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Florida CRE Markets Poised for Rebound as Tenants, Landlords Navigate Lease Negotiations

Author: Admin
Categories: Commercial News,Leasing

Despite uncertainty brought on by the COVID-19 pandemic, Florida’s real estate industry may be primed to recover with a sharp rebound.

According to a JLL report, prior epidemics that affected Florida’s real estate market recovered quickly, with the market spiking about 30% in the year following the 2002 SARS pandemic, which caused 286 global deaths. A less sharp recovery followed the 1918 Spanish flu, which caused 675,000 deaths in the US, with the industry rebounding about 10% the following year. The pandemics triggered a “V-shaped recovery” in Florida’s real estate market.

In the last two decades, Florida’s downturns in the rental market have seen 7% average rent declines. The Florida market took almost 6 years to return to pre-recession levels. Hardest hit by the financial crisis were Orlando and South Florida, with Orlando a 13.4% decline, and South Florida with a 14.9% decline.

The state’s ability to bounce back from economic impact due to the COVID-19 epidemic may hinge on that 25% of Florida office leases were in industries less affected by co-working spaces. Co-working space companies have seen their stocks plummet—IWG stock dropped 66% and WeWork’s 7Y unsecured notes were trading at 63 cents on the dollar. The JLL report points out that the Florida economy was in a strong position before stay-at-home orders began, with unemployment at 2.8%.

However, individual landlords and tenants are navigating lease renegotiations under financial strain put forth by mandated closures. Tenants, particularly small business owners, face financial pressures of keeping businesses afloat while negotiating rent relief from landlords. Tenants have put leases on hold, often seeking legal advice on their obligation to pay contractual rents, or seeking rent relief from landlords.

Landlords have largely kept buildings open, which provides leverage when tenants seek rent relief. Generally, a landlord may ask a tenant to exhaust all federal aid options, such as the CARES Act, before resorting to rent relief. In cases where landlords agree to rent relief, the terms tend to be 30- to 120-day forbearances, with rent money amortized over the remainder of the lease once payments resume.

 

Source:  Globest.

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Four Stores Closed Permanently At Brickell City Centre. Here’s Why

Author: Admin
Categories: Commercial News,Leasing,Retail

Four stores at Brickell City Centre — Adolfo Domínguez, Emporio Armani, Musart and Stuart Weitzman — have closed permanently, a Swire spokesperson confirmed. BCC attributed some of the closures to the coronavirus pandemic.

“We have been prepared that some retailers may close or accelerate their closures as a result of COVID-19. It is an unfortunate result of this unprecedented pandemic,” said a Swire spokesperson by email.

But one tenant said problems emerged prior to the pandemic. The tenant, who asked to remain anonymous for fear of reprisal, blamed rising rents and lower-than-expected foot traffic.

“I got evicted as I couldn’t pay rent in full. Nobody can,” the tenant said. “COVID just accelerated the process. It was the icing on the cake.”

The tenant said he put down $75,000 in deposits and spent another $250,000 to build out his space. He saw increasing revenues: $328,000 in 2017, $452,000 in 2018 and $484,000 in 2019. But the number of transactions fluctuated, growing from 3,344 in 2017 to 3,886 in 2018, then dropping to 3,355 in 2019. Meanwhile, rent rose from $50,000 in 2017 to $60,000 in 2018. In 2019, rent was $110,000 plus 16% of sales in 2019, or $7,500, he said.

“I had a tremendous increase in rent while the traffic has gone down,” the tenant said.

The mall declined to comment on rents but said it had seen double-digit growth in foot traffic between its 2016 opening and the end of the year in 2019, with a 17% year-over-year increase from 2018 to 2019. Brickell City Centre uses wireless beacon technology to measure the shopping center’s foot traffic, said David Martin, vice president of Swire Properties.

Store closures are normal at a new mall, Martin said in a December interview. “Any mall as it evolves will have openings and closings.”

A mall spokesperson said via email that a roster of new retailers will be announced soon.

