Going by the StrongTowns archives, what will happen when these properties go underwater is the rent will be held the same and the building will be vacant. Writ across the entire office space of San Francisco, the result will be a disappearance of foot traffic and empty districts.
Reason being the property financing is a function of market rent. Short term balloon mortgages are commonly used. If the rent for the space falls, when it comes time to refinance, you won’t be able to get a loan to cover your previous balloon payment, making you insolvent. Solution: never lower the rent, even if it means leaving the building vacant. Slowly bleeding is better than instantaneous bankruptcy.
Who is making these loans? Do they know something we don't? Or do they just think that they'll be bailed out when it all goes bust?
Last time the banks were selling the loans to other people. Is that happening again this time? This can't-lower-the-rent phenomenon is well documented at this point so I'm just having trouble figuring out why anyone with money is willing to continue taking on the large risk with limited upside (the value of the buildings).
Reason being the property financing is a function of market rent. Short term balloon mortgages are commonly used. If the rent for the space falls, when it comes time to refinance, you won’t be able to get a loan to cover your previous balloon payment, making you insolvent. Solution: never lower the rent, even if it means leaving the building vacant. Slowly bleeding is better than instantaneous bankruptcy.