown for years, big cash flow, big investor expectations. 

Edited by Urbanistco, 05 August 2014 - 11:00 AM.

[Mike K.]

Thanks for that.

 

Now what about municipal taxes? Are they impacted by empty commercial spaces?

[concorde]

I have to start paying attention to this thread, sorry Mike.  PM if I forget

 

Urbanistco pretty much has it right, however I can't answer the question as a large institutional owner.  Triple nets cover the operating costs, but don't make the mortgage payments.  I would really say large institutional owners have the resources to sit on property for a long period of time.  Large institutional owners typically are also not interested in mom and pop stores

 

To me it's a seesaw if you haven't had tenants in a space for awhile.  Sometimes you don't want to take lower offers to fill the space but are often kicking yourself a year or two later when the market turns around.  Sitting on empty space also costs substantial money in lost revenues.  Of course taking a lower rate also depresses your property asset

[29er Radio]

On the empty store front thread, imagine that vacant store front is your eldest daughter and she has been out at a club all night. Its 2 am and no one has aksed her to go home with them yet. Should she take any offer of companionship, or keep looking for mr right. Rent is important, but long term relationships are just as important and those come from mutual respect and not low ball offers (nachos from7-11 and a taxi ride home) based on a sense of desperation.

 

On the 400 sq ft front, there is a higher chance that a company needing 800 sq ft could put their kids through college there and not need to move, where as 400 sq ft space often has a revolving door attached, not because the space is faulty but because the operator has to grow to be successful. Smoking Lily, Beaver Tails, food court operators are exceptions, but very few models work in such small spaces

[Urbanistco]

Thanks for that.

 

Now what about municipal taxes? Are they impacted by empty commercial spaces?

 

Municipal taxes are a mill rate times property value. A property that attracts high rents and low vacancy will be worth more so assessed higher. A building with low rents and high vacancy will be assessed lower. So in theory, yes, empty buildings can mean less municipal revenues. Assessed values are often depressed versions of actual market values so it doesn't mitigate the municipal taxation loss, but it does soften it. This may be further softened by the method of analysis as commercial buildings can be valued on replacement value + time + market + going comparable rents + other things. So potential building revenue is only one factor of many. Often, assessors will look at overall market trends rather then isolated building performance as they do not have access to what tenants are actually paying. 

 

That all said, vacancy is not always a bad thing, often a little bit of vacancy is healthy as it allows movement of existing tenants for expansion or retraction depending on their own business cycles. 

[Mike K.]

Thanks everyone. That was much appreciated.

[Urbanistco]

No worries.

 

One issue with downtown renovations is that the primary tool of control municipalities often use is called a Phased Development Agreement. It is an agreement adopted via bylaw through Mayor and Council. It has a shelf-life of 10 years under section 905.2 of the LGA. There is often a backup section 219 covenant. I have not heard of these agreements being used on building permits, renovations, or existing structures. In a PDA you can govern land use, not land user but you may be able to work in some performance measures such as voluntary vacancies etc or prescribed municipal tax revenue. Once zoning is granted, its private land and private ownership so its a challenge for municipalities.

[Mike K.]

Could this be what Dockside Green is doing, waiting for this 10-year period to expire?

[Urbanistco]

Could be, it might not be advantageous. A PDA freezes the zoning that was applied for at the time of rezoning. So if the City of Victoria has made OCP/Zoning Bylaw changes, when the PDA expires, Dockside will fall under the new bylaws, not the old.

 

I don't know all the particulars of their agreement but if Dockside received a site specific zone (CD zone) then it won't make a difference. That said, normally the PDA is also registered as a section 219 covenant on title as a backup for situations like this. Victoria may not have done that and if that is the case, the amenities and LEED particulars will likely expire with the PDA.

 

A municipality can extend the PDA to 20 years with special approval from the Inspector of Municipalities (CSCD Ministry).

 

Also, a PDA may not have a clause requiring a municipality to renew or extend the term of a PDA so once it expires or is nearing expiry, the power is in the hands of the municipality.

[Urbanistco]

These documents must be public, I did a search and could only find references to the Dockside Green Master Development Agreement. It may be a misnamed PDA but it sounds like they used a normal Development Agreement as the tool. Not really the best practice but its hard to know the exact details without seeing the agreement. It is likely only on the staff report to Council for its introduction so its buried in some agenda somewhere that is hard to find haha.

[Mixed365]

Mentioned on a previous thread was the Public Sector Salaries. I thought it was quite interesting to look up the salaries of notables at UVic:

http://www.vancouver...pe=&CPIorderBy=

One gentleman by the name of Dale Gann, is the second highest paid employee at UVic at $312, 081. His role is President of University of Victoria Properties Investments Inc. 

Can anybody give me a break down of what exactly that is? 

[G-Man]

It sounds like he would by and sell stuff owned by the university. Just a guess though...

[VicHockeyFan]

He ran the Vancouver Island tech park at Royal Oak for almost 11 years, until last year when he was dismissed.

 

https://www.linkedin...-gann/1/258/123

 

New position:   http://www.timescolo...-kuran-1.640342

 

$300k a year, well now I know how he could afford the nice home he has in South Oak Bay, backing onto the Victoria Golf Club.

[Greg]

Mentioned on a previous thread was the Public Sector Salaries. I thought it was quite interesting to look up the salaries of notables at UVic:

http://www.vancouver...pe=&CPIorderBy=

One gentleman by the name of Dale Gann, is the second highest paid employee at UVic at $312, 081. His role is President of University of Victoria Properties Investments Inc. 

Can anybody give me a break down of what exactly that is? 

Remember that UVic has a large property portfolio to manage. Not just buildings at the University, but sites like the Legacy Gallery and building Swans is in and so forth.

 

http://www.uvic.ca/h...ity/properties/

 

/added link

Edited by Greg, 18 August 2014 - 06:59 AM.

[Mike K.]

UVic's Legacy holdings were managed by a property manager based out of the Swans Hotel building. Upon her retirement I guess UVic hired Gann to head up their property division. But for a guy come from a tech park (managing a tech park) to earning over $300k managing some buildings is a MASSIVE jump. I wonder how that salary is justified/what the basis for compensation is?

[VicHockeyFan]

UVic's Legacy holdings were managed by a property manager based out of the Swans Hotel building. Upon her retirement I guess UVic hired Gann to head up their property division. But for a guy come from a tech park (managing a tech park) to earning over $300k managing some buildings is a MASSIVE jump. I wonder how that salary is justified/what the basis for compensation is?

 

You've got the deets wrong.

 

Ceglarz took care of the properties downtown, including Swans.  Williams' will/donation required she be required to stay on for at least 10 years after his death in 2000.  It's no secret that she did not get along with much of the Swans staff, but I do not know what other commercial tenants thought of her management style.   During this time, she took care of the downtown properties, and Gann just ran the tech park.

 

In 2012, they started looking at a replacement for her, that would also take care of the tech park.  So that person was selected in 2013 and they took both jobs, rolled it into one.  Gann's job was made redundant.

[Mike K.]

Isn't that what I said in not so many words?

 

Of course Gann would now manage the tech park as well, but why the massive jump in compensation? $300k is a massive amount of money.

[VicHockeyFan]

Isn't that what I said?

 

You suggested he was at a tech park and earning less than $300k, then jumped to $300k when he took over the whole portfolio.

 

Upon her retirement I guess UVic hired Gann to head up their property division.

 

 

He never had the whole portfolio, and I presume he made close to $300k the whole 10 years and 10 months he ran the tech park.

 

Ceglarz retied in September 2013, Gann was fired spring of 2013.  All the chronology is included in the links I originally posted.