“Each of these new retailers remained steadfast on their opening timelines despite the delays from COVID-19, a promising sign of the resurgence and resilience of retail in mixed-use open-air shopping centres such as BCC.”

BCC reopened some stores last week with limited hours and COVID-19 protocols similar to those at other Miami malls. Its restaurants will open for dine-in service Wednesday. First weekend foot traffic met expectations, a spokesperson said.

“Several retailers reported strong foot traffic and sales, with some exceeding their sales goals. We expect traffic will ramp up further as our restaurants open for dine-in service.”

The store closures are a precursor of the challenging local retail landscape that will likely struggle for the next 12 to 18 months, said Beth Azor, founder and head of the Weston-based Azor Advisory Services.

“These luxury stores don’t see the foreign travelers coming in and buying these high-ticket items. And their customers are going to be significantly decreasing in those numbers.”

Luxury malls and shopping areas — such as Aventura Mall, Bal Harbour Shops and the Design District — will have to compete for the luxury consumer market in South Florida, she said.

“The luxury consumer is there, but I don’t know if the South Florida consumer is enough.”

Retailers elsewhere in Miami are struggling to keep their doors open, including small business owners, said Michael Comras in early May. Comras, one of South Florida’s largest commercial landlords, said he’s seeing some retailers and restaurants close their doors permanently.

“This has propelled the demise of some of our great brick-and-mortar retailers,” he said.

But some brands and retailers are seeing a rise in activity, Azor said. Pizza vendors, Target, Walmart and home supply stores such as Home Depot are performing well because they “cater to lower-priced items and are offering curbside pickup.”

 

Source:  Miami Herald

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From Bankruptcies To Rent Relief, Here’s How Retail Landlords Can Prep For The Coming Fallout From Covid-19

Author: Admin
Categories: Commercial News,Leasing,Retail,Trends

For the last 18 months, Noah Shaffer has been counseling retail landlords who lease space to Pier 1 Imports to be ready for the company to declare bankruptcy.

Pier 1, known for its eclectic mix of home goods and furniture, filed for Chapter 11 bankruptcy protection in March. This week, the Fort Worth, Texas-based retailer said that it was unable to find a buyer for its business and that it will close all stores nationwide. Shaffer’s clients, however, were ready and already in talks with new tenants to take the space.

Navigating tenant bankruptcies will be far more challenging in the era of Covid-19. The novel coronavirus pandemic has forever changed the restaurant and retail business, beginning with stay-at-home orders across the U.S. in March and April to a severe drop-off in consumer spending. A wave of bankruptcies is expected in both the retail and restaurant industries in the coming months, affecting everyone from national chains to mom-and-pop shops.

 

Source:  SFBJ

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Multifamily Owners Go Virtual to Get Leases Signed Amid COVID-19

Author: Admin
Categories: Commercial News,Leasing,Multifamily,Trends

Virtual and augmented reality have been available for some time and had seen sporadic use, but the mass COVID-19 precipitated shutdowns nationwide have led to rapid adoption of the technologies by multifamily owners in order to get leases signed during the pandemic.

“Owners of apartment buildings across the U.S. are looking for new ways to have contactless touring… anything to decrease one-on-one touring,” says Georgianna Oliver, founder of Tour24, a technology company based in Medfield, Mass.

New technologies let apartments shoppers to check out potential homes without ever being in the presence of a leasing agent. That includes virtual tours, video chats and even “self-guided tours” that let potential renters make an appointment to see a real, physical apartment without a real, physical leasing agent being present.

These technologies are likely to be helpful, even in places where the rules of social distancing, meant to slow the spread of the virus, have begun to relax. “It’s here to stay for some time,” says Dan Russotto, vice president of product for Apartments.com, based in Atlanta. “Even as things re-open, there are going to be people who want to practice social distancing.”

Apartments.com creates virtual tours in which potential renters can move through a three-dimensional computer rendering of a model apartment.

