Comments

1
I don't buy it. Speculation is certainly a thing, but even speculators care about money. An empty storefront is a loss every month.

It's more likely the empty storefronts you saw are slated to be new projects within a year. As you get closer to a construction date it becomes harder to get a tenant that's willing to relocate again soon.
2
" I do think global capital, of which there is not a dearth but an enormous surplus (a surplus, furthermore, that is now spilling over into Seattle in a very big way), can survive without any real business activity."

You're smarter than that. I agree with your synopsis that global capital drives rents up but the laws of supply and demand still hold. There is a larger lag-time for sure but those store fronts will be filled again. The value is based on the ability to charge rents.
3
We have the same problem in Port Townsend. Local investors paying too much for commercial property and jacking up the rents. Lots of empty storefronts. Lots of businesses that try and fail to make it.

And it has been going for a couple of years. It gets worse, not better.

Amazon doesn't help. Everybody wants a bargain and infinite choice, delivered to their doorstep.
4
@Matt the Engineer: Speculation is certainly a thing

These are not speculators. They are very wealthy people looking for a safe place to park large amounts of money, most of which would be considered illegally gained by the Chinese government and subject to seizure.

An empty storefront is a loss every month.

Minimal if the property is totally paid for, and likely offset by rising property values. Functioning as a landlord also has its costs.
5
there was a NYT article about Chinese investment in the US. CA is #1, but WA is not far behind.

Charles is dead on about these investments being divorced from normal ROI considerations. they need a place to put their money that the Chinese Gubmint can't take away on a whim.

whether its a ghost town of McMansions outside Dallas, Vancouver commercial Real Estate, or a vacation home in Indianola, its just a garage for fugitive capital.
6
The other missing factor here is that residential rents tend to be higher than commercial rents. Investors and developers will provide commercial units only when zoning requires it, and even then, they can afford to leave them vacant while the apartments above continue to cover taxes, interest and maintenance.

Once a commercial service leaves a neighborhood, residents will find a substitute, and that's usually online or at a chain store. There's no way neighborhood businesses can competitively reestablish in that climate.
7
So every example he uses basically proves that this is not what is happening in Seattle. Global money in Vancouver, San Fran., New York, London, etc. buys up property and then lets them sit vacant. If global money was driving the process in Seattle the vacancy rate would be increasing and increasing significantly. There would be visibly vacant buildings and homes all over the place.

Mr. Muede's hypothesis for Seattle just doesn't hold water.

He also doesn't address why this global money arrived in Vancouver. That Vancouver and Hong Kong have a special connection due to the return of Hong Kong to the Chinese. That Vancouver is the city with the most people of Asian ancestry not on the continent of Asia, because of the historical and cultural relationship between Hong Kong and Vancouver.
8
@4 You say they aren't speculators, yet you're saying they rely on property values going up fast enough to offset lost rent. That's a speculator, and if they contribute to a low-quality street they're harming this rise in value. It just isn't a logical way to handle real estate, no matter what their reason for investing - you're degrading your valuable land at the same time you're losing monthly rent.

Again, I have no inside knowledge. But the speculator or money-hider is a poor explanation for empty storefronts.
9
And to put a fine point on this, check out typical Granville Street retail. It's mostly single-story structures, yet that tower down the street shows it's probably zoned for something taller. It's likely any time you see a block of empty storefronts, it's about to be bulldozed for something taller.
10
The problem is less the capital than what allows that capital to accumulate. Tax policy. In order to stimulate their economies, Western nations have been in a race to the bottom, in tax rates.

Why wouldn't you invest in real estate, or obscure financial contracts, when capital gains are taxed at minimal rates? In decades past, there wasn't this much private capital sloshing around, because governments taxed it and used the money to ACTUALLY stimulate the economy.

When the government spends a dollar on broadly-beneficial domestic stuff, it has a follow-on effect in the economy that results in a couple dollars worth of GDP. When the government cuts a dollar off the taxes of corporations or rich people, it is completely non-stimulative. Zero. Or at least much less than a buck. It just ends up stashed somewhere, probably in pre-existing companies, banks and properties. It doesn't build anything, promote commerce, or hire people.

