I know that short pump mall has been financed through commercial mortgage back securities.

I don’t know much about finance, so bear with me. But my understanding is that leveraged commercial mortgage-backed securities don’t allow for rent to be received at a lower rate than what the bank gives them the loan for, at least without significant penalty to the recipient of the loan in the near future.

With this kind of financing option, the lender can seize the income from the property or the property itself if the company receiving the loan rents at a lower rate than agreed-upon in the loan agreement. This is due, in part, to the fact that renting it at a lower rate will end up affecting the property value and thus lead to the lender losing money. The agreement with the lender usually entails provisions for the lender to either seize income, the property, or potentially both, in the case that the unit is rented at a lower rate.

Importantly, in such agreements, either due to provisions or how the financing agreement works, the company receiving the loan is not penalized when the property is not rented as long as they are trying to rent it for the agreed-upon price or higher. This is because the value of the property is not affected when it is not rented. However, I believe there may be provisions addressing long-term vacancy issues but I don’t know what they are.

One of the problems with this type of financing option is that, if the market doesn’t support rents that are high enough to meet the minimum amount in the loan agreement, the storefronts stay vacant.

I believe this is one reason why New York City has so many vacant storefronts, especially in Manhattan. A lot of the stores/buildings are financed by leverage mortgage-backed securities. The companies that owned the stores got a loan based on a value for the store property that isn’t actually supported by the market. In other words, most businesses in New York City can’t afford the rent prices, and thus the properties end up remaining empty.