>Even if they think they can force the current tenant into bankruptcy and collect, there won't be much to collect after taking away the tenant's only income stream.
A lot of landlords have no choice. They themselves are businesses, often leveraged to the hilt, with not a whole lot of room to offer grace.
And yes, I realize there are massive REITs behind some of these properties, that have large earnings and reap huge windfalls for shareholders. That doesn't mean they're equipped to receive no income for months during a pandemic. It's sort of the way our economy works: right on the edge at all times.
I agree with all that, but surely if they don't have any wiggle room to offer grace they don't have wiggle room to let the property be vacant for 6+ months, by which time there will inevitably be a glut of supply on the market.
It should shake out that way, but sometimes there are places where the gears don't quite mesh. For example they might have loans secured on the property as x * monthly rent, and so if they rent it out cheaper then they have to post additional collateral which would be more than a few month's rent.
I'm almost sickened pointing this out, but legally speaking, a large part of the 6+ months would be the responsibility of the tenant they sued. It could get ugly for the small business owner.
True generally regarding tenant responsibility if new tenant can't be found, but good luck recovering anything at all from a tenant who was evicted because they couldn't pay rent.
It seems to me that any landlord who understood the economic situation would work with tenants to keep them on paying something, even if they couldn't afford full rent. I expect landlords will end up better economically in the end that way.
Keeping a tenant at 80% rent is still better than having no tenant at 100% rent. If business are having a few quarters of negative profitability, why can't the same happen to commercial real estate?
Rent control in most places means you cannot increase the rent more than x% per year, where x is fairly low. If the rent is decreasing, you are not allowed to put it back to the original level if the difference is larger than x, so you need to do x% per year for several years just to revert to previous levels.
Depending on how they do it and the location for many areas temporary "discounts" do not effect the "base rent" but in many areas discounts are considered altering the "base rent" and would basically permanently ruin any chance of making money on a piece of property. Can't even sell it if you get stuck with a low base rent as normally rent control forces the rate to pass between owner with very few exceptions meaning no one would buy the land off you.
Has there been any consideration by state/city governments to temporarily lift these restrictions until the pandemic is over so long as prices don't exceed the prepandemic price once we return to normalcy?
Again, I'm uniformed on this issue as I live in an area that doesn't practice rent control. Happy to hear if this is a bad idea for some reason I'm not thinking of.
> Has there been any consideration by state/city governments to temporarily lift these restrictions until the pandemic is over so long as prices don't exceed the prepandemic price once we return to normalcy?
Can't you imagine the headlines? 'Sweetheart deal for politicially-connected landlords allows rent-control evasion for the next year!'
The idea was to allow prices to quickly return to their current level after going down, in what would normally be a violation of rent-control policies. That would easily be spun as allowing landlords to raise rent more quickly than they normally could.
I mean, many of these guys can't handle 4 months of no cash flow. 100% rent or 80% rent, they're going under anyway. You might as well get what you can out of them.
That's exactly what I'm saying. If you run my proposed scenario on a hypothetical rent of $10k a month then it becomes "which is greater 80% of 10 or 100% of 0" do you want $8,000 or $0".
"You might as well get what you can out of them." might mean lowering rents.
I think that's the difference. I'm saying they're going out of business anyway and you're going to have to line up with the other creditors. The question is whether you get $8000 for 4 months and zero after or $10000 for 4 months and zero after. You lower your rent and you don't get more because your tenant is going to die anyway. It's a no-brainer.
Sure, if I made it sound like I meant "There is no instance where it makes sense to not eat your customer alive" then that is not correct. I am certain these cases exist.
I can't speak for NYC, but in Sydney commercial properties are typically valued at a fixed multiple of the rent.
This matters because if they change the rent, any loan they've taken out now gets revalued, which could put them underwater. So in that case 80% is much worse than empty but at 100%.
This is why you'll see landlords giving a month's free rent, making rebates etc, while technically still charging 'full price'.
Allow me to shed a single tear for the landlords who took an over leverage position and are expecting the taxpayer to bail them out on the threat of a mass eviction crisis.
If only someone could have told those poor poor landlords the dangers of over leveraged investments. The TSLA short guys should get on this grift; bail outs for idiots or the public gets it.
A lot of landlords have no choice. They themselves are businesses, often leveraged to the hilt, with not a whole lot of room to offer grace.
And yes, I realize there are massive REITs behind some of these properties, that have large earnings and reap huge windfalls for shareholders. That doesn't mean they're equipped to receive no income for months during a pandemic. It's sort of the way our economy works: right on the edge at all times.