Over the last couple of months I’ve been focused on planning for the physical space needs of my companies. We’re located on Main Street, the former downtown retail block in a very small town of 850 people. It’s the kind of place you would have seen general stores and barber poles 50 or 100 years ago.

Over the last few decades large discount retailers gave America the cheap goods we wanted, and wiped out small town retail. Now most of the buildings are vacant. Some of the buildings have been torn down, leaving empty lots like missing teeth between the others. Some of the buildings are in disrepair. Three buildings now house my companies. We take a lot of pleasure in putting them to use and keeping them up.

Now that we need more space, I thought it’d be easy to buy some buildings or land that nobody seems to want and nobody seems to be doing anything with. We now have a deal in the works, but it turned out to be much more difficult than I thought. Here are some reasons why:

• When the cost of tearing down a building is $30,000 and the going rate for empty lots is $4,000 tops, a lot with an unusable building on it is worth negative $26,000. Try offering that building owner negative $26,000 and see if he wants to sell.
• Later on, when that building owner paid that $30,000 to get the building torn down, he might get the idea that he is taking a loss if he sells the lot for anything less than $30,000. So he prefers to sit on it. (This is an error of sunk costs, but error or not it prevents a deal.)
• When the going rate for a lot is so low, and there’s a small chance the owner might want to use it for something someday, keeping it “just in case” appeals to some owners more than the little cash from a sale.
• When it’s visibly obvious to everyone that my companies are bursting at the seams, and their land happens to be next door to mine, it can enough to make the asking price go through the roof. This is “market impact” and in big liquid markets you can pretty much ignore it, not so here.
• When a building is abandoned by it’s owner, and the property taxes go unpaid, the building goes into a legal limbo for at least three years before the county can take possession and auction it off. During that time, back taxes accumulate with interest and penalties, and can easily add up to more than the building is worth, especially if it has fallen into disrepair. This creates another negative net value situation, making it hard to do a transaction. There are at least two buildings on my block in that scenario now.
• In an illiquid market with very few buyers, very few sellers, and very few transactions, these and other factors add up to high bid/ask spreads, you might say. A seller who wants to get out now may not be able to, even at a price close to $0. And a buyer who wants to make a transaction happen quickly may find nothing offered at less than sky-high prices. The same thing happens with very illiquid financial securities on Wall Street, but I didn’t expect to find it happening on an old main street.

So there you go, some reasons why something nobody wants can be hard to buy.