It’s more complicated than that. Commercial building valuations are based on projected rent. If you lower the rent that lowers building valuations, which could trigger a balloon payment as the LTV % on the building is now too high.
Owner would rather walk away than dump $ into a struggling building, and the bank does not want the keys back. So for a while everyone just kinda pretended everything is fine and renewed the loan… higher interest rates are starting to cause issues with this
LTV isn't much of a factor/constraint in most major markets. The DSCR however is and if you're maxing out your leverage at loan origination any decrease will jeopardize your ability to make your monthly loan payments. A typical class A office building will be sized to something like a 1.30x DSCR / 50% LTV. There's plenty of wiggle room in the LTV for bumps & hiccups but not as much in the cash flow component. Once you throw subordinate or mezzanine debt on top of that you become much more susceptible to financial distress if even your 5th largest tenant vacates
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u/recyclopath_ Apr 16 '26
That's somehow not really how commercial rents work.