Dirty Secrets Of The Commercial Real Estate Business

The acting CEO of KIMCO recently revealed something new and startling on Jim Cramer’s business show, that it’s in the best interests of this commercial real estate giant to see big renters and companies fail to in order to vacate commercial properties with leases 20 years or older so they can raise the rent. KIMCO rents mall property to some of America’s largest commercial business and household name stores, so it was shocking to see that the company actually wants older businesses who penned a real estate lease some years ago to fail, close or move so that this commercial real estate company can only continue to raise rents.

Just as many retailers struggle through the recession and lay off workers and ponder closing locations, KIMCO only continues to raise rents, which are up over last year as an average. It seems that the poor condition of the economy has little to do with the average rent a business pays. One the other hand, with 94% of KIMCO’s properties now rented, supply and demand only seems to keep raising the cost of rents and leases, even if many companies are actually struggling to make any profit and avoid losing money.

Suddenly, those outrageous theories of Karl Marx regarding land and private property seem to strangely ring true.

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  • Eventually, KIMCO will raise rents to the point where they can’t fill space because retailers can’t afford the rents and still make a profit. When that happens KIMCO will lower the rents because they don’t make money off empty properties.

    Suddenly those outrageous notions of Adam Smith and the invisible hand will ring true.

    • Yes, “the invisible hand’ theory of Adam Smith works as well here. There’s many ways to explain a system that breaks down for businesses that simply need a place to sell their wares on one hand, and people that need a place to buy those wares or to seek employment.
      In Portland,Oregon one developer, Urban works has already crossed that threshold where much of their properties are empty. They built a whole number of brand new retail sites that are still empty for the third year now, yet won’t come down on their rent with these units, hoping to lock retailers into five year leases at their high rents. They seem to represent a broken model.
      I’ve been a businessman since the 1970’s, and finding a suitable ocation with reasonable rent just gets harder and harder. And even worse, few landlords actually want to sell their property, where owning the building would certainly help to improve the bottom line.
      But, the KIMCO model where they would prefer that a business either move or fail every few years so they can keep increasing rents seems like a terrible model for everyone but KIMCO, and not good for the economy in general.

      • Seems to me over a five year period you’d rather have 5 years of somewhat lower rentals than (maybe) 2 years of higher. Of course, with prosperity just around the corner, (lol) that high-rolling tenant’s gonna walk through your door any day now, ready to sign that lease… yep, just any day now.

        Any day now he’ll be walking in, yes sir…

        Yep, any day now.

        • Interestingly, I tried to rent a high traffic location on a main avenue for another new business a few months ago. But, the inside of the business was super torn up and the real estate representative was totally unmoltivated to rent the location. The location has now been empty for nearly one year. The U.S. Bank is supposedly managing this property. With no moltivation by the bank to bring this property up to acceptable conditions to rent, and wanting unacceptable high rent, this prime business location is unlikely to be rented in the near future, and is becoming a neighborhood eyesore because of vandalism little broken windows and graffiti. Portland has a serious problem with many empty storefronts sitting for sometimes years because of unacceptable conditions and/or rent both. Urban Works builds new buildings all over the city just to sit empty for sometimes years at a time. I cannot understand companies paying construction costs as well as taxes just to build empty storefronts all over the city at unrealistic high rents, but that’s Urban Works for you. To say that this real estate developer is mismanaged is a gross understatement.

  • cpaforerp

    I don’t know if my evidence is anecdotal or not, but mall traffic has been abysmal for the last few years. If I was KIMCO, I wouldn’t be anxious to see anyone leave my properties. In fact, I don’t shop at malls any more – I go to Home Depot for tools, Kohls for clothes, Wal-mart for miscellaneous items, etc. All “big box” stores not in malls.