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Good. Now let's see when the rent - and thus valuation of real estate - starts falling; because even if this particular space can't be used for housing, it will

Good. Now let's see when the rent - and thus valuation of real estate - starts falling; because even if this particular space can't be used for housing, it will drag down housing rent/prices as well.

switch007 3y ago
Aren’t commercial real estate owners famous for not lowering prices? They don’t want to accept a lower rent amount as it lowers the valuation of their portfolio?
- PeterisP 3y ago
  Yes, that's true, so the true impact of these vacancies on other aspects of society won't be visible until (and if!) they start actually lowering the rent despite having various reasons not to want that.
  - bequanna 3y ago
    …or they start defaulting on loans because they don’t have the cash flow to cover payments.
  - lazide 3y ago
    It’ll typically only happen when they’re insolvent anyway, and can’t make payments.
happymellon 3y ago
I didn't think they could, because of the loans on the properties. I'll have to dig up the explanation, but basically they take a loan for a $100 property, and if they dropped the rent then basically the loan becomes invalid and they have to repay 100%. So they will never lower rent, even if it's only kicking the can down the road because otherwise it's immediately an issue. I could be wrong, so I'm going to try and find the source.
- wkat4242 3y ago
  Yes this is true. The banks will insist on repayment of the difference since you're proving that the value of what you borrowed against is suddenly much lower.
  - lazide 3y ago
    That is when Bankruptcy kicks in. Many commercial properties are owned by holding companies, nearly all by some kind of liability shield.
    - wkat4242 3y ago
      In the US maybe but here in Europe bankruptcy is not really the "get out of jail card" as it is in the US.
      - lazide 3y ago
        In what situation would a bankruptcy of a company not limit the losses to the company? (And prevent individual bankruptcy of officers or shareholders, assuming no fraud or the like) That’s what both companies and bankruptcy are about no? Commercial loans are harder to get and costs/interest are much harder because of these risks. Terms are very different too.
- lazide 3y ago
  What happens is they do a wil-e-coyote (never look down!) until/if they are forced to. Usually because of insolvency. Then the whole system collapses. The receivers/banks, if it happens, then end up lower rent or selling wholesale to the next company who rents it lower. The sheer size of such a collapse would tend to get regulators involved though. Think what’s going on in China, etc.
  - happymellon 3y ago
    Yep, but they don't ever want to admit failure so keep rents high until they are bankrupt. Vacancies do not correlate with pricing for commercial real estate largely because of outside forces.
heroprotagonist 3y ago
Rent in my city, Denver, will always go up. There's what I consider to be an elaborate price-inflating scheme in place to artificially increase demand and reduce supply at certain times of the year. Move here in November, and you'll get lease options that cap the renewal date 2+ months away from it being a full year, but no year long option. Do that a few times and you'll finally get the year option available and priced to a point where you have to select it. That puts you in the May-June range for renewal. This artificially increases demand in these months. Which is the same time at least half the city is performing a renewal, which artificially reduces supply, as nobody will give up their place until they find a new one. So there's overlap in apartment availability. There's a huge push to keep you in this cycle. If you decide NOT to renew your lease and go month to month, the rent jumps 35%/month. If you leave your lease partway through, some leases expect you to pay that 135% rate for the full remainder of the lease term if someone doesn't take the apartment. If someone DOES take the apartment, you have to pay 135% minus whatever they lease it for. The building could lease it for a buck and you'd still be on the hook until the lease is out. The reason it's a price-inflating scheme is that the same formula is run by all 5-6 major rental companies which run the majority of apartment buildings in the city. It should be easy to identify collusion by the similar business practices (proof of communication is not required), but there's no will and the city doesn't investigate. So, they expand beyond price fixing to other mechanisms. Like a 7 year rental history record that all the buildings pay into and take the word of so that their rental discrimination has block-power. It's not just eviction discrimination anymore. There's an unregulated credit bureau which builds the authority that building management have over their renters. Refuse to pay a charge, for whatever reason, and you're blocked from decent housing anywhere this rental history service is used. This will prevent you from finding an apartment elsewhere due to rental history discrimination. You could end up in one of those places pretending to be a hotel but which functionally is just exploitative housing for poor people with bad rental history. They pay an inflated rate (2x a typical rental) for a much worse room that has no eviction protection. For people with low income this means a longer time paying back rental debt, or potential homelessness. Corporate exploitation of rental markets is one of the roots of the homeless crisis. But it's also a driver of home value increases. So we never hear about them when politicians are hand-wringing and talking about solutions while they shift around the growing tent cities.

