From what I've heard, certain real estate enterprises including a substantial portion of commercial real estate can get financing on their nominal asking rent, whether or not they actually have tenants paying that rent.
I'd imagine these enterprises still need to find a way to make their payments on any related loans, but one wonders what happens to banking revenue if a bunch of them get caught in the same crunch.
I have heard that, but I am skeptical. Who (... with money to lend) would be stupid enough to extend credit based on that? There has to be more to the story, if it's not fabrication.
I’ve heard of a few buildings around herein Scandinavia (almost empty with businesses downsizing space as contracts lapse) who supposedly have this, and they can’t reduce rents because valuation would drop too much.
Yeah, they is risk in this type of lending. There's also risk in all lending, and managing risks is what banks do. This is less risky than many think on the surface. The major risk has to do with the asset class as a whole losing value, but that would be the same for any commercial property mortgage.
1. The asking rent has to close to actual market value. These small and medium sized banks have the local expertise to know what properties are actually renting for.
2. Tenets in commercial properties tend to stay around much longer than residential, and often a commercial property will stay vacant longer than residential property. The bank will want to see you have enough cash reserves to cover the loan payment for longer then they expect it to be vacant.
Maybe I'm missing something but weren't there plenty of people "stupid" enough to invest in junk mortgage loans? So many that it ended up causing a crisis?
In that situation, everyone knew they were junk, but the ratings agencies gave them safe ratings when mixed in with others, and so “people” had plausible deniability to pass them off onto buyers who would not know betters
Every month, an outside firm asks for the financials to confirm you are meeting the DSCR, otherwise you could be considered to have defaulted (even if the loan is being paid).
> I'd imagine these enterprises still need to find a way to make their payments on any related loans, but one wonders what happens to banking revenue if a bunch of them get caught in the same crunch.
I imagine the government will bail out commercial landlords.
Arguably, all the many useful real-estate-specific tools those investors have at their disposal to advantage themselves in the tax and accounting systems (a certain former prez's own dealings is an ok example) already amounts to a rolling permanent bailout that will no doubt cushion their losses without the government even needing to act.
I'd imagine these enterprises still need to find a way to make their payments on any related loans, but one wonders what happens to banking revenue if a bunch of them get caught in the same crunch.