
Redditor explains why commercial property sits vacant instead of reducing rent - ideals
https://old.reddit.com/r/nyc/comments/innhah/nearly_twothirds_of_new_york_restaurants_may_have/g49g4c5/
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quarterdime
I think this market has been headed for collapse since well before
coronavirus. [https://www.propublica.org/article/whistleblower-wall-
street...](https://www.propublica.org/article/whistleblower-wall-street-has-
engaged-in-widespread-manipulation-of-mortgage-funds)

The industry is reading off the exact same script as 2008 but with all sorts
of increasingly silly financial instruments based off commercial real estate.
Because of course commercial real estate is different.

This is crazy and has been going on for a while. I fear this is every bit as
big as 2008. A lot of wealth is about to evaporate. A lot of it from the
middle class. I notice that the market is UP and Americans are killing one
another in the streets. What is this going to look like when unemployment hits
30%? Our whole economy runs on credit. At some point the banks are going to
get squeezed by this. Nobody is going to sign a lease on commercial property
in 2020. Businesses need to borrow money. The fed is trying to print money
fast enough to shrink the problem, but I do not think there is any way for
them to stay ahead.

Totally unrelated question. That guy Jared Kushner: does anyone remember what
industry he's in?

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PeterStuer
Where was the lesson in 'if only we screw up bad enough we will be showered
perpetually in lavish bailout wealth'?

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quarterdime
Yeah, I think the lesson was indeed pretty well learned. My initial comment
was off though--I said that the banks hold a lot of this debt. I reread and
saw that reddit poster claimed that the banks hold very little and pass it
down the line to funds. Maybe they hold little enough that they will be fine.
Maybe they hold enough that they will need a bailout. Either way they win. I
agree with you. Their success with mortgage backed securities last time
appears to have inspired a sequel.

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jessriedel
Ok, forget re-writing old loans. Why do banks continue to write new loan with
terms that incentivize their debtors to turn down free money? That must hurt
the default rate.

~~~
repsilat
The problem might be recursive. If the shortfall is tacked onto the back end
of the loan (plus interest), so long as the tenant is solvent it isn't
problematic for the bank. If the client takes a write-down, though, the _bank_
takes a write-down, and they may need to think about reserve ratios and
regulation.

I suppose the bank isn't primarily interested in the loan being paid on time,
they just want it paid _some_ time. (Not sure, a delay might even be good for
their business model?)

The bank is definitely interested in problems of solvency, and the tenant is
interested in minimising cost, but kicking the can down the road might be the
easiest option for them. Maybe a competitive creditor could break that impasse
though. Threat of insolvency certainly would.

~~~
Rapzid
Probably at a high level the bank really only cares about being able to
somewhat accurately asses the risk of the loan so they can attach the proper
interest rate and then sell the debt..

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rasz
but .. this has been going on for years in NY. Rossmann video checking out
commercial spaces he was considering full year ago
[https://www.youtube.com/watch?v=Fk5o6cbq_Qs](https://www.youtube.com/watch?v=Fk5o6cbq_Qs)
all but one are still vacant. He sometimes shows stores he tried renting 7
years ago, and they are still empty.

~~~
toomuchtodo
I believe this is why the renewed interest (last paragraph):

> That said, Covid is changing everything. I can honestly say I’ve seen 10x
> more modifications in the last 3mo than I saw my entire career including the
> great financial crisis. There is a HUGE flurry of activity happing in the
> commercial finance sector that nobody outside of the industry is talking
> about.

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jariel
Add a vacancy tax into the mix and see what happens.

Also, seems as though the structural issues need to be updated on the 'owners'
of said mortages.

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jesterson
Vacancy tax won't solve the problem, will just escalate the inevitable crash

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Nasrudith
Wouldn't stopping the very suboptimal behavior earlier be a net good if the
crash is inevitable? It sucks to be caught in it of course but returning to
remotely rational of renting it to /someone/ when there is demand should help
the whole long term.

The "pray and delay" logic also seems to reflect inverted causation fallacies
where they think a lower rent business will neccessarily drive away other
higher rent ones and "devalue" it instead of it being a reflection of the fact
they can't sustain the higher rents required to pay for it.

~~~
jesterson
That's hell of a question you've made here. Irrelevant to the answer (if it
even exists), humans tend to accumulate debt, it's just human nature, we are
incredibly shortsighted.

And under debt I mean not just financial - if you look at every organisation
you will see huge technical debt, which is often less observed and accounted
compared to financial debt.

So going back to your question, it may or may not be suboptimal to do so,
there is no way of knowing at timespan long enough to answer the question with
substantial evidence.

And if we honestly ask ourselves if we want the vast crisis proliferating at
every level of our society to happen during our lifespan or being delayed to
some time after we die - the answer may not be the one we'd expect.

And even if you and me are ready to jump into it in order to save coming
generations some normal life - most of guys behind us have different opinion
on it.

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innagadadavida
> I’ve seen 10x more modifications in the last 3mo than I saw my entire career
> including the great financial crisis.

So what’s economic outcome of all this? It looks like more commercial
properties should get rented out and the rents should also fall?

~~~
throwaway1777
In theory down cycles are healthy to clear unprofitable businesses out of the
economy and replace them with new ones. But it’s always complicated. I’m sure
some analysts are earning their salaries this year figuring it out.