The biggest Republican economic canard is the claim that if you give money to rich companies/people they'll create jobs. Bullshit. Employee costs are fully tax-deductible expenses from any enterprise. Employees are hired to make money for the employer. If there's no additional market to serve, it doesn't matter how much money you throw at them, they're not hiring. And if the market is there, and he can make money with more employees, then more employees don't COST more, they MAKE more money for the employer and you couldn't STOP him from hiring.
11
@1, An empty storefront is not necessarily a loss. If you cut your rent in half and get a tenant that stays for five years it will cost you more than holding an empty space for a year and then getting a tenant that pays anything close to the asking price.
12
@8 Your assuming that all money is equally well managed. (A variation on the efficient market hypothesis). But, many of the high end speculators doing the buy and sit thing are people from Russia and China that have hundreds of millions or billions and not a lot of faith in the long term political/economic stability of their countries.

It's much more a very expensive insurance that could repay itself and active management is only of secondary importance.

It's also why there is a very real phenomenon of Chinese women getting tourist visas while not visibly pregnant so they may have their children in the US. Generally these are very wealthy women that are giving their families an escape route if the political situation changes.
13
"For example, there is no book store here anymore. None. Zero."

Perhaps the word "here" means something different in Canadia than it does here.

At any rate, there seem to be quite a number (approximately 83) of book stores in this here Vancouver BC.
14
@11 That's why you don't give a 5 year lease in a bad economy. But wait: it's not a bad economy. So they shouldn't have to have empty storefronts. Which is why I think it's more likely they're getting ready to bulldoze that block.

@12 That sounds more like stereotype than fact. If they're wasting their investment in one place, they're probably wasting their investment everywhere else. In which case it would be easy to hire a manager to run around and lease these properties out. It's not a reasonable conclusion that this is poor management, as if Chinese or Russians are too stupid/busy/whatever to manage their valuable properties.
15
Yeah, the bookstore thing is weird and wrong. I was just in a Vancouver bookstore just recently, a good one. Loads of record stores too. Maybe it's just the West End that's having this sort of problem? No empty storefronts on Commercial Drive, that I saw.

It's true about Chinese money being parked there, though. And here. They're not just parking money, though; real estate investment is also a way to get an EB-5 resident visa in the US, which is a wide-open path to a green card and moving your whole family here. There's a project in Seattle right now, by a company called Path America, that is supposedly about investing to build a skyscraper downtown, the Potala Tower, but was really a EB-5/green card selling scam run by a genuine Tibetan monk who unfortunately had a taste for high-stakes gambling and blew the money in casinos (so much for His Holiness). The whole project got busted a couple of months ago.

Look him up: Lobsang Dargey. Good buddy of Tom Skerritt's. EB-5 visas are supposed to be for investing in economically distressed areas, but nobody's definition of distressed includes the lot next door to the Cinerama, which is apparently going to be a giant hole for the next decade or so.
16
The speculation bubble thing seems perfectly plausible to me. Retail space is one thing, but if it really is true that all those houses are that vacant, and owned by holding companies, what other explanation could there be? It makes pretty good sense to keep houses vacant if all you want is to park money - tenants have pesky rights protected by law and they tend to make a mess. An empty houses has practically no overheads.

Rich people have become too rich, I think its pretty clear. And they are engaging in degenerate, compulsive behavior. The mid to late 20th century looks to me like a historical aberration, precipitated by the Great Depression, which loosened capitals grip on society, followed by the contingent anomaly of World War 2.

I'm not particularly optimistic about the future, long term. Social arrangements we consider "third world" seem extremely stable because all they require for sustenance is a ready supply of human vice.
17
@14, it's not intended as a stereotype just a different analysis of the utility being purchased. It's not stupid, just different.
18
I think @4 is actually on to something here. Most of the money flooding into Vancouver has come from China, as more and more of the uber-wealthy there look for offshore shelters for their capital in order to keep it out of the hands of the government. Stocks, currency, bullion, art can all be seized; but it's pretty damned hard to confiscate a large building in another country. And if you can afford to buy it outright, there's going to be much less pressure to have it generate revenue, which in this case might actually be detrimental to the owner's interests, since that could very well result in a back-flow of capital to, say, a Hong Kong bank, where it potentially could be seized. So, it does sort of make sense to keep the rents high in order to minimize the amount of revenue being generated.

