Owners are not able to cut rent as most commercial financing have covenants which require a minimum lease rate/sq foot. If they cut rent, they could be in technical default and lose the building.

Commercial financing has onerous terms which should be stricken by the government/courts.

They're going to lose the buildings eventually when the loans need to be refinanced at much higher interest rates while commanding much lower rents.

This is my take too. The strictness of the tenant rent requirements seem like a "bug" in the lease agreement.

In a situation like this where there's a massive downturn in office rental value and not much expectation it'll lift any time soon, it seems in both parties benefit by allowing lower rents. Locking commercial tenants in 5-10 year leases at current market rates will probably mean the building owner defaults on their debt, but that seems inevitable.

Seems like whatever entity did the financing would be motivated to relax those terms. Empty buildings can't be good for them either, can they?

Cutting rent means that the property is worth less. That means investors are demanding to know why the property is worth less, and the city collects less property taxes which might lead to politicians asking questions.

While all that may be necessary, it won't happen until it's the only thing that can happen.

"fox guarding the hen house" is an old way to describe this. Gatekeepers have financial and competitive reasons not to make adjustments, and they do not.

How much longer do you think property managers can hold out?

Lease non-renewals will continue over the next 4-5 years. TBD on when defaults hit a tipping point or runaway failure, but it doesn't bode well for the particularly-exposed regional banks.

> About 700 office leases are likely to expire in 2023 and another 600 are up in 2024 in the Financial District alone, said Avison Young’s insights and innovation head Dina Gouveia, for a total of about 10 million square feet of office space. In 2025 and 2026, another 10 million-plus square feet are likely to expire.

https://therealdeal.com/sanfrancisco/2022/10/17/downtown-sf-...

probably just long enough to ruin downtown for a good decade or more

They could cut rent drastically and people still might not show up.

Also, if the owners start going bad on their debts there is a potentially cascading financial problem for the city of San Francisco

> They could cut rent drastically and people still might not show up.

You could sell ice cream for 5 cents on a hot summer day and people might not buy it. Try it and find out; there has been speculation in the past that lowering prices raises sales.

Sure. But if you took out a huge mortgage to buy your ice cream business based on anticipated sales, there are certain prices you cannot go below without going bankrupt.

In a way, this is worse with real estate. With ice cream you can always make up losses with volume (to a certain extent). With real estate you have a fixed supply.

Moreover, if you drop the price to get a new tenant, you implicitly drop the price for all existing units as well.

You could sell ice cream for 5c in Antarctica in July and people might not buy it.

That might work if there was cheap residential real-estate for the workers to fill up.

With who?

All the people forced to live in small SF housing, plenty of functioning companies in SF Bay Area outside of Tech also need more working space.