|Businesses Are Dying Throughout America|
Too often over the last two years I have had tenants contact me to arrange a face to face meeting and saying "we have to talk". It usually starts out by them saying, "its not you, its me, and I want you to know I appreciate everything you have done in trying to work with me but I have decided I'm going to have to close." This talk sometimes comes as a complete surprise but more often than not it take place after a tenant has struggled and fallen behind in paying rent. Yesterday, as I came across the city after visiting a multi-tenant building that I own, I saw building after building for lease, for sale, or just sitting vacant.
Commercial real estate is an illiquid market that solidly reflects the state of the economy, it is slow moving and requires deep pockets. This market does not turn on a dime. When a building goes empty it may remain vacant for years. In a world when the numbers usually require a minimum of 75 to 80 percent occupancy to break even. The market must be deemed broken when occupancy on entire streets and large areas fall below 50 percent as they have in many areas today. The law of supply and demand has raised its ugly head and new construction of commercial office and retail space is weak with little prospect of picking up soon.
It is ironic that when I pulled up to a stop light I found myself behind a new pickup truck with temporary license plates. It was just purchased by a company whose business is booming, the company is the largest demolition company in the area. The company has been busy tearing down buildings to remove them from the tax roles and give relief to property owners who have given up hope. A few businesses have remodeled empty buildings and moved into them but this leaves their old location empty and shifts the problem around. This vacancy problem will linger for years and is exacerbated by government policies tilted to benefit big business.
The cost of new construction has risen and loans in an over built market are difficult to get. When you see a new building being erected odds are it is being done by a company using money from Wall Street. Only time will resolve this supply and demand problem. Janet Yellen and those in Washington should get out of their ivory towers and visit the real world. Here in the Midwest the new tenants of today are nail salons, tattoo parlors, staffing agencies, bankruptcy and disability attorneys. It takes a lot of these to fill up a large 50,000 square foot building. The growing number of empty buildings and failing businesses represents slowing job growth and a hollowing out of the American economy. Small business is being killed by the policies flowing from Washington. Yes, these policies are adding to inequality, expect things to get worse before it gets better.
Footnote; While many people would consider what I have written as proof we are entering a period of deflation I feel what we have been going through is the "major deflationary period" and inflation is about to raise its ugly head. Thanks for reading, your comments are encouraged. This post dovetails with several other recent writings. Related articles may be found in my blog archive. Below are two articles that may be of interest. One deals with the cost to the economy when a small business fails and the other as to when inflation may strike.