It sounds rather like a very rich person's version of burying ones savings in a coffee can in the back yard; only in this instance the can is 40 stories tall and the back yard is 5000 miles from the kitchen door.
19
@16 I've seen no evidence in person or in print of vacant homes held by speculators in Seattle. San Fran., New York, London, yes. Seattle, no.
20
@Matt: you're saying they rely on property values going up fast enough to offset lost rent

No, the values only need to go up enough to cover the minimal costs of maintaining an empty, unused property. Meanwhile, if they choose to rent it out, the rent has to cover the overhead and hassle of being a landlord who lives thousands of miles away.

That's a speculator

I'm thinking of a speculator as someone who makes highly leveraged (i.e. risky) bets, whereas these guys are aren't borrowing a dime to pay for these properties.

Anyway, point taken that empty properties are ultimately going to undermine the value of their investments.

FWIW, I'm kind of interpolating in the logic of these investments based on bits and pieces I've heard from friends who lived in China and who work in the real estate biz. Contrary to claims above, there are indeed Chinese owned properties in Seattle that are (or were) sitting empty for long periods of time (though not as much as in Vancouver). The owners show little motivation to fill the spaces, and often can't even be reached by real estate agents.

Keep in mind, much of that money had to literally be buried in the ground, then dug up and smuggled out of China before it found a home in Canadian real estate, so it's quite possible the empty storefronts simply reflect the unsophisticated, seat-of-the-pants approach to investing of a crop of newly rich bumpkins.
22
@gomer: I've seen no evidence in person or in print of vacant homes held by speculators in Seattle

The large commercial space in the Crystalla at 2nd and Lenora sat empty for at least 10 years under Chinese ownership. Based on an invite I recently received, I think it's finally being used as an event space now.

I know of a few empty McMansions on the east side as well.

But it's true that for whatever reason, Seattle hasn't seen the scale of Chinese investment that some other cities have.
23
Empty storefront = future quaint and charming boutique
24
Charles is right.

Charles - Canada recently shut down their foreign investor visa, which is one reason that money is coming down here.

http://www.seattlemag.com/article/how-fo…
25
All that money gone offshore is simply coming back to buy up the urban real estate Canadian and American families could have owned if international corporations hadn't hollowed out the middle classes. In a capitalist economy citizenship is secondary to wealth afterall. Vancouver may be just the beginning too since the west coast is the first stop for investors flying in from over seas.
26
And despite all the observations about Chinese citizens successfully avoiding the seizure of assets from the government --- the same Sloggers continue to advocate for taxes, fees and policies in Seattle which cause investors here to look overseas, taking capital with them. You think muppets like Nick Licata and Jean Godden will have better command & control of these resources, than the Chinese Central Committee?
27
@13 + 15 The author might be referencing the closing of a major bookstore's location on Robson street this year. It was a fairly big deal and shocking to many, as the reason for their closure was the rent was going up, and to such an extent that it would've made continuing to operate in that spot unfeasible.
28
Seattle's new young urbanists mostly think Vancouver BC is a model for redevelopment, one that Seattle ought to follow. But maybe they got it wrong?
29
@28 No, the answer is to create a tax structure that penalizes unused space.
30
@29 DING DING DING! See http://www.communityprogress.net/ (formerly the National Vacant Properties Campaign).
31
Vancouver friends have complained bitterly about this new type of housing speculation (different from the usual housing bubble) for a decade it seems. Judging from the Globe and local dailies coverage, it has been on their radar for quite a while. The solution offered has been the same. Tighter regulations and changing tax structure so people have to pay dearly to afford such set up and by doing so, reduce the incentives to invest. Of course after several decades where real estate promoters and developers have become so entrenched within the political system, the solution is more talk than action these days.

Besides should Vancouver go the way of Hong Kong, Singapore, or Australia regarding owning restrictions and/or imposing tax on foreign ownership, the money will head down here. Is that what Seattle or more accurately, what Bellevue wants? Some people might not mind selling their little, tear down bungalow for a cool $2 million and just go elsewhere. We already have a mild version of that now served alongside the much promise affordable housing unicorn to chase after. Not unlike what our Vancouver neighbors have been chasing these past 25 years.
32
I suspect there might be a temporary slowdown of this trend at least from mainland China as their economy is facing rough sea currently. The central government is looking a bit harder at all the cash flowing out of the country right now.
33
Seriously, why is it so difficult to tax unused properties? If it's vacant for longer than a month or two (sans the type of construction or repair work that would trigger property tax appraisals), start taxing it.
34
The real moral of the story is that only fools in Seattle rent. If you enjoy your cheap rent and location today, you should worry for tomorrow.
35
Buenas Tardes Charles,
Greetings from Puno, Peru (3800 meters elevation) on the shores of Lake Titicaca, the highest lake on earth. Read your posting and while I love Vancouver and have visited many, many times I won´t comment except to say that it too is in decline but I´m not so sure I agree with your or Boddy´s reasons. Too complex. Anyway, I recomend a visit to this extraordinary country. Trust you´re well.
36
@29 Mildly related.

