This kind of thing is why it's so confusing to me that more commercial landlords haven't been willing to play ball with their tenants on rent breaks through this crisis. Like, what do you have to gain by throwing out a restaurant or other business that is ready to start right back up the moment the lockdown lifts, vs sitting on an empty unit for months and months while the economy remains in turmoil, getting nothing from it. I guess it's maybe a play for some deep-pocketed franchise operator to grab it on spec? Seems risky.
I read somewhere on HN that commercial real estate is financed differently from residential real estate, and in particular, financing costs are related to what a building could earn rather than what a building does earn. If you keep rents the same but have vacancies, your funders apparently don't count that against you, while if reduce rents, suddenly the earning potential of your building has dropped and it will cost you, even if the building is actually earning more in cash flow than if it were vacant.
Seems like a bit of a misincentive here, and a recipe for lenders to go bust too. Then again, it seems like commercial real estate has periodic financial crises, so this seems to reflect reality. Get ready for the next one.
This is 100% true and this actually does affect residential as well. Many real estate investors make more money from the appreciation of the asset as opposed to current rents. Reducing rent reduces the value of the property on paper because the projected earnings over time decrease.
Vancouver's been doing a 5x property tax for vacant units for the past few years, and it does seem to be putting some pressure on owners to get them occupied:
