4 ms·

What are the implication of people not paying rent for a number of months? I can’t fathom what this does to the economy.

deleted 7y ago
[deleted]
sandworm101 7y ago
Depends on if they are likely to pay the back rent in the future. A few months' delay is a cashflow hiccup. Widespread default, extensive non-payment of back rent, will see property values drop. A far bigger hit imho is what happens when people stop making mortgage payments.
- _curious_ 7y ago
  Something tells me there's a significant chunk of the total CRE market in terms of sq ft and rental income that is not coming back even if everything reverts to normal in a month. Plenty of companies were already overextended financially, or outright unnecessary in the first place. Some the owners burnt out, ready to retire, etc. that have been forced early. In other words, that market has since peaked - does anyone think otherwise?
  - tonyedgecombe 7y ago
    I remember reading an article in the economist a couple of years ago that said the US has vastly more retail space than it needs. Something like eight times as much per capita compared to the UK.
    - _curious_ 7y ago
      I could believe it...of course that probably means 8x inflated CRE agents/brokers too.
xenihn 7y ago
Nothing a few bank bailouts won't fix.
FillardMillmore 7y ago
It's a good question. Certainly many of these landlords have mortgages that need to be paid on their properties and the usual maintenance and upkeep of said properties. If landlords cant pay their mortgages, I'd assume the properties would be foreclosed by the banks - they'd likely give tenants a notice of some period of time before they'd be required to vacate. I don't know all the ramifications but my guess is that property valuations are going to go down fairly steeply as well. I've seen some efforts to hold rent strikes and I think those efforts will have more negative than positive results. I'm sympathetic to those that don't have enough to pay the rent because of job loss and economic shutdown but there are certainly those out there that will take advantage of the situation as an opportunity to try to shirk payments. I wonder if policy could be useful here: temporary rent and mortgage freezes perhaps?
- _curious_ 7y ago
  "my guess is that property valuations are going to go down fairly steeply as well." Yes and how much depends on how much the gov props them up?
  - FillardMillmore 7y ago
    That plus possibly the banks' actions: the availability of things like mortgage deferrals and extensions. Another thing to consider, which is a big unknown at this point, is what immigration policy will look like after the dust starts to settle. If it becomes more stringent than it was, that means less demand for housing in the future, and the valuations of property would likely reflect that.
    - _-___________-_ 7y ago
      Not disagreeing at all, but note that the article is about commercial property, not housing.
- crispyambulance 7y ago
  > I wonder if policy could be useful here: temporary rent and mortgage freezes perhaps? That's the big question. Can't everyone just be cool with deferring payment on rents and mortgages? Ultimately this all bubbles up to banks and investment products, right? I wish it were possible to just declare this "the lost Spring of 2020" and allow the market to take a hit and then recover steadily without entire cities beset with many months of boarded-up storefronts and foreclosed properties.
_curious_ 7y ago
Anecdotally, I've heard a lot of people point to the CRE bubble right up there with PE and student debt. I would imagine that cumulatively in the US there will be hundreds of billions in defaults before this all blows over, which could easily be 12 months before even bottoming out. Edit: yeah I'm going to bump that to a couple tril in defaults if the aggregate market is actually 15-17T (as of late 2018 per https://www.reit.com/data-research/research/nareit-research/estimating-size-commercial-real-estate-market-us https://www.reit.com/data-research/research/nareit-research/...

deleted 7y ago

[deleted]

sandworm101 7y ago

Depends on if they are likely to pay the back rent in the future. A few months' delay is a cashflow hiccup. Widespread default, extensive non-payment of back rent, will see property values drop. A far bigger hit imho is what happens when people stop making mortgage payments.

_curious_ 7y ago
Something tells me there's a significant chunk of the total CRE market in terms of sq ft and rental income that is not coming back even if everything reverts to normal in a month. Plenty of companies were already overextended financially, or outright unnecessary in the first place. Some the owners burnt out, ready to retire, etc. that have been forced early. In other words, that market has since peaked - does anyone think otherwise?
- tonyedgecombe 7y ago
  I remember reading an article in the economist a couple of years ago that said the US has vastly more retail space than it needs. Something like eight times as much per capita compared to the UK.
  - _curious_ 7y ago
    I could believe it...of course that probably means 8x inflated CRE agents/brokers too.

xenihn 7y ago

Nothing a few bank bailouts won't fix.

FillardMillmore 7y ago

It's a good question. Certainly many of these landlords have mortgages that need to be paid on their properties and the usual maintenance and upkeep of said properties. If landlords cant pay their mortgages, I'd assume the properties would be foreclosed by the banks - they'd likely give tenants a notice of some period of time before they'd be required to vacate. I don't know all the ramifications but my guess is that property valuations are going to go down fairly steeply as well. I've seen some efforts to hold rent strikes and I think those efforts will have more negative than positive results. I'm sympathetic to those that don't have enough to pay the rent because of job loss and economic shutdown but there are certainly those out there that will take advantage of the situation as an opportunity to try to shirk payments. I wonder if policy could be useful here: temporary rent and mortgage freezes perhaps?

_curious_ 7y ago
"my guess is that property valuations are going to go down fairly steeply as well." Yes and how much depends on how much the gov props them up?
- FillardMillmore 7y ago
  That plus possibly the banks' actions: the availability of things like mortgage deferrals and extensions. Another thing to consider, which is a big unknown at this point, is what immigration policy will look like after the dust starts to settle. If it becomes more stringent than it was, that means less demand for housing in the future, and the valuations of property would likely reflect that.
  - _-___________-_ 7y ago
    Not disagreeing at all, but note that the article is about commercial property, not housing.
crispyambulance 7y ago
> I wonder if policy could be useful here: temporary rent and mortgage freezes perhaps? That's the big question. Can't everyone just be cool with deferring payment on rents and mortgages? Ultimately this all bubbles up to banks and investment products, right? I wish it were possible to just declare this "the lost Spring of 2020" and allow the market to take a hit and then recover steadily without entire cities beset with many months of boarded-up storefronts and foreclosed properties.

_curious_ 7y ago

Anecdotally, I've heard a lot of people point to the CRE bubble right up there with PE and student debt. I would imagine that cumulatively in the US there will be hundreds of billions in defaults before this all blows over, which could easily be 12 months before even bottoming out. Edit: yeah I'm going to bump that to a couple tril in defaults if the aggregate market is actually 15-17T (as of late 2018 per https://www.reit.com/data-research/research/nareit-research/estimating-size-commercial-real-estate-market-us https://www.reit.com/data-research/research/nareit-research/...