The pirate supply store was originally created through necessity. After being turned down for regular use of church basements and school facilities, the founders discovered an empty store for sale on Valencia Street. The city ordinances stated that any businesses in that particular area of the city must be either retail or catering, so the Pirate Supply Store was developed as the "legitimate" business front for the writing center.
37
@33: It's my understanding that a property can't be taxed simply for being vacant, so it needs to be addressed as a code issue, which means revisions to city charter, etc. Mandatory regular inspections, with fees, to ensure utilities, fire sprinklers, building integrity maintained; requirements for exterior/landscaping maintenance; escalating fines and mandatory city-hired repairs with billing of owner for non-compliance. If done right, it provides strong incentives to get occupants in both residential and commercial properties, and can produce downward pressure on lease costs. Much more info in my link @30.
38
@26: The Chinese government is actually pretty damn inefficient, corrupt, and blundering. They lack finesse.
39
Countless ground floor business venues remained vacant for years in Seattle too, and some of them are still vacant. All but one of the businesses spaces in Burien's troubled "Burien Town Square" project have been vacant since the high end condo building above them was built in 2009. The owners don't care about small businesses.

There are many economic clouds on the horizon including collapse of fossil fuel prices, which paradoxically is bad not only for these debt-financed industries, but for all of us because it dis-incentivizes us from cutting back on greenhouse gas emissions; severe downturns in the economies of China and the BRICs; some sudden, catastrophic event that drives massive expansion of the war in the Middle East; popping of the current real estate bubble including the rent-backed securities industry; bursting of the current tech bubble; or even the inevitable end of the current expansion of the economy, such as it is. Any or some combination of such events could result in even more commercial real estate vacancies, a dramatic rise in unemployment and another crash of the residential real estate market. This really wouldn't be too surprising given that the financial industry remains minimally re-regulated by the extremely mild reforms of the Dodd-Frank Act, and even those reforms are bombarded every single day by an army of industry lobbyists beavering away in Washington, DC so they can keep screwing over average working people, not to mention very poor people.
40
@19: Walk around at night in any of Seattle's better neighborhoods and you'll see plenty of vacant houses with no "For Sale" signs. Here's evidence in print that vacant stash homes is a thing in
Seattle and Bellevue:

http://www.kirotv.com/news/news/seattle-…

http://www.seattlemag.com/article/how-fo…

http://www.bizjournals.com/seattle/news/…

41
Speaking of Muppets, check out Ed Murray grinning like a fool at fraudster developer Lobsang Dargey, whose assets were seized by the SEC back in August.

https://www.google.com/search?q=Lobsang+…
42
There are a number of great bookstores in downtown Vancouver. So I am not sure how factual the rest of this piece is....
43
@42 Yeah, I live here and I can think of eight or so independent bookstores right off the top of my head. I'm not sure what this guy's talking about.

Like everyone else, I can only guess at why the rent is too damn high here. The current wave of foreign speculation certainly has something to do with it, but the gentrification of Vancouver (and the unholy alliance between government and the real estate industry) has been going on for a long, long time.

Also, there's the fact that everyone in Canada seems to aspire to live in a place where it's miserable and rainy in the winter instead of cold and snowy.

44
Ummm...no bookstores? Amazon took care of that. High rent? I have a rental, myself. My property tax comes to 3 months rent. On top of that, I have maintenance and rental income tax. In the end, I am lucky if I make 5% (then factor in the hours I spend on the place...paperwork, etc.). I sympathize with the business owners, but how can brick and mortar stores compete with online, low-overhead businesses? Brick and mortar stores are mainly good for "showcasing". Take a photo of the product, try it on, feel it, then buy it cheaper online. Sad future, but the future is now.

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