California commercial landlords, owners of office, medical, retail, warehouse/industrial spaces and more, are in for a shock if the current proposition on the ballot passes in November.
In a recent Bisnow article, Rex Hime states:
“If this comes into effect, they [small businesses] are gone,” Hime said to Bisnow after his presentation during the ICSC Southern California Idea Exchange event Thursday at the Long Beach Convention Center. “The second issue is, you have these large corporate property owners with many, many tenants, and since most are under triple net leases, they are going to pass that tax along to their tenants, and some of them will not be able to survive.”
But what Hime doesn’t state is that this will not just adversely affect retail landlords but all commercial landlords who own commercial properties of any type. It’s not just retail leases that pass through the cost of property tax increases. Office and industrial leases usually do it also even though they are modified gross leases and not triple net.
Also, how will these potential tax increases affect commercial real estate prices? I think it will cause sales prices to drop.
The commercial real estate market in California, and also nationwide across the US, has been doing very well for the past decade with prices at all-time highs with no real end in sight as of now. But if this initiative passes in CA and it causes prices to drop and vacancies to increase as predicted, California is in for some serious financial pain.
And those owners/landlords who bought at high prices in the past decade won’t like it much if this initiative causes prices to fall and vacancies to increase. This will probably also lead to more bankruptcies and foreclosures because of loan defaults.
If you want help with leasing, buying or selling your commercial real estate, whether office, medical, dental, retail or warehouse/industrial space, contact David Massie of DJM Commercial Real Estate at david@djmcre.com or 805-217-0791.