Trends Archives | Page 13 of 19

May 28 No Comments

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

May 21 No Comments

Why Multifamily Rents are Holding Up Better than Expected

Author: Admin

Categories: Commercial News,Multifamily,Trends

Despite mass unemployment and underemployment, multifamily rental payments have held up far better than many industry experts expected amid the economic wreckage caused by the spread of the novel coronavirus.

More than 36 million people have filed for unemployment in recent weeks and millions of others working fewer hours and taking reduced pay. That’s amid new estimates that real GDP growth for the second quarter will come in at -42.8 percent. Toss in a backdrop in which, as of December, 69 percent of Americans had less than $1,000 in savings accounts, and it would seem to paint a bleak picture on the ability of renters to meet their obligations.

Yet 87.7 percent of apartment households made a full or partial rent payment by May 13, according to a survey of 11.4 million professionally-managed apartments across the U.S. by the National Multifamily Housing Council (NMHC). That’s up from the 85.0 percent who had paid by April 13, 2020, during the first full month of the crisis caused by the spread of the coronavirus. That’s also down from the 89.8 percent of renter households who made rental payments the year before, when the U.S. economy was still strong and long before the coronavirus began to spread.

“Once again, despite the economic and health challenges facing so many, we have found that apartment residents who live in professionally-managed properties are meeting their obligations,” said Doug Bibby, NMHC President.

So what gives?

There are a few things at work. For one, NMHC’s dataset is weighted towards renters more likely to be able to continue working their jobs remotely and those with some savings as a backstop.

NMHC gathered its data from five leading property management software systems: Entrata, MRI Software, RealPage, ResMan and Yardi. It does not represent all apartments in the U.S. For example, the data does not include many government subsidized affordable housing properties.

“These excluded properties are the ones more likely to house residents experiencing financial stress,” says NMHC’s Bibby.

The data also does not include smaller apartment properties that typically don’t use those software system.

“There are thousands and thousands of buildings with 10 units, 20 units, 40 units,” says John Sebree is the senior vice president and national director of Marcus & Millichap’s Multi Housing Division. “They generally don’t have property management software…. However, they generally have personal relationships with their clientele. [So,] their collections are a little better.”

In all, the percentage of renters who made full or partial payments at less-expensive, class-C apartment properties continues to be lower—by about five percentage points—than the percentage of renters at class-A or mid-tier class-B properties who made payments.

“There’s a little more financial distress among residents of lower-priced Class C properties,” says Greg Willett, chief economist for RealPage, Inc. “Many of those who held jobs in hard-hit industries like hospitality and retail stores live in the nation’s class-C apartment stock.” These families often earn lower incomes and have little or no emergency cash reserves to deal with income interruptions, says Willett.

Still, even in class-C stock, the percent paying rent remains high.

A big reason: The expanded federal $600-a-week unemployment benefits put in place as part of the CARES Act on top of whatever each state normally pays out has left many workers making more money now than when they were in their jobs, enabling them to keep up with rental payments.

As an analysis from Fivethirtyeight.com explained, Congress arrived at the $600 a week figure by looking at the national average unemployment payout of $370 per week and the national average salary for unemployment recipients of $970 per week. So the goal of the $600 was to make up the difference.

But given the income inequality in the U.S., far more workers’ wages are below that average figure than above. The net result has been that for millions of workers, being unemployed has led to a rise in their weekly pay. The multifamily sector has been a backdoor beneficiary of that federal largesse, since it has translated into more people being able to pay rent than one would expect with an official unemployment rate approaching 15 percent.

“The enhanced unemployment benefits provided by the CARES Act are helping the financial burdens of those who have lost their jobs,” says Willett. “These households appear to placing rent payments as a top priority.”

The issue going forward, however, is that the expanded benefits are scheduled to expire at the end of July. So the concern multifamily property owners were feeling before the CARES Act was enacted could rise anew later in the summer if the economy has not sufficiently recovered.

“As current federal support programs begin to reach their limit, it will be even more critical for Congress to enact a meaningful renter assistance program,” says Bibby. “It’s the only way to avoid adding a housing crisis to our health and economic crisis.”

Regional differences

Rental payment rates are also varying by region.

“Rent payments tend to be best in the places where the local economies are heavy on the tech sector or government defense tend to have the high shares,” says Willett. May’s best collections through about the middle of May 2020 are in Sacramento, Calif.; Virginia Beach, Va.; Riverside-San Bernardino, Calif.; Portland, Me.; Portland, Ore.; Denver, Colo.; and San Jose, Calif. “Some 93 percent to 94 percent of households in these places have paid their rent.”

