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Comment by dylan604 | Hacker News Reader

If you build it, they will come.

I don't know how residential rent/lease works in comparison to commercial, but I have known office space to sit unused for years. They landlord would rather the space sit empty than lower the rate to find a tenant. I'm guessing there's a deduction for loss in taxes, so it might be in the landlord's interest to have a few empty properties. But that's just a wild ass guess

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Yeah, I've seen way too much empty office/restaurant spaces in many of the places I've lived simply because landlords won't lower the rent. IMO, there should be penalties if a space sits empty for too long in high traffic areas. It's an eyesore, it harbors pests for neighboring spaces, and there's people out there who can definitely use the space but can't afford it. Intentional empty spaces are simply bad for communities and I wish something could be done about it.

You should be asking why property owners can afford to sit on an unproductive building in a high traffic area. Forget your penalties. The answer is complex but fundamentally lenders are ruining our society.

Land value tax would solve this.

But it could be designed to be more specific. Demonstrate the lost city revenue from hypothetical retail or office work; split the difference if it’s vacant.

Don't know if it's true, but I've been told that loan renewals for commercial properties use the most recently rented unit as an anchoring point, so if you lower rents too much, you end up under-water in your loan.

Lenders are smarter than that. CMBS (commercial mortgage backed securities) lenders require borrowers to maintain a certain debt service coverage ratio.

https://en.wikipedia.org/wiki/Debt_service_coverage_ratio

You do not get to pretend a half empty building is worth the same as a full one.

The rent affects the comps.

If the landlord happens to own the comps (he owns the building after all) He will run into trouble in multiple ways if hes lowering rent, for example with resets (every 10yrs or so), rolling the debt, refi, , lowering the floor for units in negotiation or renewal etc

Still it doesnt mitigate the fact that there is a real estate loan that must be paid.

I believe the other reason this happens is “extend and pretend” [0].

Basically the bank issues a loan to a developer, based in part on how much income the developed property is expected to bring in. If the expected revenue isn’t coming in (say because the rent is too high), the bank doesn’t always want to admit that it’s a bad loan and call it a loss, so they extend (the length of the loan) and pretend (that the rent the developer is trying to charge is realistic). This incentivizes the developer to keep the high rent as-is even though nobody is going to pay it.

A case of terrible incentives causing terrible outcomes.

0.https://www.wsj.com/articles/SB10001424052748704764404575286...

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