Potential tenants can turn around to get a panoramic view, back into and out of rooms, and even look out of windows. They can take these virtual tours from the comfort of their own homes. The effects are similar to those in computer games in which players move through three-dimensional spaces. Apartments.com uses its “Matterport” technology to wrap a three-dimensional computer rendering of a model apartment with photographs of that model apartment.

These virtual tours are becoming easier to create. Apartments.com used to have to send photographers to create the specialized images needed to create a virtual tour. The company is now creating technology that allows property managers to take their own pictures.

In May 2020, Apartments.com also plans to introduce an online leasing office. Visitors to its website will be able to press a button on the webpage to start a video chat with a leasing professional.

Other property owners and property managers are using video chats and online tours to attract potential renters.

“We have always used these tools in our lease-up efforts… We are ramping it up,” says Jordan Brill, partner at Magnum Real Estate, based in New York City, the center of the coronavirus outbreak in the U.S.

The firm is using virtual tours to lease-to-own condominiums at it new-constructed properties at 196 Orchard in the Lower East Side neighborhood and 100 Barclay in the Tribeca neighborhood.

Potential residents can also now let themselves into an apartment and receive information about the unit and the community without needing the presence of a human leasing agent.

“In the last couple of months the interest in the product has grown tremendously,” Tour24’s Oliver says. The firm launched its technology less than two years ago. Today it provides self-guided tours at over 100 apartment communities, averaging 250 units each.

Apartment shoppers sign up to tour an apartment online and chose an option to take a self-guided tour. These potential renters download Tour24’s app onto their smartphones. They submit an image of a picture ID and a credit card number, which is verified by Tour24’s system.

At the time appointed for the tour, electronic locks let them into the apartment. The geo-location function on their phones track their location as they move through the apartment and the tour the amenities in the community, while listening to recorded information through the Tour24 app.

“You can have a message for the kitchen and another for bedroom,” says Oliver. “We provide a curated experience similar to a museum tour.”

So far, existing residents have not been too worried about having potential residents visiting their community unattended.

“It hasn’t been an issue,” says Oliver. “With all of the short-term rental activity and deliveries, there is already a lot of traffic in and out.”

 

Source:  NREI

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Coronavirus Could Set Back The Pro-Density Movement

Author: Admin
Categories: Commercial News,Development,Leasing,Multifamily,Offices,Trends

The movement toward dense, transit-adjacent development picked up steam over the last few years, but the coronavirus pandemic might prove to be a big setback.

The pandemic has forced a quick national pivot toward telecommuting, which some think could undercut the utility of living near transit, according to the New York Times. If you don’t need to go into the office so often, why not spread out a bit?

Density advocates and lawmakers will likely find the pandemic gives rivals new ammunition to argue against their push for more zoning.

Some pro-density lawmakers, like California State Sen. Scott Wiener cautioned that there will still be a need for housing in his state after the pandemic subsides. Wiener has been trying to pass a statewide transit-oriented development bill for years and presented his most recent version in early March, just before coronavirus took the state by storm.

Developers meanwhile have to weigh consumer interest in such housing. Bob Youngentob, CEO of Maryland-based developer EYA, said his firm might switch its focus from more dense transit developments to townhomes if demand for the former falls enough.

“The forced interaction of sharing doors and elevators has caused some anxiety,” Youngentob told the Times. “Townhomes, where you come in and out of your door, and you know you are the only one touching your door handle, provide some comfort.”

Those who continue to build dense projects might reconsider their design strategy for public health — walkways could become wider and open spaces larger, for example.

 

Source:  The Real Deal

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Commercial Leases In The Era Of COVID-19

Author: Admin
Categories: Commercial News,Leasing,Trends

Commercial real estate is poised to be hit especially hard by COVID-19.

While homeowners and renters have their own worries, commercial owners and their tenants are anxiously navigating their way through a morass of decimated income levels and unpayable rent, the path fogged-over by the novelty and unique horror of the current situation.

Now two months into the COVID-19 nightmare, commercial mortgage specialists are still being asked many of the same lease-related questions by their clients. MPA reached out to three of the partners in the New York office of Quinn Emanuel Urquhart & Sullivan, LLP, Andrew J. Rossman, Christopher D. Kercher, and Rollo Baker, to get some answers.

