Is the assumption that landlords leave buildings vacant for a tax write off true? If so how does this make financial sense? Also why not get a tenant at a lower price than let a building sit empty for 3 years?
I recently drove by a building I looked at a year ago at leasing (until I bought my own). It has been empty for 3 years. My passenger said “they leave the building empty for a write off”. I’ve heard this idea so many times and it just makes no sense to me. I’ve heard it about a near dead local
Mall as well. 

So I’d like to know if this ever actually makes financial sense. And if so what are the circumstances?

Related: this landlord was asking just a little too much in my opinion for this building. If I was him I would rather lower the price and have a tenant than have it be empty for 3 years. However this does seem to be common in my area (I’m in Portland OR and we don’t have a massive excess of retail in our city. There’s a fair bit of demand out there). What would lead someone to carry a building with no tenant this long?
[{"id": "is9bt1f", "text": "Interested in this as well. I've noticed some nice places that have been vacant for years.\n\nGoogle came up with this: Apparently there are some areas where owners can apply for tax relief on vacant properties if they have made good faith efforts to lease the property (eg, tape a \"For Lease\" sign on the window):\n\nhttps://blockclubchicago.org/2021/10/04/some-landlords-keep-their-storefronts-empty-for-years-and-get-tax-breaks-for-it-business-leaders-want-to-curb-that/\n\nI can't decipher this link to the county's vacancy policy but it seems to be a reduction in the assessed taxable value of the building? I still don't understand how that results in a net benefit if a vacancy creates reduced rental revenue to begin with:\n\nhttps://www.cookcountyassessor.com/form-document/assessors-vacancy-policy", "replies": [{"id": "is9xswf", "text": "We have this issue in NJ. NJ is one of the states with the highest property taxes in the county. \n\nEssex county, NJ is one of the counties in NJ where all towns and cities have the highest taxes in the state. \n\nMany downtown and Main Street urban areas in Essex County (Newark, east orange, Irvington, orange) tax commercial property on their use, not necessarily their assessed value. So in a 3-story commercial building, landlords actually rent out the first floor to a commercial tenant, and keep the upper floors vacant to reduce their property taxes (taxable value). They pay 1/3 property taxes because they are using 1/3 of the building.\n\nFrom an urban planning perspective, and even from a local resident perspective, this is a huge waste of space and value, where the building is not being utilized for it\u2019s highest and best use.", "replies": [], "depth": 2}, {"id": "isa3xv9", "text": "From a property tax perspective: Cook county/City of Chicago is a weird place for property taxes.  Every municipality is different.\n\nTo entertain the idea: There is a vacancy affidavit that can be submitted to demonstrate that the asset has suffered higher than market vacancy but there\u2019s quite a bit of room in what the outcome will be.\n\nIn order for a landlord to be incentivized to do this the reduction in taxes (via a reduction in assessed value) would need to be greater than the incremental rent collected on a space (assuming that leaving the space vacant is what is tripping the threshold on the landlord\u2019s above market vacancy). I suppose it\u2019s unlikely, but possible, on very low rent spaces in highly occupied areas.  You\u2019d also probably be reporting an economic loss to the assessor that would be based on rents that were unachievable for that specific space. The assessor\u2019s folks would need to bite off on all this.  \n\nThe most feasible example I can think of would be a building with occupied high street retail and vanilla box \u201cretail\u201d space in some undesirable area of the building.  Improving the space to be useful for a true retail tenant would be expensive and I am probably just waiting for an existing tenant to take it as storage or for an expansion.  In this situation I might throw up a sign saying \u201cfor lease\u201d and roll the dice with the assessor.  My rent roll and utilities will support, assuming they don\u2019t study it too closely, a loss that should be greater than the market level of vacancy.  A successful outcome is unlikely, but I also didn\u2019t really do anything.\n\nIt seems more likely that the extended vacancy you see is caused by a soft retail market mixed with high TI costs, and/or asset specific incentives based on capital stack/investor timing.\n\nUnderwriting this type of tax relief on an acquisition or development is a no-no. I would highly recommend that all interactions with the assessor be handled by the landlord\u2019s tax attorney/consultant.\n\nFor income taxes: real estate *generally* produces cash flow with a low taxable income/a loss.  