"Last value" is pretty meaningless when it's stale though.
Suppose there is a building that was built in 1970, last rented out in 1975 and then bought by a company that has used it as their own offices until now. The last transaction was in 1975, what's the value if they apply for a mortgage today? Surely they have some formula to use for this based on e.g. other buildings in the area.
Moreover, "failure to find a tenant" is also a type of transaction. It's the landlord acting as the high bidder for the space, essentially the involuntary edition of imputed rent, and implies something negative about the financial prospects of the building when it continues for a significant period of time or large percentage of units. Ignoring that it is either incompetence or some kind of perverse incentive.
> "Last value" is pretty meaningless when it's stale though.
For who and in what way though? Every entity involved wants to keep the price high, except the renter/new buyer, so with that in mind, "Last Value" seems optimal for achieving that.
Maybe it's different in the US, but in Spain there is a ton of properties that sit completely empty and unused, even since earlier than 2008, just because the owners don't think the value is enough to sell yet, and they wouldn't earn enough renting it out, so everyone (except renters/new buyers) seems to prefer it just sits empty for decades.
Suppose the building is supposed to be worth $20M, has an existing $10M mortgage and is actually only worth $10M. The landlord comes to you and wants to borrow another $5M against the building. Pretty important to the lender at this point that they're not overvaluing it, right? Or the same if they go to a different bank trying to refinance an existing mortgage they're already underwater on when using an accurate accounting.
It's not a matter of whether I like it. It's a question of why the bank, unless required to do so by some kind of absurd perverse regulatory incentive, would do something which is not only harming others but also increasing the default risk for the bank by reducing the income of a borrower who, if they can't make the payments, will cause the bank to have to write off millions of dollars by foreclosing on an underwater building.
When people are fulfilling their obligations and most other people are not happy with the outcome, that usually means the definition of "obligations" is wrong.
Not sure what you mean. The goal is a good society. Allowing certain individuals to keep certain things they currently have was never any part of my goal. (I can't speak for others in the thread of course.)
I picture the banks and the landlords would do better in the long term too if the shops were full.
This is not Bluesky leftist "let's take Jeff Bezos' yacht so we can all have 15 minutes of health insurance" but rather "let's have more businesses in this town that can put capital to work, create jobs, create wealth and the kind of consumer choice that Ralph Nader and Ludwig von Mises both agreed on."
There are buildings in my town that haven't been used in 20-30 years. And that's in the 'modern' shopping area. In the old 'downtown' area there are some that have been empty for 40+ years.
There's a building near my office. Never technically finished so empty for 10+ years. I believe the two owners had a disagreement.
One day a crew turns up and starts jack hammering away a gangway. Its technically now two buildings; one of them is still unfinished and empty, the other has now been finished and is up for rent.
In terms of my utility I would prefer things renovated, changed, or rented out to funky things than have ghastly empty buildings
This sounds like the worst case outcome for society; real estate permanently allotted to some entity that chooses not to use it. It is not an envious model; it is a model that should be eliminated.
“You” require a continuous analysis of cash flow to continuously determine value, and proper management. A simple, and common, requirement in commercial lending called the debt service coverage ratio.
Lower income for the building means lower numerator, which means being unable to meet the agreed upon DSCR, which means default. Whether or not the lender acts on this default is a separate matter, as they are usually loathe to get into the property management business, but renegotiation of terms and eventually foreclosure does happen.
"Last value" is pretty meaningless when it's stale though.
Suppose there is a building that was built in 1970, last rented out in 1975 and then bought by a company that has used it as their own offices until now. The last transaction was in 1975, what's the value if they apply for a mortgage today? Surely they have some formula to use for this based on e.g. other buildings in the area.
Moreover, "failure to find a tenant" is also a type of transaction. It's the landlord acting as the high bidder for the space, essentially the involuntary edition of imputed rent, and implies something negative about the financial prospects of the building when it continues for a significant period of time or large percentage of units. Ignoring that it is either incompetence or some kind of perverse incentive.
> "Last value" is pretty meaningless when it's stale though.
For who and in what way though? Every entity involved wants to keep the price high, except the renter/new buyer, so with that in mind, "Last Value" seems optimal for achieving that.
Maybe it's different in the US, but in Spain there is a ton of properties that sit completely empty and unused, even since earlier than 2008, just because the owners don't think the value is enough to sell yet, and they wouldn't earn enough renting it out, so everyone (except renters/new buyers) seems to prefer it just sits empty for decades.
> For who and in what way though?
For anyone who wants an accurate accounting.
Suppose the building is supposed to be worth $20M, has an existing $10M mortgage and is actually only worth $10M. The landlord comes to you and wants to borrow another $5M against the building. Pretty important to the lender at this point that they're not overvaluing it, right? Or the same if they go to a different bank trying to refinance an existing mortgage they're already underwater on when using an accurate accounting.
Commercial borrowers have to pay for a valuation report by a bank approved valuer.
Then why does anybody care if they rent out some of the units for a lower rent?
You keep asking the same question and the answer is the same in all these.
You don’t like it. We get it.
No one is doing anything illegal. If the bank thought a customer couldn’t pay, they’d get foreclosed, end of story.
It's not a matter of whether I like it. It's a question of why the bank, unless required to do so by some kind of absurd perverse regulatory incentive, would do something which is not only harming others but also increasing the default risk for the bank by reducing the income of a borrower who, if they can't make the payments, will cause the bank to have to write off millions of dollars by foreclosing on an underwater building.
... who therefore agree with the assumptions of this broken system.
Broken how? The owner/bank are fulfilling their obligations. You just don’t like the outcome.
When people are fulfilling their obligations and most other people are not happy with the outcome, that usually means the definition of "obligations" is wrong.
Way to change the goal posts to suit.
Not sure what you mean. The goal is a good society. Allowing certain individuals to keep certain things they currently have was never any part of my goal. (I can't speak for others in the thread of course.)
I picture the banks and the landlords would do better in the long term too if the shops were full.
This is not Bluesky leftist "let's take Jeff Bezos' yacht so we can all have 15 minutes of health insurance" but rather "let's have more businesses in this town that can put capital to work, create jobs, create wealth and the kind of consumer choice that Ralph Nader and Ludwig von Mises both agreed on."
There are buildings in my town that haven't been used in 20-30 years. And that's in the 'modern' shopping area. In the old 'downtown' area there are some that have been empty for 40+ years.
There's a building near my office. Never technically finished so empty for 10+ years. I believe the two owners had a disagreement.
One day a crew turns up and starts jack hammering away a gangway. Its technically now two buildings; one of them is still unfinished and empty, the other has now been finished and is up for rent.
In terms of my utility I would prefer things renovated, changed, or rented out to funky things than have ghastly empty buildings
This sounds like the worst case outcome for society; real estate permanently allotted to some entity that chooses not to use it. It is not an envious model; it is a model that should be eliminated.
If a coffee shop is charging $25 for a latte and sells none, we don't say everything's fine because no sales data. The sales are $0 and it's not fine.
There is no escaping the powers of supply and demand.
“You” require a continuous analysis of cash flow to continuously determine value, and proper management. A simple, and common, requirement in commercial lending called the debt service coverage ratio.
https://www.investopedia.com/terms/d/dscr.asp
Lower income for the building means lower numerator, which means being unable to meet the agreed upon DSCR, which means default. Whether or not the lender acts on this default is a separate matter, as they are usually loathe to get into the property management business, but renegotiation of terms and eventually foreclosure does happen.