Saturday, December 03, 2011
NYC Commercial Real Estate Crash
Okay, local movie theater lease runs out, tenant asks for rent reduction, Moronic owner doesn't want to hear of it,....tenant leaves, monthly rent collection drops to $0 per month for almost 1.5 years.
What is the market rent on such a place? I mean who even goes to movies anyway?
Well the place is about to finally be re-rented for somewhere between $20,000-$25,000 a month, maybe.
I always do the math on these things. Essentially they have to make near $1,000 in PROFIT PER DAY, just to cover the rent. Then there's the enormous cost of air conditioning and heating a large space. Paying staff. The cost of the films and projectors. Insurance. Accounting. Cleaning costs....
Oh yeah, there's a movie theater 1.5 miles away, and another 3 miles away - both of which are BETWEEN this theater and the mass population of Long Island.
I told my wife how much the market rent was and she too was incredulous, calling anyone who would take on that lease a (bleeped) Moron.
But like a good joke, I had to interrupt her clamoring to tell her something even more incredulous.
It turns out, the previous motion picture theater owner was paying an astounding $52,000 per month.
So, for one thing, how stupid was this 'old coot' owner to not come to some type of deal with the exiting tenant?
And in macro terms, realize that this example is indicating that NYC-metro area commercial rents are looking at a 50% drop ALREADY. And this drop is occurring WITHOUT higher interest rates - which are inevitable.
I almost titled this post - "Screaming Bull Market In An Empty Theater"!