I'm in Berlin where there's a glut of offices which are all sitting empty. I'm living next to a top line historic renovation/office space and it took them 8-9 years to complete the renovation at probably an astronomical cost and now it's been sitting empty for a year or so.
This financial model is also the main reason why it's so hard to convert these buildings to residential. Somebody has to eat the markdown.
The whole goal is not to write off the value of the property which you have to do if you rent it for less money than initially planned. That's not that difficult to understand is it?
I mean, it's highly unintuitive, which I would say makes it difficult to understand. The main weirdness is that lowering the rent would force a revaluation whereas letting the building sit vacant for an extended period of time apparently would not. If this is truly driven by regulatory capital requirements, then it seems like a gap in the regulations.
Also foreclosure generally isn't the only option: the borrower could, for example, agree to repay part of the loan early, or give extra collateral, both of which would increase the LTV (and this would be better for the bank).
I'm not saying the explanation is wrong, but I don't blame people for finding it difficult to understand. Other factors contributing to this are probably borrower relationships/negotiating strength and the high costs associated with foreclosing.
Banks care that you pay their loan first and foremost, how you do that as the borrower is up to you.
They care about the regulatory requirements in so far as you either meet it, or you don’t at the time of writing a loan. And maybe you get a yearly review.
Also people are looking at this in a very isolated view. Just because a building is vacant doesn’t mean the owner has no other option than just lower the rent. Typically owners of commercial property own multiple properties and various other types of assets. Vacancy rates are also built into calculations.
They are extending loans though. In a normal market, requesting an extension when the bank knows you're underwater should set off some risk alarm bells and trigger a denial. The "normal person" intuition about how loans work is correct here: if I try to refi my house when it's underwater and I've lost my income, the bank denies the refi. That incentivizes me to do what it takes to make the bank whole, or, make the appropriate decision to leave my house and let someone else who can afford it take over payments.
When everyone, the regulator, the operator, and the bank, are whistling a tune, when the whole sector is fucked, everyone has a big problem. How big? About as big as hundreds of buildings in the downtown of every major city sitting half-empty!
That's a pretty big problem. Maybe not as large as 08 but definitely structural. We're all paying indirectly for this office space to sit empty, instead of being able to use it.
I recommend getting out there and getting involved - it's surprisingly easy to end up talking to the actual owners of these buildings, and they're more often than not just a guy and not some weird conglomerate REIT and they'll make a deal but they'll also tell you what and why - listen!
I have the capacity to pay someone to dig a hole and fill it in. Would that be a wise use of my resources?
We're talking about the whole sector here, not one borrower. Huge swathes of commercial real estate are sitting empty, that's a big ongoing problem for everyone whether the loans are being serviced or not.
Dig and fill away dear fellow, that's what this site does best.
The whole sector doesn't have a vacancy problem. And it's not a problem for the banks nor the owners if they're servicing their loans. Sure they're not making money but that's not your or anyone else's problem either.
Commercial leases are often for say 5+5 years, so once you lock it in, you know for sure what the property revenue is going to be for the next so many years. Your uncertainty equation has collapsed.
I think the main insight here is that commercial real estate is an entirely different animal than the residences that you may be used to.
You can apply this same reasoning to the "back to the office" pushes done on behalf of the institutional investors who have exposure to large commercial properties in inner cities. That too is a financial house of cards built on assumptions and vibes.
Nobody said commercial real estate was risk free free money in some abstract financial product, other than the doofus who wrote this long "note." The hard fact is these are real buildings in real places that aren't really fungible at all. So it seems kind of ridiculous that CRE investors should be insulated from every possible externality. Obviously the right thing to do is to tax vacant properties, and then we shall see how many stay vacant and how many foreclosures there are (hint: owners suddenly find capital and are able to pay the tax or rent things out and nothing ever gets foreclosed in every one of these scenarios where it actually happens).
I never taught my children anything but the '(Fast) Ian knot', so they know no other way. They are older now, but when they were younger, they were often the friends of 'first resort' when it came to getting their shoelaces tied when they came undone.
They've also taught many other children 'their way' of tying their shoes.
I should probably donate. It's a small thing, but definitely something that has made our lives (and those around us) better.
It's like world smallest (and funniest) superpower. While people are still tying their shoes I'm ready to go. It feels a bit like magic when you touch the laces and they're just made.
This is definitely the go-to knot over secure knot. Been using it every day for 13 years. Yes, it comes apart every so often (maybe a few times a year), but the tying time savings far outweighs those few instances.
Plus you get to have rare "wait what, how the heck???" encounters if anyone around you pays attention randomly. It looks like magic compared to the usual methods people learn.
I tried to embrace this knot especially since I grew up sailing and know all kinds of ways to tie knots but I just can't seem to keep the tension as well as the traditional way. I can sometimes get ankle slip on my shoes so I like to have it tight at the top (not all shoes have lock lace holes).
I use this knot usually but it doesn't work for my pisgah range laces. They have their own recommended knot, which does work, but it's annoying to tie and asymmetric. I'll be trying this "secure" knot now.
The same concept applies to anything with two loops as well. You can use it to quickly and easily tie together garbage bag loops, or grocery bag loops etc.
I felt that FCP was underpowered for compositing and grading so I switched from paid FPC to unpaid Resolve. But I don't really edit that much. Resolve is good enough for me for now.
This financial model is also the main reason why it's so hard to convert these buildings to residential. Somebody has to eat the markdown.
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