Unlike Building #7 in New York, the entire downtown of San Francisco is ready for collapse HERE! Office buildings are there to be filled with rent paying tenants. The owners of the office buildings have entered into “high finance” to make their dreams come true. On top of the mortgage that most, if not all have, the owners have to pay for things like door maintenance, window cleaning, HVAC maintenance, water, security, common plumbing, common areas (i.e. roofs, lobbies, hallways, bathrooms, exits, stairwells, sidewalks, snow removal, parking garages etc.), and there’s plenty more they have to pay for. If they don’t keep the building well maintained, tenants will move and not renew their lease, and may even terminate it for failure of the owner/landlord to live up to his/her/its obligations.
The following chart shows the status of a reasonably well run building with 90% occupancy:
As you can plainly see, if the operating expense ratio of a typical and reasonably well run building that is 90% occupied is 35.7%, then if the occupancy rate drops to 45%, the operating expense ratio may go down slightly, but not much. Take 35.7% from 90%, and you have 58%. The typical break even with debt service (not noted in above chart) is about 80% occupancy. Enough said? And, who will get hurt? Bankers, investors, tenants and ultimately the average citizen. It’s going to get very ugly.
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