alt Hacker NewsRight. . . but isn't that just obviously stupid? If I say the rent is $3k a month but you get all 12 months free, why would anyone be fooled by that? Why would you base it on some hypothetical rent rather than the amount of actual money that the property takes in?
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It is stupid, but every party involved benefits from playing by the stupid rules, so they keep doing it.
If the lender insists the property be valued based on actual collections rather than hypothetical collections based on the rate once discounts expire or the asking rate if vacant, then they will have a loan where the borrower is underwater and that's going to end up as a loss on the bank's books.
If the borrower values it factually, they will be underwater and likely have to sell for a loss or be forclosed on.
There's also portfolio effects. If rent drops are acknowledged in one space, nearby spaces may also acknowledge lowered rents and most banks have lots of loans and many borrowers manage several buildings.
The bank knows but they maintain the fiction that they don't because their books collapse too if they count those. Banks make money from loans.
Don't forget this is typically a short term things. When the economy improves the building will be rented again. So they need the books to look good today to get through.