[lotsofpulp]

> If they sign a lease at a new lower rent it basically triggers a re-check of "can they repay the loan based on their rental income?", which comes back as "no". That trigger _doesn't_ occur if you just leave the building empty, with _no one_ paying rent, because your last mark to market rent was high enough.

Minimum DSCRs have long been used to monitor the current value of a property, and less income is less income.

https://www.jpmorgan.com/insights/real-estate/commercial-ter...

> It's a shell game that eventually leads to the loan defaulting, but both the bank and the building owner are happy to pretend they can't see the train coming down the tracks at them.

This makes no sense. Why would a lender not want to keep tabs on their investment? What does shell game (a game where someone is intentionally deceived) even mean here?

[hirsin]

Yep, the issue is that recalculating DSCR doesn't happen on the right timescale to incentivize reducing rents, instead incentivizing keeping vacancies open and using a pro forma DSCR.

The banks know this is a structural issue, but are likewise incentivized to keep "strong assets" on their balance sheet, rather than a bunch of troubled assets bound for default.

The claim isn't that they can keep this up forever, it just needs to last another quarter, every quarter.

The shell game is both parties knowing that the cups are all empty but still playing because it's better for them both to do so.

[lotsofpulp]

DSCR is calculated at least once per year. I don’t know what pro forma could mean here, it’s purely a cash flow calculation. The money came in, or it didn’t.

> The claim isn't that they can keep this up forever, it just needs to last another quarter, every quarter.

I don’t understand what this means, or what is being “played”, the lenders all have a near real time view into the business. The lack of cash flow can’t be papered over without engaging in fraud, but it’s also up to the lender to decide if they want to take action due to a failing DSCR.