Trouble spots include New York City; New Orleans and Las Vegas. These are locations where the spread of COVID-19 has been especially challenging or where tourism is particularly important to the local economy. The payment figures also are well under normal in Los Angeles, says Willett. Higher-cost markets like New York and Los Angeles are also cities where the expanded federal unemployment payouts are less likely to result in unemployed workers making more than they did while they had jobs.

Source: NREI

May 15 No Comments

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.

“You can do it with your phone now instead of having these wide-angle cameras,” says Russotto.

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

May 11 No Comments

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

May 09 No Comments

Co-Living Was Built Around Sharing Living Spaces with Strangers. Will It Survive Through a Pandemic?

Author: Admin

Categories: Commercial News,Development,Multifamily,Trends

Before the coronavirus hit, co-living projects were attracting more and more investor money.

Now, as public officials continue to encourage social distancing, questions are rising about whether residents in co-living buildings can even follow these guidelines, as they share communal spaces and sometimes even bedrooms. NREI spoke with Gregg Christiansen, president of Ollie, a co-living operator, about the state of the co-living industry and how the sector has been responding to the pandemic.

This Q&A has been edited for style, length and clarity.

NREI: How has the coronavirus outbreak impacted the sector?

Gregg Christiansen: I think it’s a little too early to tell. What we saw so far in our assets at Ollie, where we focus on long-term leases and institutional quality buildings, we initially saw a pick-up in occupancy in the first few weeks. I think that was really due to the ease of moving into one of our co-living units. So, when all the universities shut down their student housing buildings, we saw an influx of people wanting to move into an Ollie property. So, that was a good thing, I think that was a positive.

I think there has been some criticism, or at least people thinking and starting a little bit too early of a debate, in my opinion, around densification and urbanization. There’s some debate starting to happen on whether urbanization is going to be a thing in the future and whether densification is going to be a bit more criticized than it has been in the past, given that COVID is a virus that transfers to people in close quarters. So, the question is if the government is going to demand spaces to be bigger where people live. If that’s the case, I think there’s going to be a lot of people pushed out of the cities, because the cost of those units is going to be much more expensive to build. So, I think there’s a little bit of a double-edged sword right now in some of the arguments.

What we’ve seen from a positive standpoint as well is our residents have actually appreciated being around roommates and not feeling like they are living in a studio or a one-bedroom apartment all by themselves. So, they actually have the ability to interact with their roommates. So, we view that as a positive from some feedback that we’ve seen. But there’s going to be a debate around apartment buildings and “are people going to be more inclined to live in the cities or not?” That’s a much broader discussion to have, so we’ll see what happens.

NREI: Do you think the outbreak might affect the co-living sector the same way it affected the co-working sector?

Gregg Christiansen: No, I think it’s going to be much more resilient. So, co-working [operators basically have] little one- and two-person glass wall rooms that break up a floor plate and stuff as many people into the smallest square footage as possible for the co-working operator to be able to justify the economics to themselves, and a lot of those leases are set on 30-, 60-, 90-day type of structures. Some of them are longer term, but for the most part, they’re pretty short-term leases, with a majority of tenants being small business or entrepreneur-type of individuals. So, in a COVID-19 world, where entrepreneurship is going to be put on pause, you’re going to see a lot of small businesses probably not make it. So, filtering back to the co-working space, the co-working space is going to be the first line to really get hit pretty hard. [It’s going to be] anybody really with short-term lease structures, so you take the hotel industry, the short-term stay industry, co-working industry, and they’ve been probably the hardest hit right out of the gate because of COVID-19. If everybody stops paying rent, people are going to try to get out of their office leases.

The thing about co-living is it’s where people live. It’s where you go home every night. It’s your place of being. It’s where your friends and family know you’re at. So, we’ve actually seen co-living be much more resilient than co-working because those are two very different industries. They get associated with each other a little bit because of the ‘co’ and the sharing economy concept, but when it comes to where someone lives, I think that they take it much more personally and it requires us as a co-living operator to really treat them with the dignity they deserve.

NREI: Has the technology co-living operations use been able to help solve the need for social distancing?

Gregg Christiansen: As we were building out our platform earlier, there were a couple things that we saw as a need to communicate and interact with our resident population, but also to make the ease of living much more accessible. We created an app, it’s called the Ollie Living app, and in that, we have the ability to send out notifications, residents can turn on or turn off services, they can ask for maintenance requests, pay the rent, they can sign up for our social calendar.

Immediately after COVID-19 hit, what we had to do as a team, and something I was very proud of with our team, was create a virtual social network where everybody is allowed to go on and sign up for events. Our Ollie social events would typically be in the building, or a local cooking class, or at a yoga studio, but we’ve transitioned our social calendar into more of a virtual social concept. We have cooking classes now online and we do yoga through Instagram. So, we try to still create the feeling of our social calendar, just through our technology that we’ve created. I think that’s actually been extremely beneficial to have that available for our residents, and we’ve actually seen a pretty good participation rate with our residents staying at home.

