Robinson Renaissance

[Dr Beard Face]

Kind of crazy how commercial rates have continued to climb despite all of the inventory and so many people moving to WFM. Post pandemic, I was eyeing a potential move in case my landlord did something with the building we've been in for 30ish years. I was thinking with all of the vacancy, I could get a steal... and really? Nope. They'd apparently rather sit on empty inventory than admit that these properties don't command the rents they used to.

Arvest Tower has the best space for cheaper offices downtown. 17.50-19/sqft for spaces with a good TI allowance on a regular multi year lease, or executive suites with wifi/ coffee/ water services included for under $500 for an office for a 6 month lease, or $515 for mtm. These offices were done last year too, so nice and new!

[Dob Hooligan]

Kind of crazy how commercial rates have continued to climb despite all of the inventory and so many people moving to WFM. Post pandemic, I was eyeing a potential move in case my landlord did something with the building we've been in for 30ish years. I was thinking with all of the vacancy, I could get a steal... and really? Nope. They'd apparently rather sit on empty inventory than admit that these properties don't command the rents they used to.

I have heard many commercial real estate loans have restrictions on how low the property owner can charge per foot. Sometimes a loan has to have a revenue potential to justify mortgage amount.

[Midtowner]

I have heard many commercial real estate loans have restrictions on how low the property owner can charge per foot. Sometimes a loan has to have a revenue potential to justify mortgage amount.

Kind of amazing that some banks would choose for the revenue to be nothing rather than something.

[bombermwc]

You know that's a problem across the country. There's no pressure to the property owners to reduce the price to put someone in there. They have the long-term goal in mind and can sit with empty structures for a LONG LONG LONG time and still be fine. I was watching something on the news but I can't remember where it was at this moment, where a particular city was looking at charging the property owners a "empty space" fee to encourage them to make better deals to keep buildings from sitting vacant. Commercial office space is one of those we're going to see a lot more of this when the leases expire in the next few years.

It's one thing if there just isn't a market, but how many of us have seen regular commercial spaces sit vacant for years and years when something gets filled in next door or even built while the existing place continues to sit because the landlord won't negotiate? If the vacancy was dis-incentivized, maybe it would help encourage them to stop this practice.

[OKC Talker]

I didn't realize this even went for auction and a sale at the minimum bid amount doesn't inspire a lot of confidence in how downtown is going to weather the commercial real estate crisis...

https://www.loopnet.com/Listing/119-...y-OK/31751332/

[Pete]

^

That's because it was only about 60% occupied and is an old, chopped up building.

Anybody who bought it was going to have to put a ton money into it, as Tanenbaum is planning to do.

[OKC Talker]

I'm a bit surprised since I'd assume the state has deeper pockets and would be less sensitive to the short term losses. Any predictions on what will happen to the rest of the buildings downtown which also have low occupancy and the added baggage of loans up for renewal?

[Pete]

I'm sure the state realized the downward trend for office space, especially Class B.

As far as I know, they've never put a ton of money into properties.

[T. Jamison]

It wasn't truly an auction. The seller was the Commissioners of the Land Office, so the auction is more of a procedural formality. Tanenbaum likely approached them about purchasing the property at around $10.2.

[warreng88]

I knew a few people who wanted to sell commercial office space and instead of listing it and the brokers having to answer calls and back and forth with borrowers, they just listed it for auction at a minimum amount and it was purchased for more than originally they would have sold it for.

With how office space is now, it wouldn't surprise me if this became normal practice.

[Midtowner]

You know that's a problem across the country. There's no pressure to the property owners to reduce the price to put someone in there. They have the long-term goal in mind and can sit with empty structures for a LONG LONG LONG time and still be fine. I was watching something on the news but I can't remember where it was at this moment, where a particular city was looking at charging the property owners a "empty space" fee to encourage them to make better deals to keep buildings from sitting vacant. Commercial office space is one of those we're going to see a lot more of this when the leases expire in the next few years.

It's one thing if there just isn't a market, but how many of us have seen regular commercial spaces sit vacant for years and years when something gets filled in next door or even built while the existing place continues to sit because the landlord won't negotiate? If the vacancy was dis-incentivized, maybe it would help encourage them to stop this practice.

The empty space fee, considering all of the benefits property owners receive for having property downtown seems pretty reasonable. Most professionals would LOVE to have an office downtown if cost wasn't a huge barrier--and when some of these properties are still trying to get $22/ft while they are 60% vacant, it's hard to justify that expense when you can move a few miles away for a lot less money. At some point, you'd think the laws of supply and demand would kick in. I think some of these restaurant properties in Midtown are other great examples of this phenomenon. I understand they may be asking as much as $40/ft now for some of these? But they just sit vacant. They ran off 1492 and Louie's. We kept hearing about how the owners had plans. Surely the plan wasn't to sit vacant for months and months? Zero revenue seems like a pretty dumb plan.

[Pete]

^

Both the 1492 and Louie's spaces have new restaurants.

Landlords charge exactly what the market allows.

[Dob Hooligan]

The empty space fee, considering all of the benefits property owners receive for having property downtown seems pretty reasonable. Most professionals would LOVE to have an office downtown if cost wasn't a huge barrier--and when some of these properties are still trying to get $22/ft while they are 60% vacant, it's hard to justify that expense when you can move a few miles away for a lot less money. At some point, you'd think the laws of supply and demand would kick in. I think some of these restaurant properties in Midtown are other great examples of this phenomenon. I understand they may be asking as much as $40/ft now for some of these? But they just sit vacant. They ran off 1492 and Louie's. We kept hearing about how the owners had plans. Surely the plan wasn't to sit vacant for months and months? Zero revenue seems like a pretty dumb plan.

