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Comment by jollyllama | Hacker News Reader

I think landlords have already been doing this even before software existed.

There is an additional mechanism that creates this dynamic, where properties (especially commercial ones) are valued based on the price of leases. For this reason, it can be better for landlords to let a property stay empty with a higher listed rent than to let it open up, if they are renewing their lease or borrowing against it.

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I’ve heard from non-authorities sources that loans for the comercial properties have covenants that would severely financially punish the landlord for lowering the rent. Enough of these restrictions in a single location would have a monopolistic effect on pricing paid for by landlords who now have to carry these loans without tenants. Usually it’s expensive to distort a market enough to maintain monopoly pricing but not if you can get someone else that is optimistic, naive, or desperate to pay for it.

IIUC, this is an expansionary accounting trick.

Your revenue in commercial real estate is imaginary. If your building is vacant 100% of the time for the year, your revenue is 12 months x your desired rent.

Then you have an expense of 12 months vacancy.

You can get loans based on your revenue.

Additionally, it's the reason you see concessions of 1-2 months free all the time - but landlords will never reduce the rent.

concessions are expenses. Revenue is 100% of their desired rent.

Would that be a covenant on revenue vs a covenant on rental price? Wouldn’t that amount to the same thing. I’m not in that industry nor have I paid particular attention to it, just going by a rumor I head from a friend.

Perhaps instead of a covenant it could be more implicitly enforced by suggesting if there is a revenue drop they’ll revalue the property and force the landlord to make up the difference which could be financially ruinous for some.

Claiming revenue that you never actually had sounds fraudulent?

Can't they extend the trick, so that they have one unit that rents at $100B that always has the vacancy expense of $100B? Then they can set the other rents as they like with little impact to their revenue

Having rented commercial properties, the way around this is to agree to the lease rent, but then negotiate a bunch of rent vacations, financed renovations, etc. which even out to having a much lower lease.

The commercial landlord financial infrastructure is broken, but gameable.

Also, a land value tax would fix this (and many other real estate market distortions)

Doesn’t matter, now they are openly colluding through a company. A competent government can create a RICO equivalent and penalize these animals, if it wanted to.

Government officials whose campaigns are funded by the potential members of the RICO suit are rarely ones to push for said suit.

A lot of jurisdictions give property tax rebates on vacant property. Mine has finally removed that and now penalizes it.

Smart move: vacant properties are devoid of voters.

There’s two different types of price collusion, and only one is illegal. The first is using public signals (ie looking at competitors prices) and setting yours to match. This is perfectly acceptable, and is usually unspokenly enforced by tit-for-tat strategies.

The second is when you get together and say, “1bd studios are $1200, agreed?” This explicit coordination is illegal. IANAL, but this looks closer to the second.

>This is perfectly acceptable

Not "perfectly". I think some companies have gotten into trouble doing this.

What's described here is significantly worse, in that it's not just landlords deciding to leave things vacant instead of lowering lease prices, it's a third party software that's coming in and telling a large number of landlords across a market what they're allowed to charge.

There is nothing wrong with keeping a unit empty to charge more money.

There is something very wrong with a software based price fixing cartel.

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