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Under US accounting rules, it is much better for a landlord to leave a property unrented at a higher price than to rent it at a lower price. If the property is

Under US accounting rules, it is much better for a landlord to leave a property unrented at a higher price than to rent it at a lower price. If the property is unrented, the landlord can use the proposed rental price in calculating the value of the property. If the landlord accepted the lower rent, they would have to use that lower price in calculating the value of the property. That could cause all sorts of problems with any loans that the landlord has on the property that are secured by the value of the property.

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nradov 3y ago
Which specific "US accounting rules" are you referring to? I'm not aware of anything in GAAP to justify your claim. There may be covenants in certain mortgage agreements related to lease rates and occupancy levels, but those are terms negotiated individually with lenders rather than being dictated by accounting rules.
- RestlessMind 3y ago
  I think GP meant mortgage terms (or covenants). Accepting a lower rate will trigger all sorts of cascading effects. This article covers some aspects: https://www.horizoncreok.com/post/why-is-it-better-to-leave-a-commercial-property-vacant-rather-than-reduce-the-rent https://www.horizoncreok.com/post/why-is-it-better-to-leave-...
BurningFrog 3y ago
That may well be true, but the downside of not renting the property out is that you get zero income. That has to be more important in the long run at least?
- lamontcg 3y ago
  When you're paying nearly zero interest that doesn't matter. Most loans right now still haven't hit their maturity dates and are still on old, low interest rates. Shit is gonna get absolutely wild as loans hit their maturity dates in the current interest rate environment: https://cred-iq.com/blog/index.php/2023/04/20/mounting-maturity-defaults-commercial-real-estate/ https://cred-iq.com/blog/index.php/2023/04/20/mounting-matur...
  - yourapostasy 3y ago
    During the GFC, most US CRE defaults were from maturity default. I'd like to see a heat map of where and how much CRE loans are maturing in the next 6, 12, 18, 24, etc. months out. Or I'd just like to know where to even find the CRE loan data in the first place (county clerk's records?). Would make some nice data is beautiful charts. A big chunk of CRE paper is on amazingly short terms. I grew up in an era where 7-10 year paper was common on CRE, but these days 2-3 year is apparently the norm. If so, the liquidity and in some cases solvency drying out in CRE lending deals will get spicy.

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nradov 3y ago

Which specific "US accounting rules" are you referring to? I'm not aware of anything in GAAP to justify your claim. There may be covenants in certain mortgage agreements related to lease rates and occupancy levels, but those are terms negotiated individually with lenders rather than being dictated by accounting rules.

RestlessMind 3y ago
I think GP meant mortgage terms (or covenants). Accepting a lower rate will trigger all sorts of cascading effects. This article covers some aspects: https://www.horizoncreok.com/post/why-is-it-better-to-leave-a-commercial-property-vacant-rather-than-reduce-the-rent https://www.horizoncreok.com/post/why-is-it-better-to-leave-...

BurningFrog 3y ago

That may well be true, but the downside of not renting the property out is that you get zero income. That has to be more important in the long run at least?

lamontcg 3y ago
When you're paying nearly zero interest that doesn't matter. Most loans right now still haven't hit their maturity dates and are still on old, low interest rates. Shit is gonna get absolutely wild as loans hit their maturity dates in the current interest rate environment: https://cred-iq.com/blog/index.php/2023/04/20/mounting-maturity-defaults-commercial-real-estate/ https://cred-iq.com/blog/index.php/2023/04/20/mounting-matur...
- yourapostasy 3y ago
  During the GFC, most US CRE defaults were from maturity default. I'd like to see a heat map of where and how much CRE loans are maturing in the next 6, 12, 18, 24, etc. months out. Or I'd just like to know where to even find the CRE loan data in the first place (county clerk's records?). Would make some nice data is beautiful charts. A big chunk of CRE paper is on amazingly short terms. I grew up in an era where 7-10 year paper was common on CRE, but these days 2-3 year is apparently the norm. If so, the liquidity and in some cases solvency drying out in CRE lending deals will get spicy.