For this to happen you actually need tenants paying rent, covering debt service, etc. to generate that cash while depreciating your fixed assets to offset the taxable income.  Losing money to pay less in taxes is a silly idea.", "replies": [], "depth": 2}], "depth": 1}, {"id": "is9ce1u", "text": "It doesn\u2019t make sense because it\u2019s completely incorrect", "replies": [{"id": "is9ep4m", "text": "Please explain for us, the less educated, what aspects are incorrect.", "replies": [{"id": "is9wsky", "text": "It's the same logic as not taking a raise because you don't want to get into a different tax bracket.", "replies": [], "depth": 3}, {"id": "is9xftl", "text": "My answer would be there is always an explanation but we need more information as each situation is unique. \n\nA dead mall- perhaps the market is so weak that filling it will not happen and a 25 percent full mall is a loser.\n\nEven something as simple as an owner who can't afford to repair the property.\n\nI have also seen in NYC (moreso many years ago) owners with \"Main St\" mixed use buildings leave the residential portion upstairs vacant because it was more of a headache maintaining and dealing with low-paying apartment tenants than renting the units. So the property effectively became strictly retail. I'm talking about not so nice parts of NYC at a time when rents were low and regulations were still onerous.\n\nThe idea that \"oh the landlord keeps it vacant for the tax loss\" is not real. Yes, landlord may get a tax loss but only if that's the highest and best use- it's not a good situation.", "replies": [], "depth": 3}, {"id": "isa4qnv", "text": "All of them.  The only \"tax benefit\" is not paying tax, but that's because you made no money. That's a sure fire path to insolvency.\n\nSometimes landlords will leave spaces vacant instead of lowering rates because once they lower rates, they've lost pricing power, and more importantly, their multiple, which is how the building is valued. \n\nIf they take a discount on rent, they immediately devalued their building. It also can cause problems with lenders with debt coming due and refinancing, etc.", "replies": [{"id": "isajkbg", "text": "Bingo", "replies": [], "depth": 4}, {"id": "isakel1", "text": "Thank you for an actual answer! OK this makes sense.", "replies": [], "depth": 4}, {"id": "isb3w3v", "text": "This only makes sense in the short term. Eventually the lost income shows up in the P&amp;L and your rent roll and claiming some fictional potential income isn't gonna fly with your lender.", "replies": [], "depth": 4}], "depth": 3}, {"id": "isaakcz", "text": "Having more money is better than having less money.", "replies": [], "depth": 3}, {"id": "isabbck", "text": "Having revenue is better than not having revenue.", "replies": [{"id": "it7rpp0", "text": "Unless you can make more in the future and pass on costs to existing renters. Which a lot of landlords do.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "is9ge18", "text": "What? No, god no. Use ur brain.\n\n\u201cWe could lease it for $200/SF or we could not make money and get a tax write off\u201d", "replies": [{"id": "isb4kk0", "text": "There is no tax write off except to the extent you lower your taxable income by not having income. Not really the best plan.", "replies": [{"id": "iscggi7", "text": "can they not use the depreciation to offset income from another job/property ect?", "replies": [{"id": "iscojhs", "text": "Yes- but why would you let a potentially income producing property sit vacant, losing 100% of income, to offset a percentage of income somewhere else? IMO that's the fallacy in explaining vacancies in this way.", "replies": [{"id": "isdxudr", "text": "Can't you also offset taxes with the losses in income?", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "it7s4hy", "text": "Some people do I can make 200 now or wait and make 400 consistently in the future many wait for whales.", "replies": [], "depth": 2}], "depth": 1}, {"id": "is9vpab", "text": "Jonny cash on YouTube talked about this for NYC, and it\u2019s not the landlord it\u2019s technically the city making it such.", "replies": [], "depth": 1}, {"id": "isa3j9a", "text": "The vacancy is typically due to tenant choice. Owners don\u2019t want to lower the price and let in riff raff.", "replies": [], "depth": 1}, {"id": "isa5lur", "text": "Our spreadsheet says this space is worth 100 a foot and if we lease it up we can sell this building for 40 million dollars. If we do 90 a foot, then the building is worth 20 million dollars, the bank repossess the place, I don\u2019t get my bonus and then we are stuck at 90 a foot for 10 years.", "replies": [{"id": "isajm4z", "text": "But how are you staying afloat at 0 revenue when you refuse to lower the price?