Comment by roenxi
6 months ago
> Anything that makes owning an empty building a bad investment in all circumstances
But empty buildings aren't a bad idea under all circumstances. Eg, It might be prudent to have empty living space in a tourist or student area to deal with annual surges in demand. Or maybe someone has a warehouse full of facemasks because they think the price will 10x in the next pandemic. We'd have the same crowd complaining about empty buildings saying they were just doing it to hide the fact that the building is empty when in fact that is a pretty reasonable strategy that would be socially beneficial.
That would be true in a normal economy where supply and demand dominated. See an empty storefront/building, hustle up a few bucks and turn it into an art studio or entertainment space or whatever. But if you start using a building you have to pay rent, and if you pay rent that goes on the books, and if it goes on the books then the mortgage on the property gets reevaluated and the then the merry-go-round comes to a screeching halt, because most commercial property is mortgaged up to the eyeballs.
> and if it goes on the books then the mortgage on the property gets reevaluated and the then the merry-go-round comes to a screeching halt, because most commercial property is mortgaged up to the eyeballs.
No, the leverage isn't the problem. The article is very explicit about this: the bank makes a $16M loan at interest of $640K / year, and the building operator is so good for that loan that he pays it off indefinitely out of his personal funds. The operator doesn't want to be foreclosed on, because that leaves him worse off (assuming the market eventually picks back up), and the bank doesn't want to foreclose, because that leaves it much worse off (whether the market picks back up or not).
The reason for the pretense is that lowering the rent legally requires the bank to foreclose despite foreclosure being terrible for the bank.
A warehouse full of things is not an empty buulding.