MPA: Has the government adopted any measures to help commercial tenants?

Andrew J. Rossman: Yes. While the federal government hasn’t adopted any comprehensive relief from rent obligations, various government entities have enacted mandates intended to prevent eviction due to coronavirus-related business disruptions.

For example, New York has paused commercial evictions and ordered state-regulated financial institutions to grant 90-day forbearance relief to some borrowers financially impacted by the COVID-19 pandemic.  California has authorized local governments to suspend commercial evictions based on nonpayment of rent caused by a substantial decrease in business income related to COVID-19.  Los Angeles has issued an ordinance temporarily prohibiting landlords from evicting commercial tenants for failure to pay rent during the ongoing crisis, though this does not apply to large or publicly traded companies.  Seattle, Miami-Dade County, and Cook County have closed their Courts to eviction proceedings, effectively suspending evictions in those jurisdictions.

If tenants can access some of the $350 billion in small business loans contained in the federal CARES, they may be used to pay rent and other obligations.  Some states are offering their own subsidized loans, too. Pennsylvania launched a small business relief fund to extend zero-interest loans of up to $100,000 to small businesses.

MPA: Does the law excuse a commercial tenant’s obligation to pay rent?

Christopher D. Kercher: Maybe. In the absence of more comprehensive debt relief measures, commercial tenants and their landlords should examine their written lease agreements to assess rent obligations during the pandemic.  Tenants should review force majeure provisions that may be in their lease. Where a tenant’s operation of its business is prohibited by law, that tenant may be excused from lease terms relating to hours of operation or allowing access to the property.

Tenants should also assess whether their leases include provisions excusing or reducing rent obligations when there has been a “governmental taking” or “casualty” to the premises, and whether the pandemic and related government shutdown regulations could qualify.

MPA: Are there other potential defenses tenants can leverage?

Kercher: Potentially, particularly the legal doctrines of “frustration of purpose” and “temporary impracticability.”  Generally, these doctrines apply when unforeseen, intervening events the contracting parties assumed would not happen deprive a party of the contractual benefit, defeating the purpose for the contract.

MPA: If a business is forced to close because of shutdown orders, could the “takings” provision in a lease provide a commercial tenant with some form of rent relief?

Rollo Baker: That’s an interesting question.  Sometimes leases include clauses that provide for rent abatement or lease termination if there is a “government taking” of all or a portion of the premises.  People are naturally wondering if government shutdown orders, which bar the use of the leased premises, count as “government takings” under the lease.

The Takings Clause of the Fifth Amendment of the Constitution requires “just compensation” when the government takes private property for public use.  Courts have recognized that government restrictions on property rights, short of actually seizing property, may constitute a taking when the restrictions undermine the property’s economic value.  However, courts have also held that the government’s exercise of “police power” to protect public health and safety does not constitute a “taking.”

State constitutions and state statutes may be more protective of property rights.  Some state courts have held that quarantines destroying vegetation to stop disease are takings, requiring just compensation.  Some state courts have also held that temporarily denying people the right to access their property constitutes a “regulatory taking” under their own state constitutions.  This is a complicated body of law. It may prove fertile ground for negotiation and, if unsuccessful, litigation.

MPA: Does the denial of the “quiet enjoyment” of a space mean a tenant can stop paying rent?

Kercher: Probably not. Commercial tenants who are barred from use of their leased premises sometimes have a viable claim for breach of the covenant of quiet enjoyment, or possibly constructive eviction.  But if the landlord is a private party not responsible for the regulations imposed on its tenants’ business operations, it is unlikely that the landlord can be held liable.

Baker: And many commercial leases condition the tenant’s right to quiet enjoyment on its payment of rent.

MPA: If tenants aren’t able to pay rent, what does that mean for the owners’ mortgage payments?

