Why is commercial real estate so often vacant during recessions? Even if there’s really low demand, wouldn’t landlords still prefer to lower the price until someone accepts, and make a little money rather than none? This Reddit explainer says no, because of quirks of how banking works.

submitted by Chipit from old.reddit.com

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[–]thefirststone 3 insightful - 1 fun3 insightful - 0 fun4 insightful - 1 fun -  (0 children)

In short, he's saying that: commonly, commercial mortgages allow owners to defer payment on empty units (non-producing assets), yet the loan holder may demand compensation when producing assets' revenues dip below agreed levels which were used to value the asset (not sure if that's a one-time cushion or ongoing). This produces the perverse incentive that owners prefer fewer units paying high rent over receiving more rent income, because it's cheaper than default or the loan terms under cheap rent.

I guess that could be it. I wonder what the terms to break or buy off the loans are. At some point they are just paying themselves to not generate cashflow from aging assets.