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NC IA | I used to work in commercial real estate. Its a much different game. The rents are based on the area, type of building, market conditions, etc. There's typically an oversupply of commercial space available, vs farming where the moment a guy is retiring 10 people are in line to rent it and the rent is almost whos willing to pay the most (not always, generalizing).
The big difference, if a tenant is doing well in a retail space, the owner doesn't get wind of it and raise the rent the next year - they have a lease for 5-7-10-20 years that lays out the rent structure - the building owner actually wants the tenant to make money so they keep paying their rent on time, probably would be thrilled if they are making money hand over fist as then foot traffic increases and helps fill other spaces in their retail space.
When things do go bad like in 2008-2009, there were lots of rent reductions because the other option was the space would just sit empty and they knew there was a low chance it would be filled again anytime soon. A lot of commercial properties were foreclosed on in that 2008-2012 time period as properties did not cash flow. Most are owned by wealthy individuals/real estate investment trusts. They are generally setup with an LLC that owns just that property and if they stop making payments, they can walk away without the lender coming after the owners assets, the lender just gets possession of the property (called a non-recourse loan). | |
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Cash rent vs commercial properties
