Comment by toast0
6 months ago
It's all about contract/loan assumptions.
If the space is vacant, and the last known rent was $X, the assumption is that borrower is bad at advertising space, but a successor would be able to get it rented again at that rate.
OTOH, if the space is rented at 0.7 times $X, the tenants may have a long term lease that fixes that price for a significant time and even a savvy successor would have a hard time raising rents, so the valuation needs to be calculated based on current rent.
This seems like an assumption that over time would come to bite the banks that overexpose themselves to lending in this manner.
Wouldn't banks want to accurately assess these valuations so these types of "bad loans in actuality, good loans on paper" don't become a large portion of their balance sheet?
Maybe not all at once, but over time it seems like banks would want more accuracy on this.