Because once it's on the books, the bank has a fiduciary duty (to its shareholders) to take note of it - effectively marking the value of the building to a multiple of market rents - and if the rent indicates that the building is worth much less than it was financed for the bank has to reduce its exposure by law.
While the income is $0, the landlord can say they're actively seeking tenants, and the bank can pretend to believe this and exercise its right of forbearance. Lower actual rent payments break the illusion of how much the property is worth, and both the landlord and the bank have to put that unpleasant reality on the books.
Real world example: the fanciest mall in downtown San Francisco was valued at $1.2 billion a few years back. Great location, great building design, a nice place to shop for many years. Things started to go bad after COVID, and after 2 years of no rent the banks pulled the plug and foreclosed. They ended up buying the deed for $133 million. This would be a great deal, except that they'd loaned $566 million. So they are not the proud owners of an empty mall, which is only worth about 25% of the money they initially invested, and they have to tell their shareholders that they lost $433 million. Now that the cat is out of the bag they could start renting out retail units at affordable prices, but a bank does not want to be a landlord/property manager.
While the income is $0, the landlord can say they're actively seeking tenants, and the bank can pretend to believe this and exercise its right of forbearance. Lower actual rent payments break the illusion of how much the property is worth, and both the landlord and the bank have to put that unpleasant reality on the books.
Real world example: the fanciest mall in downtown San Francisco was valued at $1.2 billion a few years back. Great location, great building design, a nice place to shop for many years. Things started to go bad after COVID, and after 2 years of no rent the banks pulled the plug and foreclosed. They ended up buying the deed for $133 million. This would be a great deal, except that they'd loaned $566 million. So they are not the proud owners of an empty mall, which is only worth about 25% of the money they initially invested, and they have to tell their shareholders that they lost $433 million. Now that the cat is out of the bag they could start renting out retail units at affordable prices, but a bank does not want to be a landlord/property manager.
https://www.sfgate.com/local/article/2-buyers-scoop-former-s...