TL;DR: Commercial Mortgage-Backed Securities are when banks sell groups of loans to investors. The valuation of a location is usually 12-14 times the annual rent paid, and directly tied to it.
What this means is if people do the shit where they use the building itself as collateral for the loan (why is this allowed?), and the rent goes down because it was already too expensive and people won’t rent out a location, the person who took the loan is now responsible to pick up the difference to the collateral, and because people won’t do that, it’s a game of chicken where shit stays expensive because the value must be kept high or else they default on the loan, and all other sorts of bullshit.
NYC’s property taxes make up almost a third of its annual budget, and if the value of buildings goes down, the budget for NYC goes down because property taxes are based on the value. Basically NYC’s bubble is going to crash hard.
They also get to defer payment while the buildings stay empty, so there is no incentive to do anything at all to get a tenant. An empty building is preferable to cutting a single dollar off the rent.
TL;DR: Commercial Mortgage-Backed Securities are when banks sell groups of loans to investors. The valuation of a location is usually 12-14 times the annual rent paid, and directly tied to it.
What this means is if people do the shit where they use the building itself as collateral for the loan (why is this allowed?), and the rent goes down because it was already too expensive and people won’t rent out a location, the person who took the loan is now responsible to pick up the difference to the collateral, and because people won’t do that, it’s a game of chicken where shit stays expensive because the value must be kept high or else they default on the loan, and all other sorts of bullshit.
NYC’s property taxes make up almost a third of its annual budget, and if the value of buildings goes down, the budget for NYC goes down because property taxes are based on the value. Basically NYC’s bubble is going to crash hard.
They also get to defer payment while the buildings stay empty, so there is no incentive to do anything at all to get a tenant. An empty building is preferable to cutting a single dollar off the rent.