I have often wondered why, when stores close, landlords leave the spaces empty for years at a time instead of lowering rents. The answer, apparently, is banks often won't let them:
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@evacide But that still leaves it an open question... if landlords arent making the most of their property by leaving it empty, then why would banks want to avoid the chance of profit as well.
> if landlords arent making the most of their property by leaving it empty, then why would banks want to avoid the chance of profit as well.
The banks' problem is that as long as the landlord maintains the fiction that the property can be leased out at $50/foot, the banks can carry the loan on the books at full value even if the property has sat unleased for years, so long as the landlord continues to make payments on time. But the moment the landlord leases it at a more realistic price (say $25/foot), that creates a mark to market event where the bank has to reduce the book value of the loan, and revalueing loans lower tends to interfere with one's annual bonus. So you see banks have a powerful incentive to maintain the fiction that it will lease at $50/foot *someday*, even though a property pulling in at least *some* income is arguably the more valuable loan. 1/2
That still leaves an open question for me if taken at face value..
why would they punish a bank agent by refusing them their bonus for taking an action that ultimately hurts the bank. Banks are money driven, so seems really silly they would punish their own agents for doing something that causes them to make money off it.
Also this is not something I've ever heard of or expiernced, when i buy a property (and thus become a landlord) I've never heard of a bank being able to tell me what price im allowed to lease it at.
@freemo @artemesia @evacide the bank loses $0 on the vacant storefront as long as the owner makes his payments on time.
The bank suffers financially if the unit goes lower because it affects their balance sheet, potentially reducing what they can loan for profit to others.
If the owner can't pay the mortgage, the bank can always foreclose, which may be more profitable on an older mortgage.
The lower nonzero rent is virtually never better for the bank.
Two problems... 1) this never actually happens as far as I can tell, if it does its very rare. I've been asking around people in the industry, plus my own expiernces, this just isnt a thing. Many have pointed out it wouldnt even be legal in most states since you as the morgage holder can rent out your own property at any price
2) Foreclosing may in some special circumstances draw a profit but in the majority of cases foreclosing costst the lender about 20% of the cost of the property.