\n\nMore importantly, is there any law or incentive that local, state, or federal governments could implement that would make it easier for you to just lower the rent and get the space filled? It really is in society's best interest to fill existing empty spaces, especially in downtown or high demand areas.", "replies": [{"id": "isarxd7", "text": "You don\u2019t make money, real money, in collecting rent, but in raising the rent, real or on paper. The higher the rent, the higher the exit sales price. \n\nThis is why most people only have a holding period of 5-10 years. And if rents are going up market wide, then your paper rents also went up. \n\nWhole system runs into a problem though if rents go down, which they are never allowed to do.", "replies": [{"id": "isb3lq4", "text": "Accepting a lower rent basically means admitting defeat to your lender, investors and bosses", "replies": [], "depth": 4}], "depth": 3}, {"id": "isbcbpd", "text": "In addition, appraisers are 3rd parties separate from buyer/seller and lender/govt (since most banks are FDIC insured) meaning nothing except the current market can affect a sales price. \n\nThe govt getting involved would manipulate the market and cause a bubble, and hurt their current mortgages backed. \n\nSince appraisers value the buildings in market context and must remain nuetral, I\u2019d say no, there isn\u2019t anything that be done. \n\nYou can deregulate the appraising industry, since it\u2019s heavily regulated but the appraisers in the 80\u2019s who has no regulations really screwed the pooch and caused that recession. So unlikely.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "isa6q6p", "text": "A vacant building needs to cover taxes + insurance.\n\nAn occupied building needs to cover all opex (utilities, maintenance, janitor, site, mgmt, admin).  Plus the LL has to bring the building up to code and renovate/repair roofs, hvacs, parking lots, facades.\n\nUsually these are in weak locations and markets -- strong markets are eagerly snatched up, renovated and tenanted.  The building likely has functional obsolescence. The strong tenants don't want it, and the weak tenants can't afford to take it out of mothball.   The LL also doesn't want to (or have the money (real estate rich, cash poor)) spend good capital today to raze to get at the land value when it may sit for years before being redeveloped.  During that holding period someone or some market change may make the building rentable again -- but oops you razed it five years ago.  So it is a waiting game for the LL.", "replies": [{"id": "isa7zg8", "text": "p.s. Some property owners are overstretched on time. Just like we have hobbies sitting in the closet collecting dust and unattended responsibilities at the back of the desk.", "replies": [], "depth": 2}, {"id": "isalb7g", "text": "I get all that. But the vacant building I am specifically talking about is in a decent location. With lots of car traffic. Down the street from a massive (for Portland) new mod-high end residential building. Across the street from the entrance to a neighborhood that is a vintage architectural craftsman dream where the average income is likely $200k+\n\nThat\u2019s why this one is so confounding.\n\nCould just be the landlord has got plenty of money and can wait for the right tenant. This is Portland and in business people here are a lot less purely motivated by money than anywhere else I\u2019ve lived. Shop keeps will often steer me away from a sale if I don\u2019t actually need an item. Coming from NYC this was quite shocking at first.", "replies": [{"id": "isb2h04", "text": "Don't under-estimate functional obsolescence along with cost to renovate to code.  Car volume traffic adds value in the 'burbs. In a walkable neighborhood, it may be irrelevant. Parking requirements are also a killer both legally and what the market wants. CRES moves like molasses. .....  Some urban core locations are sensitive down to the block level (per Nelson Bowes, MAI, PE).", "replies": [], "depth": 3}, {"id": "iscn2hw", "text": "Previous tenant may still be paying rent despite having surrendered the space. Especially if it was a large corporate tenant.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "isa7bn1", "text": "A lot of Chinese investors buy up American real estate so that their wealth is out of reach of the Chinese government. Many of them leave them vacant because they don't want to deal with the complications of tenants (especially living abroad), and only view the property as an asset to hold and sell.", "replies": [{"id": "isany8c", "text": "Citation needed", "replies": [], "depth": 2}], "depth": 1}, {"id": "isa99dc", "text": "There are buildings in my location that have been vacant for 30+ years - and sometimes when I've looked into renting/buying one of them, I've been rebuffed as the owner has no interest in renting it out to anyone. I don't get it. I realize they may own the building outright, and they may not want to sell, but to leave building vacant (and yet maintained) for decades makes no sense to me.", "replies": [{"id": "isame6e", "text": "Maybe mental illness? There was a story