Some of the answers you already received are partially correct, but I work in Commercial Real Estate and I’d wager it’s because when a large tenant stops operating at a location, it causes a trigger on the loan that has repercussions due the property owner. Often, they lose access to manage their own rents.
This happens even if the tenant is still paying rent. It’s because a vacant tenant, especially a large one, loses business for the surrounding business.
Example: A grocery store in a strip mall closes down for repairs. Even if they are still occupying the space, it would cause a trigger. Lots of the other spaces in the strip mall are more valuable with traffic from the grocery store shoppers.
TLDR, they don’t want a loan violation that will cost them.
Some of the answers you already received are partially correct, but I work in Commercial Real Estate and I’d wager it’s because when a large tenant stops operating at a location, it causes a trigger on the loan that has repercussions due the property owner. Often, they lose access to manage their own rents.
This happens even if the tenant is still paying rent. It’s because a vacant tenant, especially a large one, loses business for the surrounding business.
Example: A grocery store in a strip mall closes down for repairs. Even if they are still occupying the space, it would cause a trigger. Lots of the other spaces in the strip mall are more valuable with traffic from the grocery store shoppers.
TLDR, they don’t want a loan violation that will cost them.
Thank you, this is the first one where I can understand why it would make financial sense to the company. Also, that’s such total BS.
Happy to help! The industry I work in is fairly small in number but we handle a huge portion of commercial loans.
It’s just not one of those things most people know unless you are directly impacted by it. It’s not like Residential Mortgages as much as you’d think.
EDIT: Also, it is BS. You’re right.