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by coldtea 26 days ago
>AFAIK Commercial is priced at a multiple of rent. So when an owner still has a loan on a building that was based off of multiple of 3000/mo and decides to rent it out for 1500/mo it effectively cuts the value of that building in half.

Well, if the town is dying, the "value of that building" is effectively cut in half, or worse, anyway. Asking a lot for rent is not gonna magically make the building worth more - it will just keep it unrented.
2 comments
tardedmeme 26 days ago
It's not just accounting, it means enough things that they're incentivized to manipulate it upwards. It impacts the loans they can get and the interest they pay, enough that it may be worth it to forego some actual income to keep the fake numbers up.
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SoftTalker 25 days ago
But at some point it has to collapse, it seems to me. You can't forever fake a high value on a property that is bringing in no rent. Unless the real value is just being a outwardly legitimate-looking place to park money.
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bombcar 26 days ago
And they’re often owned by funds that are measured in the billions. A parking lot in New York covers for a bunch of empty middle America storefronts, as long as the valuation works out on paper.
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zoomablemind 25 days ago
It seems that approach is a way to generate losses without actually losing the titles. These losses are needed to offset incomes elsewhere thus not paying taxes on profits.

Investment fund's commodity is value - the rest are just tools to optimize the value.

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SoftTalker 25 days ago
In aggregate, the owners of these properties are investing to earn a return. Losses only lead to "not paying taxes on profits" if there are no profits. The overall portfolio has to be earning a risk-appropriate return or investors will go elsewhere.
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dh2022 24 days ago
But if there are losses there are no profits. I am with SoftTalker on this one. I figure there are things I do not know that explains how this keeps happening even though my simplistic knowledge thinks it is not sustainable.
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nothercastle 25 days ago
Accounting rules allow you to extend and pretend which is common in commercial. Because loans are sucuritized by other assets there can be a lot of different assets that could all suddenly become distressed just by pricing down rent in one building
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