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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Wyätt Gwyön who wrote (94806)	2/28/2009 9:26:07 PM
From: Elroy Jetson	Read Replies (1) \| Respond to of 116555

The large number of newly built apartment complexes in Los Angeles with rents far above market rates are almost exclusively owned by REITs and pension funds. They're typically less than 10% occupied with people newly arrived in Los Angeles. Once the tenants become familiar with comparable rents, and their lease is up, they move. Your guess that lowering their rent rates might violate their loan covenant is one good guess. More likely, if pension funds or REITs lower their asking rents, I would also expect that they would be required to lower their valuation of the building. Years ago I used to do valuation studies of pension fund properties for annual ERISA reviews. I can tell you that pension funds have a goodly amount of latitude in providing the assumptions for lease-up and future lease renewals of property they own. These assumption significantly affect the resulting valuations. How many years must pass before these building owners reduce their rents to achieve normal occupancy? I have no idea. But until this occurs, the surveys of the "average rent" in Los Angeles will be greatly inflated relative to actual market rents. .