zlacker

It’s odd but really true. Does anyone have insight why this is the case?

>>social+(OP)
According to Strong Towns, it's because the building can borrow money based on the projected value of rent. If they lower the rent, they can't borrow as much money.

https://www.strongtowns.org/journal/2017/11/27/the-paradox-o...

>>social+(OP)
At an aggregate level it can make more sense to leave X% of units vacant than to lower prices (which could have effects on the rate you can charge with the rest of your units). I think it’s an example of our financial system not working as intended.

For example let’s say I have a 100 unit apartment building. If I maintain a 20% vacancy rate target I can charge an average of $1000/mo/unit. But to set a price at which my vacancies get filled very quickly, to hit a 5% vacancy rate, maybe I need to charge $700/mo/unit. In that case I’m making less money than before - $80k/mo vs $66.5k/mo.

>>opport+Wl
why wouldn't you just price discriminate through short-term concessions to fill the remaining 20% and increase revenue? this seems to be what most apartment buildings around me actually do.

>>leetcr+nr1
That is what people do sometimes (esp. in SF where you'll get "2 months free rent"). But I think in commercial real estate the math is a bit different because leases tend to be longer - so you really don't want to budge on the actual monthly rate and even 1-2 months free doesn't end up helping the prospective tenant that much