Rossman: There might be some relief for them. The federal government has encouraged lenders to grant voluntary extensions to borrowers impacted by COVID-19. To facilitate such agreements, the government has adopted orders temporarily limiting reporting, accounting, and regulatory compliance.  Some banks and other lenders have announced programs for assisting eligible debtors and are waiving service and late fees, offering credit line increases, and approving collection forbearance for up to 90 days.

Baker: Several states have adopted measures requiring banks to grant forbearance under certain circumstances on debt obligations based on hardship.  For example, New York Governor Cuomo’s Executive Order No. 202.9 provides that “it shall be deemed an unsafe and unsound business practice if, in response to the COVID-19 pandemic, any bank … shall not grant a forbearance to any person or business who has a financial hardship as a result of the COVID-19 pandemic.”  Other states could follow suit.

Kercher: Landlords should look at their debt documents to assess whether they can invoke common law doctrines, such as “temporary impracticability,” to gain a near-term reprieve from debt collection. Every lease has unique terms, and both landlords and tenants should seek legal advice prior to taking any course of action. The economic shutdown does not mean a shutdown of choices under the law.

 

Source: Mortgage Professional America

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Lease Insurance Could Come Into Play Amid COVID Crisis

Author: Admin
Categories: Commercial News,Leasing,Multifamily

Millions of apartment renters across the U.S. have lost jobs and income in the economic crisis caused by the spread of the novel coronavirus. Many are working with landlords by making partial payments and creating payments plans.

But another aspect of the industry is being tested by the crisis: lease insurance products that have replaced security deposits for some renters.

Founded in 2015, Leaselock provides lease insurance that covers damages and lost rent for roughly one million apartment units. At the properties that use LeaseLock, renters don’t have to provide a security deposit to move in. Instead, they pay a deposit waiver fee of $29 a month for a standard lease insurance policy. In return, LeaseLock agrees to insure the property and pay for potential losses on the apartment, including up to $500 in damages and $5,000 in lost rent—or even $7,500 in high rent markets.

LeaseLock does not carry to risk of these policies itself, but sells the risk  to reinsurance companies. Claims on LeaseLock’s lease insurance are triggered when a lease is terminated with damages or an unpaid balance owed. So far these reinsurance companies have not significantly raised their prices for new policies.

“It works well for the resident and it works well for the managers,” says Rick Haughey, vice president of industry technology initiatives for NMHC. ”But how do you price that risk and has that changed?”

More than 26 million people have filed for unemployment in the five weeks since cities and state began to order non-essential businesses to close and residents to shelter in place to the slow the spread of the novel coronavirus.

“There’s risk attached to every renter now,” says Mark Stringer, executive vice president for Avenue5, an apartment company with 70,000 units under management, including thousands covered by LeaseLock. “In the past, you may have had some owners say, ‘Well, we have residents that never lose their jobs so we don’t have to worry.’ Well, now you have to worry.”

For April, the effects have been relatively muted.

The amount of rental income collected by apartment companies in April 2020 dropped 7 percent compared to the monthly average set earlier this year, according to LeaseLock.

That’s similar to National Multifamily Housing Council’s rent payment tracker which found that 89 percent of apartment households made a full or partial rent payment by April 19 in its survey of 11.5 million units of professionally managed apartment units across the country.

“It is not as dismal as we thought it was going to look in April,” says Reichen Kuhl, president, founder and chief of insurance and legal for LeaseLock, “Renters who can pay have paid.”

Numbers for May are expected to be worse, however.

Meanwhile, LeaseLock is helping its clients negotiate with residents who are having trouble.

“Right now, 100 percent of people having trouble are being offered concessions,” Kuhl says. “Almost all of these are good, steadily-paying residents, and apartment companies want to keep good stable residents in place.”

So far, renters in trouble seem to be taking these deals, according to early data from cities where the coronavirus struck first. In Seattle and Los Angeles, which issued “stay at home” orders relatively early, the share of people who paid only part of the April rent is much higher—and the amounts being paid seem to match the “50 percent” being offered by many apartment companies, according to LeaseLock.

“We did see a concerted shift towards partial payments,” says Rochelle Bailis, vice president for LeaseLock. “That shift was pretty dramatic in the hardest hit cities.”