Reminds me of a story a friend told me recently. His father-in-law owned a retail strip on Memorial Rd west of SH74. Had trouble getting tenants due to economic downturn. Found tenants at reduced rate that would still allow him to pay mortgage. Lender had a price per foot clause in his agreement that was higher than what he was offering with these prospective tenants. Lender refused to waive requirement, foreclosed, and father-in-law was wiped out. Lender sold at a loss a year later to George Kaiser. Kaiser rented it out and sold for over $1 million profit a couple years after that.

[PhiAlpha]

It wasn't truly an auction. The seller was the Commissioners of the Land Office, so the auction is more of a procedural formality. Tanenbaum likely approached them about purchasing the property at around $10.2.

You’re most likely correct. From what I’ve seen the only truly competitive auctions they have are the oil and gas lease sales.

[bombermwc]

^

Both the 1492 and Louie's spaces have new restaurants.

Landlords charge exactly what the market allows.

That's a bit of a stretch there and overly simplistic. This is where market and control have to balance each other. When spaces sit vacant for years because a landlord refuses to accept anything but the ceiling on their rates, frankly because they just can, doesn't help anyone. That doesn't benefit the community and in the long-run, it doesn't really help the landlord. Putting financial pressure on them when they let it sit, would encourage them to make better deals on something that, currently, a landlord has total control over. That pressure can give a little negotiating power to the tenant because they can relieve the landlord of the vacancy tax. Reduce that sq ft cost be say $2 and i'll sign today. Landlord says no, and it sits for 5 more years (and that happens regularly). Honestly, there really isn't a bad side to a tax like this. If they're sitting vacant for so long that they have to give up and sell because they can't afford the vacancy tax any longer, then they weren't willing to offer the "market" rate since no one was biting. Market is what people are willing to pay. If you're overshooting your market's willingness, then you're overcharging. If it sits for years and years, that's a good sign you're overcharging....not at market. The demand has to be there for you to be able to charge that rate. If there's no demand at that rate, you have to lower the rate...simple stuff. But there's no pressure right now to encourage them to do this.

I know you know how this whole thing works in the long-term game. But we can do better than what we're seeing today. And the market isn't always the best thing to solely rely on. It really should always be a balance, and in the US we're only so comfortable with that for fear of someone calling it socialism.

[Pete]

The specific examples given were not vacant at all before new leases were signed.

And there is zero chance that a vacancy tax is ever implemented. By far the biggest tax and biggest disincentive to vacant is the lost rental income.

[Rover]

I know you know how this whole thing works in the long-term game. But we can do better than what we're seeing today. And the market isn't always the best thing to solely rely on. It really should always be a balance, and in the US we're only so comfortable with that for fear of someone calling it socialism.

Not fear of calling things socialism… fear of actually acting like socialism.

[bombermwc]

Don't say its not possible, it's an active real thing in some cities in the US now. Granted, only a handful, but its a growing idea.

In DC and Oakland, the voters approved it. And my description above seems to be supported by an article here: https://www.mansionglobal.com/articl...ncy-tax-208020

Quote being "“When taxes accumulate at these higher rates, the owner often starts to fall significantly behind in their ability to pay property taxes, which can result in the properties are put up for an auction controlled by the D.C. Office of Tax and Revenue,” Mr. Hunt said."

In DC the owner can register as vacant, or it's deemed vacant on an annual review. So if you take less then a year to put a new tenant in, then everyone wins. If you don't, then you start getting taxed. And if you dont get off your duff to put someone in there, well the quote above discusses the "encouragement" it has to make sure people don't just sit letting the potential revenue escape them.

Oakland has a flat fee of $6k if the property is used < 50 days a year. Some other California cities considering it are San Diego, San Francisco and Los Angeles.

According to https://www.governing.com/finance/ci...-mixed-results, San Francisco


and Berkley have also instituted it. And as this article shows, cities are VERY much a fan of it, regardless of if the landlords are.

Yes most of these are in California that I have listed here. You can google yourself for other articles and examples that are more recent. But often you'll see that trends in California are about 10 years ahead of the trends across the US. As California goes, often so goes the rest of the country...if not eventually. So yes, I absolutely DO see this as something that has teeth and might come to OKC.


Pete, to your point, the idea that landlords don't just sit on them because it's lost income, is only partially right. Yes, their mortgage assumes a certain income per sq/ft and the longer that they sit, the more they draw against that. However, the charge per sq/ft is never exactly that amount. Any property owner charges more than the mortgage so there's profit. Empty spaces dont have the same utility or maintenance costs either. So that extra profit becomes padding the landlord can use to insulate themselves from the long-term empty spaces. And right now, with so few people in the offices, that reduced utility + reduced maintenance + ongoing leases, means they're making extra on those leased spaces. THAT's where the problem comes in to create a lack of "motivation" to keep the space filled. Of course they want it filled, but with that padding, they are less likely to want to negotiate a rate that may be lower than their desired amount. And if they can't get a tenant at the rate needed for that profit margin, well they have to sell to get out from underneath it. Whereas if they had at least made a lease agreement for a little lower, they could have at least potentially kept the space filled and making income while the landlord negotiates with other tenants for longer-term leases/etc. My point is, the entire reason for these existing is very well documented and in line with what I've been lining out. It's about leveling the playing field and keeping landlords from sitting on empty spaces for years without any real consequence. We have countless examples of this all over OKC. The really bad actors are some really good visible examples like the Heritage Park Mall owner. And MWC is about to take it from him through eminent domain. A vacancy tax would have forced his hand to DO something with the space instead of it doing into more disrepair and being an even larger eyesore than it was.