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.
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.
The sheer size of such a collapse would tend to get regulators involved though. Think what’s going on in China, etc.
Vacancies do not correlate with pricing for commercial real estate largely because of outside forces.
People really don’t want to materialize losses, and will do anything they can to avoid it. It’s why property prices aren’t falling much in residential yet either, except in markets with marginal owners.
And it often works - if it’s just a temporary bump in the road, things recover and blam - they’re rich again.
If it keeps up, at least they’ll have a lot of company and they’ll be less likely to be singled out/more likely to get a bailout.
Commercial equivalents are usually the Class A stuff. Class B/C is often owned by individuals or small syndicates.
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.
We're already seeing Office buildings selling at 60%+ losses off peak valuation in SF, for example.
Once that happens they’ll have to reprice to the market.
And the banks that have to undercut these loans (and maybe society in general) would really, really like to avoid having trillions of dollars of real estate come up for foreclosure again.
Commercial property owners can generally deduct expenses like security, maintenance, utilities, etc but that's separate from rent or lack thereof.
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.