What do you think of this project?

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I assure you, the majority of the owners of these properties with empty CRUs, whether it makes inherent sense to you or not, have crunched the numbers and the option to leave vacant space until premium lessees take the space is the most financially prudent.

These decisions aren’t just made out of arrogance or laziness—just the unfortunate reality of the economic forces at play. Doesn’t mean it doesn’t suck for the rest of us.
 
I respectfully disagree, but feel free to crunch the numbers and prove your point if you want.
 
David A said:
Actually, I didn't write zero, I wrote less than zero and I even bolded it, so hopefully the message would get across. Lets see "how it works" - the landlord still has to pay all the building costs related to the empty space. So, to clarify it is a negative return (ie. zero revenue less costs). Empty space still has to be heated, lenders still want interest, whether the space is occupied or not, there are security costs, etc ....

Now perhaps some those pension funds don't pay that close attention to how their properties are managed, or those in Edmonton are not as evident to them as in other places where commercial rental has been much more robust over the last decade or so.

It seems to me some spaces here have sat empty 3 to 5 years or longer, so all those carrying costs have to add up. At some point expecting a mythical tenant to come in and pay premium rates in a tough market is really faint hope so it is unlikely you will come out ahead after being in the hole for several years. I think that's how it works.
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The value of a property is based on the rent. If an area is a 5 cap, then the value of the property is roughly 240x monthly NNN rent.

So if they give you a $250 per month rent discount, then the value of their property just fell $60k.

The landlord's bank may even call the loan if the value falls below their mortgage or if the cap rate falls too low.

It is stupid, but how commercial real estate market works. Its one of many reasons why you’ll see commercial stuff sit.

Developers can sometimes offer "free" rent at the first year of say a five year term, but then require you to pay the elevated price the rest of the time. Another thing a developer can do is give you a cheaper rate, but force you to sign an NDA that says you can't disclose their rental rate to anyone else to protect the higher rate and the overall building value. They'll never advertise lower rental rates though because it is correlated to the value of the property.
 
Actually (to stay off topic) we engage in rent proposals for our clients all the time. For rental spaces we typically ask for 3 months free rent (Retail) and 6 months (Restaurant), the latter divided into 3 months in advance of a lease effectuation date (to complete plans and permitting) and 3 months of actual free rent after the lease effectuation date. Then we look at the "ask" for rent and -- as an example -- if it is $30.00/sq.ft.we take that as the median rate and graduate it so that the new tenant has an easier time at the critical start-up point in time -- so on a 5-year lease (Retail) we would look to pay $20.00/sq.ft. the first year, $25.00/sq.ft. the second year, $30.00 the third, $35.00 the 4th and $40.00 the fifth. We would typically ask for an inflation clause for lease periods beyond 5 years (lease option period). For restaurants we typically ask for a ten year lease with the same kind of graduated rent and free rental period. We also ask for a tenant improvement allowance -- this is where the landlord has flexibility because it does not affect rental income. The TI allowance can be "charged off" against building costs which landlords typically have a reserve fund to accommodate.
 

Growing pains of a changing city: End looms for businesses uprooted by redevelopment​

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Ralph’s Handi Mart has served as Strathearn’s closest option for groceries and goods. Developers say the new project will include a grocery store. (Clare Bonnyman/CBC
 
Kinda tired of the sob stories. Tenants were all on month-to-month leases, as annoying as it is not knowing when this will happen for many years, they always knew they were in a position where it will happen eventually. If they wanted security, would have looked for a long-term lease elsewhere long ago.
 
I can relate. I was renting office space on a month to month basis, as that was all the landlord would offer. It was a good deal, a good location and it lasted for almost 10 years, but then the building was sold and it quickly ended. It was quite a scramble then.

However, it is not just that the tenants are having to quickly deal with it, I think perhaps the bigger issue is the neighbourhood will lose a lot of amenities for at least several years. The landlord could have handled this better.
 
Three thoughts about how to handle this better:

- Give the tenants more notice
- Provide an opportunity for existing tenants to get space in the new development similar to their existing lease and
- Develop new retail space in a different area from existing retail space, so as to minimize the time the community has no retail space.
 
David A said:
Three thoughts about how to handle this better:

- Give the tenants more notice
- Provide an opportunity for existing tenants to get space in the new development similar to their existing lease and
- Develop new retail space in a different area from existing retail space, so as to minimize the time the community has no retail space.
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#1 Fair enough
#2 Seriously? Do you know what kind of lease rates you need to charge to be able to support the cost of new construction, regardless of the location and land price?
#3 So in order for a developer to do a new project, they should be expected to purchase another adjacent site and build new retail space...which I assume would also require them charging at a lease rate under market for brand new space?

Come on now.
 
strata said:
#1 Fair enough
#2 Seriously? Do you know what kind of lease rates you need to charge to be able to support the cost of new construction, regardless of the location and land price?
#3 So in order for a developer to do a new project, they should be expected to purchase another adjacent site and build new retail space...which I assume would also require them charging at a lease rate under market for brand new space?

Come on now.
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David A lives in a made up world.
 
Like I said, annoying and stressful for the tenant, definitely. But they knew what they were getting into signing month-to-month leases at favorable rates. There's obviously a catch to such a deal and it was on them to always have a risk mitigation plan. They shouldn't be going to the media to make the developer look bad.
 
strata said:
#1 Fair enough
#2 Seriously? Do you know what kind of lease rates you need to charge to be able to support the cost of new construction, regardless of the location and land price?
#3 So in order for a developer to do a new project, they should be expected to purchase another adjacent site and build new retail space...which I assume would also require them charging at a lease rate under market for brand new space?

Come on now.
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The question was asked what more could the developer do - these are all things the developer could do. They might not do all and they wouldn't be profitable in the short term, but could work out in the long term.

So, if you don't want to look like an uncaring, cold company only concerned about the bottom line and unconcerned about how it affects others, you actually have to walk the walk. Don't whine about bad PR if you don't make a real effort.
 
David A said:
The question was asked what more could the developer do - these are all things the developer could do. They might not do all and they wouldn't be profitable in the short term, but could work out in the long term.

So, if you don't want to look like an uncaring, cold company only concerned about the bottom line and unconcerned about how it affects others, you actually have to walk the walk. Don't whine about bad PR if you don't make a real effort.
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Wasn't the real effort that the small businesses knew the project was downstream several years in advance and should have been planning for this? You can't lay all the blame on the developer here. This project has been well publicised for years and businesses should have planned accordingly. Their leases were structured so that the developer could give relatively short notice.

I don't know why the business owners say there were expecting more time in the article. So, they weren't being strategic whatsoever? That is on them more than the developer - the project was originally proposed 14 years ago. You could equally say don't whine if you don't make any real effort for the small businesses.
 
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