Retail has been vanishing in New York City, it ain’t because of online retail, it’s because the rent is too damn high because commercial real estate in the city has become infested with hedge fund investors who have been jacking up the the rent.

It’s not like they have a choice. The way that this sort of investment works is that they have short term (around 5 years) interest only mortgages, and if they cut rents, then they cannot refinance at the end of the term, because the valuation is directly related to the rents that they charge:

Walk down almost any major New York street – say Fifth Avenue near Trump Tower, or Madison Avenue from midtown to the Upper East Side. Perhaps venture down Canal Street, or into the West Village around Bleecker, and some of the most expensive retail areas in the world are blitzed with vacant storefronts.

The famed Lincoln Plaza Cinemas on the Upper West Side announced earlier this week that it is closing next month. A blow to the city’s cinephiles, certainly, but also a sign of the effects that rapid gentrification, coupled with technological innovation, are having on the city.

Over the past several years, thousands of small retailers have closed, replaced by national chains. When they, too, fail, the stores lie vacant, and landlords, often institutional investors, are unwilling to drop rents.

They are actually unable to drop rents, because, as I have noted a above, they sustain losses on a property better than they can a drop in rents.

A recent survey by New York councilmember Helen Rosenthal found 12% of stores on one stretch of the Upper West Side is unoccupied and ‘for lease’. The picture is repeated nationally. In October, the US surpassed the previous record for store closings, set after the 2008 financial crisis.

The common refrain is that the devastation is the product of a profound shift in consumption to online, with Amazon frequently identified as the leading culprit. But this is maybe an over-simplification.

“It’s not Amazon, it’s rent,” says Jeremiah Moss, author of the website and book Vanishing New York. “Over the decades, small businesses weathered the New York of the 70s with it near-bankruptcy and high crime. Businesses could survive the internet, but they need a reasonable rent to do that.”

Part of the problem is the changing make-up of New York landlords. Many are no longer mom-and-pop operations, but institutional investors and hedge funds that are unwilling to drop rents to match retail conditions. “They are running small businesses out of the city and replacing them with chain stores and temporary luxury businesses,” says Moss.

In addition, he says, banks will devalue a property if it’s occupied by a small business, and increase it for a chain store. “There’s benefit to waiting for chain stores. If you are a hedge fund manager running a portfolio you leave it empty and take a write-off.”

Seriously, there is nothing in this world that financialization cannot destroy.

It takes a lot of work to destroy retail in New York City, but the hedge funds seem to have found a way.