Good. Now let's see when the rent - and thus valuation of real estate - starts falling; because even if this particular space can't be used for housing, it will drag down housing rent/prices as well.

switch007 3y ago

Aren’t commercial real estate owners famous for not lowering prices? They don’t want to accept a lower rent amount as it lowers the valuation of their portfolio?

PeterisP 3y ago
Yes, that's true, so the true impact of these vacancies on other aspects of society won't be visible until (and if!) they start actually lowering the rent despite having various reasons not to want that.
- bequanna 3y ago
  …or they start defaulting on loans because they don’t have the cash flow to cover payments.
- lazide 3y ago
  It’ll typically only happen when they’re insolvent anyway, and can’t make payments.

happymellon 3y ago

I didn't think they could, because of the loans on the properties. I'll have to dig up the explanation, but basically they take a loan for a $100 property, and if they dropped the rent then basically the loan becomes invalid and they have to repay 100%. So they will never lower rent, even if it's only kicking the can down the road because otherwise it's immediately an issue. I could be wrong, so I'm going to try and find the source.

wkat4242 3y ago
Yes this is true. The banks will insist on repayment of the difference since you're proving that the value of what you borrowed against is suddenly much lower.
- lazide 3y ago
  That is when Bankruptcy kicks in. Many commercial properties are owned by holding companies, nearly all by some kind of liability shield.
  - wkat4242 3y ago
    In the US maybe but here in Europe bankruptcy is not really the "get out of jail card" as it is in the US.
    - lazide 3y ago
      In what situation would a bankruptcy of a company not limit the losses to the company? (And prevent individual bankruptcy of officers or shareholders, assuming no fraud or the like) That’s what both companies and bankruptcy are about no? Commercial loans are harder to get and costs/interest are much harder because of these risks. Terms are very different too.
lazide 3y ago
What happens is they do a wil-e-coyote (never look down!) until/if they are forced to. Usually because of insolvency. Then the whole system collapses. The receivers/banks, if it happens, then end up lower rent or selling wholesale to the next company who rents it lower. The sheer size of such a collapse would tend to get regulators involved though. Think what’s going on in China, etc.
- happymellon 3y ago
  Yep, but they don't ever want to admit failure so keep rents high until they are bankrupt. Vacancies do not correlate with pricing for commercial real estate largely because of outside forces.

heroprotagonist 3y ago

Rent in my city, Denver, will always go up. There's what I consider to be an elaborate price-inflating scheme in place to artificially increase demand and reduce supply at certain times of the year. Move here in November, and you'll get lease options that cap the renewal date 2+ months away from it being a full year, but no year long option. Do that a few times and you'll finally get the year option available and priced to a point where you have to select it. That puts you in the May-June range for renewal. This artificially increases demand in these months. Which is the same time at least half the city is performing a renewal, which artificially reduces supply, as nobody will give up their place until they find a new one. So there's overlap in apartment availability. There's a huge push to keep you in this cycle. If you decide NOT to renew your lease and go month to month, the rent jumps 35%/month. If you leave your lease partway through, some leases expect you to pay that 135% rate for the full remainder of the lease term if someone doesn't take the apartment. If someone DOES take the apartment, you have to pay 135% minus whatever they lease it for. The building could lease it for a buck and you'd still be on the hook until the lease is out. The reason it's a price-inflating scheme is that the same formula is run by all 5-6 major rental companies which run the majority of apartment buildings in the city. It should be easy to identify collusion by the similar business practices (proof of communication is not required), but there's no will and the city doesn't investigate. So, they expand beyond price fixing to other mechanisms. Like a 7 year rental history record that all the buildings pay into and take the word of so that their rental discrimination has block-power. It's not just eviction discrimination anymore. There's an unregulated credit bureau which builds the authority that building management have over their renters. Refuse to pay a charge, for whatever reason, and you're blocked from decent housing anywhere this rental history service is used. This will prevent you from finding an apartment elsewhere due to rental history discrimination. You could end up in one of those places pretending to be a hotel but which functionally is just exploitative housing for poor people with bad rental history. They pay an inflated rate (2x a typical rental) for a much worse room that has no eviction protection. For people with low income this means a longer time paying back rental debt, or potential homelessness. Corporate exploitation of rental markets is one of the roots of the homeless crisis. But it's also a driver of home value increases. So we never hear about them when politicians are hand-wringing and talking about solutions while they shift around the growing tent cities.