Expert breakdown of NYC's overpriced commercial vacancies.

"Meanwhile, 90 percent reported they have been trying to negotiate their leases, but their landlords wouldn’t budge." This is alarming. It may seem like just another statistic lost in a bigger article, but it's symptomatic of a ticking time bomb in NYC, and commercial real estate more broadly. Louis Rossmann had an excellent breakdown of why the landlords won't budge on the leases ▶ this video tl;dr - the loans on these restaurants are all bundled into commercial mortgage backed securities (sound familiar?) and sold to wholesale investors, and the landlords are unable to change the terms of the lease, or the banks will revalue the underlying asset based on a multiple of the rent, and the owner will either essentially get margin called, or end up with negative equity, and default on the loan. Can someone from Wall Street please add their thoughts?

The problem is that what is actually going on in NY - and many other markets - doesn't remotely resemble a properly functioning market: ▶ this video

Louis Rossmann has a video series of his rants about commercial real estate and the refusal of landlords to rent spaces to him which have been vacant for multiple years. One of his videos speculates that real estate is being used to store money and the building owners don't want to rent out anything: link Another video speculates that the owners of some buildings have made claims to banks and investors that their buildings are worth more than these buildings are actually worth. In this situation, if the buildings' owners lowered rents they would be admitting that the building is not worth as much as they claim. This could trigger contractual obligations they have with their mortgages and investors: ▶ this video

An asset can be owned by multiple investors who have competing interests with some wanting to take a large amount of risk by allowing real estate to remain vacant if it can mean a larger reward later. Louis Rossmann has made numerous videos about vacant properties where asking prices for rent are significantly above what he considers to be market value. Notably, ▶ this video and the Reddit post which he commented on: link The TL;DR is that there's weak evidence that the contractual conditions attached to financing from investors who seek high risk and high reward makes those landlords ignore local market conditions and incentivizes those landlords to leave commercial units vacant instead of renting them out at market value.

There may be other factors besides what they nominally "want". Depending on their source of financing, landlords changing the rent on these spaces can be both logistically difficult and may cause a huge negative cashflow shock because of the way it effects capital requirements on commercial loans. Louis Rossmann covers it in a video ( ▶ this video ) based on this reddit comment ( link ).

> (Because they don't want to rent it out, they only want to pretend that intend to do so.) Louis Rossmann has a semi-recent YT video exploring one hypothesis: landlords have mortgages that contain clauses in then which specify that if rents have to be a certain amount, and if they drop too much then that means the property value must have dropped. * ▶ this video And if the property value has dropped, perhaps bringing the mortgage closer to being underwater, then the bank may want the landowner to put more equity in it so that adds to the bank's cushion. And landowners don't want to put more of their own money into a leveraged investment, so they'd rather just deal with the carrying costs rather than trigger an 'equity event'. The hypothesis was originally put forward in a Reddit comment: * link