NREI: Any guidance you can provide on occupancy rates and move-in rates? Is there a concern around those metrics if the lockdown persists?

Gregg Christiansen: I don’t think we have enough data yet to be able to see if there is going to be a concern. We have four different existing assets that are open and operating, we have two more that are under construction, and so, what we’re seeing in New York is we’re still seeing people sign leases. We have the ability to do virtual tours. All of our applications are all on the internet. You can go on and sign a full lease just through the website and do a virtual tour and never have to ever touch a property. So, that’s great. What we have also been able to develop is a roommate-matching software platform that allows people to find other people to live with. So, even if they are not able to go to the property, they’re actually able to create and form a household on our roommate platform virtually.

Occupancy for us is really stuck at above 90 percent ever since COVID-19 hit. Our Pittsburgh asset had a tick-up of about five percent in occupancy once you saw the universities shut down. Then our property in Long Island City is close to 90 percent occupancy now. So, we’re actually seeing positive movement so far.

If [lockdowns] persists for two, three, four months longer, I think a lot of multifamily projects are going to start to see some weakening in occupancy. I don’t think co-living or even standard apartment buildings are going to be completely isolated from that impact, it would be something that we would all have to rally around. But people are already talking about opening the economy again a month from now and we’re starting to see states open back up, so knock on wood, hopefully we don’t get to the point where we’re in July and August and we’re still in this isolation situation. I think the benefit of our properties is that we have long-term leases, so for the most part we have seen occupancy stay above 90 percent since COVID-19 hit.

NREI: Are co-living properties still attracting investor dollars? Is that mood changing?

Gregg Christiansen: I think it’s a little too early to tell. I think what we’re going to have to get over is the perception that densification might be more criticized than before. I think people are going to want to see that play out a little bit. What we’ve seen in the real estate industry generally is everybody has put their pencils down for the time being from buying or developing or pushing forward new investment ideas across the spectrum. Whether that’s an office or industrial or multifamily [asset, and] retail especially, people have [pressed] pause to see what the world looks like in a post COVID-19 world. I think co-living is not an exception to that rule. It was a growing niche and people were starting to give it the right attention at the end of 2019, heading into 2020. We were starting to see our pipeline really pick up. So, we were pretty excited about where things were going.

But what we are actually probably going to see is some deals and some development projects either see some issues in financing or delays or certain management companies just not survive. Some portions of businesses will have some failed launches, or some failed start-ups, and I think co-living is not going to be immune to that either. So, we’re paying attention to that a bit.

Our investors are a bit longer term investors, they’ve been supporting us really since 2017. So, we’re pretty excited about where we’re going. Co-living is a niche and niche industries are generally the first to be put on the backburner when there is a recession. I think what co-living has going for it though is we are more flexible and have leaner kinds of platforms. So, we’re actually able to jump into buildings and help out much quicker than your standard co-type of industry.

NREI: Are there any other trends developing that you feel are worth keeping tabs on?

Chris Christiansen: I think a couple of things. I think you should be paying attention to delinquencies. That’s something that we’re really watching pretty closely. Just because we have long-term leases doesn’t mean necessarily that everyone is going to pay rent. I think the short-term stays sector is really something to focus on. What we’ve seen so far is our delinquency rates in our co-living units have actually stayed at or slightly above the conventional properties that we’re operating in. So, that’s great. But we’ll obviously have to monitor that pretty closely here soon. And then looking at how governments are going to respond to densification.

Source: NREI

May 05 No Comments

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

Apr 28 No Comments

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

Apr 27 No Comments

Warnings Multiply As South Florida Retail Landlords Brace For Coronavirus Fallout

Author: Admin

Categories: Commercial News,Retail,Shopping Centers,Trends

Owners of the nation’s malls, retail plazas and Main Street storefronts are sounding alarms over the magnitude of the financial wreckage in store for the U.S. economy as efforts to contain the coronavirus appear destined for a prolonged slog.

The clearest sign to date of the pandemic’s potential to inflict deep and long-term damage was made clear as details emerged last week about thousands of so-called Watch List loans. The disclosures are a monthly ritual on Wall Street to keep investors in commercial mortgage-backed securities apprised of the health of the properties backing their portfolios.

Nearly 700 retail properties ranging from strip malls to stand-alone big-box stores were slapped with the “Watch List” moniker between March 15 and April 15, as the nation rolled out shelter-in-place policies and saw waves of business closures to combat the Covid-19 outbreak. The increase in CMBS properties flagged for concern marked a 45% increase over the number of Watch List retail properties recorded a month earlier.

Click here to read more about this story.

Apr 24 No Comments

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

Apr 23 No Comments

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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