For example, Irvine Company is enabling renters to defer 50 percent of their April and May rent payments over a six-month period, interest-free. All renters have to do is “request rent assist” to create a new payment schedule.

Many other apartment companies have halted evictions and offered similar plans – following the advice of trade groups, including both the National Multifamily Housing Council and the National Apartment Association.

Usually, when a renter is more than a month late in paying rent, the property manager will issue a “pay or quit” notice demanding payment. Cities, states and federal agencies have also created moratoriums on evictions covering a wide patchwork of jurisdictions.

All this comes as lawmakers consider further regulating or even outlawing security deposits, which may push more of the industry towards companies like LeaseLock, or the creation of their own installment plans.

“States are putting more regulations on security deposits,” says Rick Haughey, vice president of industry technology initiatives for NMHC. Legislators argue that having to pay a security deposit can be a barrier for many people to renting an apartment. “Most people just don’t have two month’s rent,” says Haughey.

In Cincinnati, Ohio, landlords must now offer renter alternatives to paying a security deposit, according to that city’s new Renter’s Choice Law, which went into effect in April 2020. Lawmakers in Philadelphia have proposed legislation (House Bill 2427) that could lay the groundwork for total deposit replacement, according to Kuhl. Other new rules include limits on the amount property managers can collect as security deposits, how the money is held in escrow and in some places requirements that the deposit can be paid in installments.

 

Source:  NREI

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South Florida Real Estate Leaders Confident About The Market, Despite Pandemic

Author: Admin
Categories: Commercial News,Development,Leasing,Multifamily,Offices,Retail,Shopping Centers,Trends

Despite the challenges caused by the coronavirus pandemic, a panel of five South Florida real estate veterans said Wednesday they feel optimistic about the market.

The webinar, called “Lessons from the Past,” featured professionals who managed their firms during the Great Recession and are using those experiences to inform current strategies.

On the panel were developers Adolfo Henriques, vice chairman of Related Group, and Masoud Shojaee, chairman of Shoma Group; Al Dotson Jr., managing partner of Bilzin Sumberg law firm; Bruce Moldow, CFO of Moss Construction, and Judy Zeder, Realtor-Associate with the JillsZeder Group.

The event was hosted by the Miami Herald’s RE|source Miami newsletter; a recording is available online at https://bit.ly/2KsJPZS. (Password: 7i*=$s7@)

 

Source:  Miami Herald

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The Coronavirus Is Changing Real Estate Sales Contracts. The Shift Looks Permanent

Author: Admin
Categories: Commercial News,Leasing,Trends

The contracts drawn between a seller and buyer in South Florida may never be the same again.

As coronavirus continues to spread, real estate agents are adding a “COVID rider” to existing contracts and including it in new sales. The standard force majeure clauses that protect sellers and buyer in the case of an act of God typically cover only natural disasters like earthquakes, hurricanes and tornado.

Pandemics have not been on the list. That is, until now, said Miltiadis Kastanis, director of luxury sales for Douglas Elliman.

“Yesterday’s contract is not today’s contract. Legal intervention is the smartest thing we can do,” Kastanis said.

Several Realtors say they contacted their attorneys in March, as the crisis was growing, to update pending sales contracts and write new ones that specifically include pandemic or coronavirus as covered reasons for canceling contracts. Kastanis now sends his contracts for approval first to his attorney before sending it to the buyer for review.

The COVID clause protects both the buyer and seller, he said. For the buyer, it gives them more time to complete tasks, including finalizing lending — should a bank have halted lending altogether — or complete an inspection.

It also protects the seller, Kastanis said. “A buyer may say, ‘Well, my bank isn’t lending.’ It may be an excuse for the buyer to walk out.”

It also faciliates contract extensions, said Anthony Askowitz, broker and owner of RE/MAX Advance Realty.

For sellers, such clauses act as a hedge against fluctuations in the market, Askowitz said. “Their home may not have the same value in the future. We know the value from yesterday. We don’t know what the value is going to be after the pandemic.”

