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Yes and No. Part of the No answer is that as an real estate investment company your building's worth is effectively present value of future rent, so sometimes i

by rbg246 7y ago

Yes and No. Part of the No answer is that as an real estate investment company your building's worth is effectively present value of future rent, so sometimes it's better to preserve the valuation of your building rather than set a new market rent which will negatively affect your building valuation which in turn affects the cost of financing your building etc etc etc So you get an extra $1m in rent but it now costs you an additional $2m in interest costs financing your building and your share price (or the building capital valuation) has now dropped 15%. Sorry totally simplified example...

rlucas 7y ago
Very true. In Calgary for example, following the drop in oil price there’s a rumor that over 50% of the downtown office space is empty, but landlords won’t drop rents for this very reason. In such times you see all kinds of shenanigans such as landlords giving massive concessions and tenant improvements, effectively dropping the economic price of the rent drastically but preserving the “headline” rent number. Go figure.
chiefalchemist 7y ago
"so sometimes it's better to preserve the valuation of your building rather than set a new market rent which will negatively affect your building valuation " I understand that, and thus the question about WW being a canary in the economic coal mine. If there are more and more building owners who literally can't afford to "preserve the valuation" - and WW's success seems to hint at that - then doesn't that say something about the economy that aggregate numbers aren't seeing? I understand the theory of "preserve the valuation", what I suggesting is that in reality less and less building owners are able to preserve that theory. And some of that is direct result of demand (read: the lack there of) not being in parity with demand.
- rbg246 7y ago
  Yes precisely, if things become systematic then there is no avoiding the new reality. I am no expert on real estate I used to be a property accountant at an international commercial property company and so used to compute out growth rates on rent and valuations for owners. I do find WW's business model difficult to follow, there maybe something I fail to appreciate, I guess time will tell.

by rbg246 7y ago

rlucas 7y ago

Very true. In Calgary for example, following the drop in oil price there’s a rumor that over 50% of the downtown office space is empty, but landlords won’t drop rents for this very reason. In such times you see all kinds of shenanigans such as landlords giving massive concessions and tenant improvements, effectively dropping the economic price of the rent drastically but preserving the “headline” rent number. Go figure.

chiefalchemist 7y ago

"so sometimes it's better to preserve the valuation of your building rather than set a new market rent which will negatively affect your building valuation " I understand that, and thus the question about WW being a canary in the economic coal mine. If there are more and more building owners who literally can't afford to "preserve the valuation" - and WW's success seems to hint at that - then doesn't that say something about the economy that aggregate numbers aren't seeing? I understand the theory of "preserve the valuation", what I suggesting is that in reality less and less building owners are able to preserve that theory. And some of that is direct result of demand (read: the lack there of) not being in parity with demand.

rbg246 7y ago
Yes precisely, if things become systematic then there is no avoiding the new reality. I am no expert on real estate I used to be a property accountant at an international commercial property company and so used to compute out growth rates on rent and valuations for owners. I do find WW's business model difficult to follow, there maybe something I fail to appreciate, I guess time will tell.