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IIUC, this is an expansionary accounting trick. Your revenue in commercial real estate is imaginary. If your building is vacant 100% of the time for the year,
by onlyrealcuzzo 4y ago
IIUC, this is an expansionary accounting trick.
Your revenue in commercial real estate is imaginary. If your building is vacant 100% of the time for the year, your revenue is 12 months x your desired rent.
Then you have an expense of 12 months vacancy.
You can get loans based on your revenue.
Additionally, it's the reason you see concessions of 1-2 months free all the time - but landlords will never reduce the rent.
concessions are expenses. Revenue is 100% of their desired rent.
- cjbgkagh 4y agoWould that be a covenant on revenue vs a covenant on rental price? Wouldn’t that amount to the same thing. I’m not in that industry nor have I paid particular attention to it, just going by a rumor I head from a friend. Perhaps instead of a covenant it could be more implicitly enforced by suggesting if there is a revenue drop they’ll revalue the property and force the landlord to make up the difference which could be financially ruinous for some.
- 8note 4y agoClaiming revenue that you never actually had sounds fraudulent? Can't they extend the trick, so that they have one unit that rents at $100B that always has the vacancy expense of $100B? Then they can set the other rents as they like with little impact to their revenue