in the news recently about some dude that bought All these properties here in Portland in the late 80s when everything cost like $65k. He died and his heir just let them sit and rot even though together they\u2019re worth $2mil now. He\u2019s destitute but refuses to sell and that heirs kids are suing him to sell saying he\u2019s crazy and can\u2019t make decisions.", "replies": [{"id": "isaqe6x", "text": "I don't know - someone elsewhere in this thread mentioned property tax laws in some areas can be a factor, but I don't believe that's the case here. I do suspect that the buildings are owned by people whose families had significant money, so they may have acquired them through family holdings/wealth...but it's still hard for me to imagine that having a vacant building would be worth it for decades.", "replies": [], "depth": 3}, {"id": "isb8lk8", "text": "This 100% happens. It not massively common but in each large city neighbourhood there is at least in case like this, from actual mental illness, to being a bit crazy about what they want to seek if for so they it empty for years, to things caught up in huge legal fights between heirs that last for years.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "isaa8dm", "text": "There are a lot of possibilities for why this is happening at this particular location. \n\nHowever, in the case of the \u201cdead mall,\u201d what\u2019s usually happening there is the owner wants to sell the property as a development site, but getting development approvals, etc. can take a long time. The value of the property is the development potential, not the retail income. Signing new leases will only create a headache for a prospective purchaser (who will have to buy out tenants, etc.). In such case, it can be better financially to hold the asset until the owner can get the best price. If you can\u2019t sell it, you have to pay property taxes on it. The owner can often reduce their RE tax liability based on the high vacancy and low NOI.\n\nShort answer: it\u2019s just business", "replies": [], "depth": 1}, {"id": "isaafft", "text": "Often times vacancy is cheaper than building out a space for a short term lease, specialize user, of crappy credit.", "replies": [], "depth": 1}, {"id": "isawogm", "text": "Owners with prime locations are probably sitting on it as a redevelopment play in the future.  You can\u2019t redevelop it if a tenant is in place.", "replies": [], "depth": 1}, {"id": "isb586t", "text": "Another reason is sometimes properties are tied up in litigation with heirs or business partners suing each other. These lawsuits can take many years to resolve. So nothing is done or can be done while the legal system grinds slowly through all the competing claims.", "replies": [], "depth": 1}, {"id": "isb6uhr", "text": "Another reason is roll up redevelopment. Developer buys 3 adjacent properties with plans to combine into one large new development worth 20x of current value. One of the properties is in bad shape already so not worth fixing up. The second has a 2 year lease. Another has a 5 year lease and tenant refuses a buyout forcing developer to wait on lease expiration. This delay is built into the financial model but results in 2 of the 3 sitting and rotting for long periods.", "replies": [], "depth": 1}, {"id": "isbe7pn", "text": "Right now, my area is experimenting with vacancy control where rents cannot be raised in between tenancies.  It\u2019s going back and forth in the courts, and some landlords are sitting on vacant units rather than \u201clock in\u201d a below market rent for perpetuity only to have the vacancy control overturned in a year or two.", "replies": [{"id": "ismp43z", "text": "What market are you in? Is the rent control new, or just the vacancy component?", "replies": [{"id": "ispf6hr", "text": "Vancouver.  The city implemented a freeze on rents in between tenancies for low rent buildings.  A judge overturned it for lack of jurisdiction (housing is provincially regulated) but the city is appealing.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "isbjtxq", "text": "Probably loan covenants.", "replies": [], "depth": 1}, {"id": "isbrm58", "text": "I\u2019ve seen them prefer to fill up another one of their buildings or even move a tenant from one building so they can \u201cmothball\u201d a building for whenever business rebounds. Part I of the development was at 90% occupancy while part II was empty, doors locked.", "replies": [], "depth": 1}, {"id": "isc67au", "text": "For owners in Los Angeles, CA the city is trying to push a vacant space tax on commercial real estate owners.  Two main reasons landlords keep retail commercial real estate space vacant: \n\n1\\] Owners do not have money for deferred maintenance repair costs, lack tenant improvement dollars to fix up the unit \n\n2\\] Ownership bought the commercial building years ago with a low property tax basis, do not care for additional income.", "replies": [], "depth": 1}]