Commercial buildings often sit empty because they function as financial products rather than simple physical assets. Landlords in high-priced metros avoid lowering rents to keep their original financial models intact. This strategy, known as extend and pretend, allows operators and banks to avoid recognizing losses on their balance sheets by maintaining a facade of higher potential income.

Valuations rely on the income stream and a negotiated cap rate. For example, a building generating $1M annually at a 5% cap rate is valued at $20M. If an operator lowers rents to fill vacancies, the proven lower income crashes the building's value. This can leave the owner underwater, potentially triggering a foreclosure that hurts both the bank and operator.

Banks maintain strict loan-to-value ratios, often limiting loans to 80% of the property value. If a building's value drops from $20M to $14M, a bank can only lend $11.2M, forcing the owner to inject millions in cash to refinance. Both parties prefer absorbing yearly operating losses over admitting the asset is worth less than the $16M loan balance.

This dynamic creates a deadlock where the bank and operator collaborate to keep spaces vacant. They prioritize the appearance of the income stream over the actual utility of the building. The financial structure makes it more rational to lose money on operations than to trigger a loan default.