The clause may also offer a sense of security to lenders, he said. “This is a protection for banks. Banks need this because it puts things in context of what people can expect. We saw that early on when people wanted to get out of their contracts, this ensured that they couldn’t.”

The addendum or clause is legally binding, said attorney Florentino Gonzalez, co-chair of the downtown Miami-based Shutts & Bowen’s Real Estate Practice Group. If the buyer tried to pull out after all mortgage, appraisal and inspection services are back to normal, “they can risk being sued for specific performance of contracts or lose their deposit,” said Gonzalez.

But because a pandemic can be infinite in nature, Gonzalez said, there will also likely be a deadline for any contract extension.

The addition of the word ‘pandemic’ as a force majeure is here to stay, Kastanis said. “It has shown to impact our market strong enough.”

 

Source:  Miami Herald

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In Spite of Great Uncertainty, CRE Deals Continue to Close

Author: Admin
Categories: Commercial News,Leasing,Trends

With all but the most essential small businesses shut down, vast numbers of commercial and multifamily tenants unable to pay rent and no clear date for when the U.S. economy might re-open, it would be easy to assume that commercial real estate investors would opt to sit on the sidelines in March and April. But while there has definitely been a greater sense of caution in the market and tampered down activity, data from Ten-X Commercial Real Estate, an online commercial real estate marketplace, shows that assets at its March auctions were still getting multiple bids and sales continued to close, especially on smaller balance deals of under $10 million.

NREI spoke to Joseph Cuomo, executive managing director and head of sales with Ten-X, about what the company saw on its platform over the past month.

NREI: Has Ten-X seen any change in the amount of activity/transactions completed on its platform from the beginning of March through the current date?

Joseph Cuomo: In terms of activity compared to the month prior, it’s really not a good metric. Every month is different in our business, it’s cyclical in nature. And usually, we don’t have many [auction] events in January and February. When we get to March, they pick up significantly.

I think the more important metric to look at is year-over-year, and activity is actually the same, if not a little bit higher. People are putting deals up on our platform in December and January for March auctions. In March, we closed 30 of 32 deals [15 were financed, 15 were all cash]—all of those deals were loaded up in December and January.

But in our process, by the time we held the events in March—on March 11 and March 25—we already had all the due diligence from the sellers. So, there was really no slowdown in activity in February and our March events really didn’t see a slowdown.

In terms of buyers though, we thought folks are going to sit on the sidelines, there is a lot of uncertainty and risk involved. But the level of activity we saw—people looking at properties on our platform—we saw over a 60 percent increase from last year. It was 3,860 average number of visits. The average number of people who signed confidential agreements went up by 10 percent. And then in terms of the average number of bidders [on any deal] it was [about] 6 bidders, which is strong in any market.

And March 2020 vs. March 2019 was up almost 20 percent in terms of our trade rates.

 

NREI: Did you see any impact on deal pricing in the bids made during March and April auctions?

Joseph Cuomo: There was definitely some flexibility from sellers, who wanted to move deals. And buyers weren’t saying, “We will give you 50 cents on the dollar for the listed price.” We saw re-pricing on the assets of between 10 and 20 percent, which is pretty good.

We sold a shopping center in Orlando that sold at a higher price than [the guidance price] before COVID.

Another cool thing is that folks are not removing assets from the platform altogether. And looking at our pipeline of deals for the end of May and June auctions, people are looking at their portfolios and saying, “These are my assets, what deals might I want to move quickly?” And we are starting to see a flow of deals come in right now where people are willing to see the market, and if it’s realistic, they are saying, “We are sellers.”

We are definitely not seeing as much activity [lined up for May and June], but it hasn’t come to a screeching halt. Our pipeline for June, we have $168 million for June in the late funnel phase right now, and we have another two weeks to go, so we are hoping for between $300 and $400 million for the June auction. For May, we are potentially coming up to $300 million.

Our deal pipeline—which was paused for two or three weeks—is starting to pick up again, partly because we are an online platform and there’s certainty of execution.

