The Rent Is Too High, But What Can We Do About It?

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There is a political party in New York City called the “Rent is 2 Damn High.”

The party was started by Jimmy McMillan to protest the high residential rental rates in that part of the world.

McMillan ran for governor of New York state on this platform in 2010, and to no one’s surprise, lost handily.

What does this have to do with our part of the world?

I recently gave a presentation to a Payson community group about the local real estate market and what we can do to invigorate the Rim Country real estate situation.

Part of the presentation dealt with the intertwinement of commercial and residential real estate, and how commercial real estate affects the values of our homes and the job market.

One person suggested that the lease rates for commercial space were too high and that the town needed some kind of government rent controls on lease rates.

Unfortunately, it was apparent that my free market response left this woman irritated. Too bad we did not have the opportunity to discuss this after the presentation with cold hard facts and numbers.

The area of concern seemed to be that new businesses open and fail because they cannot afford the rental rates.

A suggestion was made that this could be because the business plan was flawed and no one is ever forced to rent a property.

Looking from the outside in, it may appear that commercial rental rates are too high; however, you have to look at the risk a landlord is taking and the cost of doing business.

For example, if you were fortunate enough to own a building that Walgreen’s wanted to rent and if you owned the building free and clear, your average return on investment would be 6.5 percent.

Not exactly the road to riches, but better than a CD. To get that return, however, you would have to invest between $5 and $10 million dollars.

A commercial landlord in Payson, depending on the structure of the lease, may be responsible for the upkeep of the building, which can cost thousands per year, plowing snow in the winter, paying property taxes, fixing broken furnaces and seal coating the parking lot every 3 to 5 years.

And in this economy, the space may go months or even years without a tenant.

Another risk is the tenant trashes the space and moves out in the middle of the night. Yes, it happens.

For all this, a landlord may get as high as a 10 percent return on their investment.

Therefore, it is difficult to judge a landlord unless you have been in their position.

If the person who walked out of that community meeting would like to discuss this further, the conversation would be welcomed.

A strategy could be formulated, much like Mayor Kenny Evans is trying to accomplish so that business people and landlords can both make a profit.

Ray Pugel is a designated broker with Coldwell Banker Bishop Realty. Contact him at (928) 474-2216.

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