Something that's not addressed is how this situation plays out for 5-over-1 development[1] that's becoming the norm (or other mixed-use buildings).
Basically, the buildings cashflow solely on the residential, but the commercial space is/was valued optimistically (especially leading up to the 2020 pandemic). So a building's owner isn't in a financial bind, and if they were to lower rent on the commercial space, even if they didn't lose the building, it would be much harder to refinance the next time their loan matured. (Commercial loans are frequently "balloon" loans that have payments like they're amortizing over 30 years, but they mature before then, meaning the borrower either has to pay the remaining amount of the loan, or refinance.)
Possible Solution:
I've been thinking about a cumulative vacancy tax that increases every year a space is vacant (and decreases for every year it's occupied). So a building owner or loan underwriter could project when a vacancy would become more costly than lowering rent.
You could charge the tax on the assessed value of the vacant space. Increase it by 100 basis points for every year that a space is vacant. Decrease it by 200 basis points for every year that it's rented.
Basically, the buildings cashflow solely on the residential, but the commercial space is/was valued optimistically (especially leading up to the 2020 pandemic). So a building's owner isn't in a financial bind, and if they were to lower rent on the commercial space, even if they didn't lose the building, it would be much harder to refinance the next time their loan matured. (Commercial loans are frequently "balloon" loans that have payments like they're amortizing over 30 years, but they mature before then, meaning the borrower either has to pay the remaining amount of the loan, or refinance.)
Possible Solution:
I've been thinking about a cumulative vacancy tax that increases every year a space is vacant (and decreases for every year it's occupied). So a building owner or loan underwriter could project when a vacancy would become more costly than lowering rent.
You could charge the tax on the assessed value of the vacant space. Increase it by 100 basis points for every year that a space is vacant. Decrease it by 200 basis points for every year that it's rented.
1: https://en.wikipedia.org/wiki/5-over-1