 

NREI: Has there been more activity or interest shown in certain property types or assets vs. others recently? If so, what are investors gravitating toward right now?

Joseph Cuomo: We are way too early right now, and in all my conversations with our buyers and our brokers, there’s not one market nor any property type that anyone could really foresee that, “Hey, this is an opportunity.” And my background is in debt, and nobody knows what is going on right now from a triage perspective, who’s paying their rent or mortgage, who’s not. The one thing [that is obvious] is hotel delinquencies. There’s a lot more risk there and caution. What we are hearing is default rates for hotels will be out there. Does that mean that desire for hotels on our platform has gone down? Absolutely not. We’ve sold hotel deals in March. We have hotel deals in the pipeline right now. People are still looking at deals, they are out there.

We are still seeing significant demand in the strip center retail space. We sold a retail center in Cleveland last week, it had nine bidders. And the buyer demand, the high net worth buyers—the eyeballs are out there. But from a retail and hotels respective, there are no flights to specific flags or markets.

From an office building perspective, we’ve always seen that suburban buildings would do better. We sold a building in suburban Illinois for $10.8 million, pretty much stabilized, near 100 percent leased, with initial price guidance coming in between $8 and $9 million. Overall, if you have a property in a good market, with good tenants, people are still playing aggressively there. When we have quality assets, the buyers and buyer pricing have really not waned from the pre-COVID days. The only difference now is you can’t do [in-person] tours.

NREI: What are you seeing right now in terms of availability of financing?

Joseph Cuomo: Local banks are still financing commercial real estate deals—they just may ask for some extra time, they may need an extra seven days, and everybody is flexible in this environment. They are doing relationship lending with recourse financing. We are still seeing that in the marketplace, which is keeping the liquidity going and not killing deals.

With the bigger banks, personally, I know there is lending out there for certain relationships and for certain deals. But not many folks are jumping on retail.

The CMBS world is mostly dead. All the conversations I had this week have been, “We’ll lend—with heavy structure. I’ll give you lower leverage and I want a reserve.” Hotel and retail loans are out of the equation.

But a lot of buyers are saying, “Why would I want to buy with such heavy structure? Let me buy it all- cash, and I know I can finance it later.”

The big regional banks—the Chases, the Banks of America—they are lending for relationships, folks are getting quotes, but they are not aggressive quotes. It’s not completely shut down anymore, they are saying, “We’ll look at it, but we’ll put a conservative structure in place.” And the guys at the banks their typical LTV ratio was at 45-50 percent before COVID. So, they are lending, but not at 75 percent LTV.

The bigger problem right now is how to underwrite? It’s impossible to underwrite a hotel right now where you don’t have occupancy levels.

 

NREI: What are the firm’s expectations about investment sales activity in the short- and medium-term?

Joseph Cuomo: Right now, it’s day-by-day. A lot of our business in the downturn was to really work with the banks and the servicers and investors and create a very efficient marketplace. Even today, we are still seeing [real estate owned] product [from that period]. It’s hard to predict, but I imagine folks are looking at their portfolios, and saying, “I’ve got these couple of assets I can sell to increase liquidity.”

So, the funds and the bigger firms are now probably looking at their portfolios, and saying, “We need to move some deals.” So, in the third quarter, we definitely will see more activity.

But a lot of folks right now, they are really trying to figure out what they have. If you are an owner, you have to figure out who’s paying the rent. And if you are a lender, you have to figure out who’s paying the mortgage. And who actually opens up for business again, and who will probably not come back?

But I think our platform will pick up even more in the fourth quarter because now you will bring the lenders into play, not only the landlords. The lenders will be saying, “It’s overwhelming, we can’t manage this large of a book.”

But also keep in mind, during the last downturn, the height of default, all of that didn’t take place until 18 to 24 months after the market went down in 2008-2009. It takes some time. Nobody can make a rush decision to just dump something on the market.

But what we are hearing, at the end of the third quarter, the fourth quarter, the expectation is things will pick up. People are going to start figuring things out.

 

Source:  NREI

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