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How The Pandemic Has Changed Apartment Building Amenities

While slow to embrace major changes — some developers say they’re hopeful that pandemics will not be a concern when their projects finally open in 2023 — developers are making tweaks in the face of the COVID era.

They’re adding cabana-lined roof decks, repurposing lounges as outdoor schools and switching out built-in couches for more movable versions to facilitate social distancing, as well as adding ventilation systems that are deluxe even by the standards of luxury apartments.

“We haven’t had drastic changes,” said Whitney Kraus, the director of architecture and planning for Brown Harris Stevens Development Marketing, but added, “I don’t think amenities will ever go back to the way they were before.”

Some upgrades will likely appeal whether a disease is rampaging or not.

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Wary Of Another Shutdown, Retail Landlords Sweeten Pot For Tenants

Some retail landlords are offering additional concessions to tenants in case the government mandates another Covid-related shutdown.

Landlords are including language in new leases that allows retail tenants to defer part of their rent if the government requires store closures, according to the Wall Street Journal. Many insurance policies did not cover pandemic-related losses, leading landlords to find new ways to keep struggling tenants in place.

In one case, EastBanc, which owns and operates 25 retail properties in Washington, D.C.’s Georgetown neighborhood, has offered to cut tenants’ base rent to 50 percent if the city forces a shutdown, the Journal reported.

In Detroit, development company Bedrock — created by billionaire Dan Gilbert — is allowing tenants to forgo their base rents if they provide the company with 7 percent of gross sales.

Throughout the pandemic, retail landlords have largely offered deferrals to tenants whose businesses have been decimated who were unable to pay rent. But other landlords have sued and sought to evict some chain retailers over millions of dollars in unpaid rent. Meanwhile, landlords are seeking to exclude pandemics as being labeled force majeure events — act of God — which they argue would make it more difficult to get financing if that language is included.


Source:  The Real Deal

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Restaurants Can Reopen Dining Rooms In Miami-Dade Starting Next Week

Restaurant dining rooms in Miami-Dade County can reopen beginning on Monday, more than a month after restaurants were ordered to close indoor seating due to spiking coronavirus cases.

Miami-Dade Mayor Carlos Gimenez said restaurants will be able to operate at 50 percent capacity indoors, as long as tables are spaced at least six feet apart with a maximum of six people per table. He said the decision came after consulting with medical experts and the White House.

The countywide 10 p.m. curfew will remain in effect. Gimenez said that the county will revisit pushing the curfew to 11 p.m. after Labor Day weekend. He also added that he plans to keep the beaches open, though that can change.

Individual cities may be stricter with the reopening guidelines, but cannot be less restrictive than the county.

Gimenez called it the “first step” and said “we must keep our guard up.”

The announcement comes as the uptick in coronavirus cases begins to slow in Miami-Dade. The 14‐day average positivity rate in Miami-Dade is 10.29 percent as of Tuesday, according to the county’s New Normal dashboard.

To date, Miami-Dade has had 153,385 cases and 2,277 deaths. Statewide, 605,502 positive cases of Covid-19 have been reported, and nearly 11,000 deaths, according to the Florida Department of Health.

Gimenez said restaurants will be required to keep doors and windows open if possible, and keep the air conditioning running. Diners can only remove their masks once food and drinks are present on their tables, and must wear masks when they leave their tables.

Countywide, a number of restaurants have either closed permanently, been unable to offer outdoor dining, or have decided to close temporarily due to the effects of the pandemic on their businesses. Shortly after the mayor announced restrictions in July, restaurant owners protested that decision.

Casinos and bars will remain closed, though Gimenez hinted that casinos may be able to open sooner than bars.


Source:  The Real Deal

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August Brings No Sign Of Rent Apocalypse

Tenants across the country are largely still paying rent despite high unemployment and waning government aid, a new report found.

About 87 percent of apartment households made a full or partial rent payment by Aug. 13, according to the National Multifamily Housing Council’s Rent Payment Tracker. That was only a 2-point drop from the same period a year ago, when the economy was humming.

NMHC surveys 11.4 million units of professionally managed apartment units across the country.

Doug Bibby, the organization’s president, said the rent collections could decline, however, as relief through the CARES Act dries up. The federal unemployment benefit of $600 a week expired in the last week of July, and job growth is not likely to make up the difference.

“With that support now having expired more than two weeks ago, households across the country are grappling with even greater financial distress,” Bibby said in a statement.

Unemployment is steadily declining across the U.S. In July, the U.S. unemployment rate was 10.2 percent, down from its peak of 14.7 percent in April. Still, the U.S. has lost about 13 million jobs since the coronavirus gained a foothold in February, according to the Department of Labor.

For the unemployed, the next few weeks, or months, could be tough. Democrats and Republicans have failed to compromise on a new stimulus package, which was expected to extend the unemployment bonus, albeit at a diminished level, and perhaps include another round of $1,200 stimulus checks.

In addition, eviction moratoriums are also set to expire in many states, and some landlords are eager to move out tenants who have not paid rent for months.



Source:  The Real Deal

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Apartments With Ground Floor Retail Take A Hit On Rent Collections

COVID-19 precipitated shutdowns have crippled the retail sector and those troubles have been well-documented.

And the businesses that rent spaces on the ground floors of apartment buildings are generally not big stores or national chains and have had even more trouble meeting their obligations in recent months. As a result, multifamily owners have had to be forgiving in negotiating concessions with their retail tenants, even as rents from apartment tenants have generally held up better than expected.

“We know that small retail businesses have been hit very hard based on payroll figures,” says Kevin Cody, market analytics senior consultant for CoStar, based in Boston. “Their distress from the pandemic was likely amplified due to them having small cash buffers.”

The vast majority—over 80 percent—of the retail space located in apartment buildings can be found in urban areas, according to CoStar. In recent years, these areas were performing well due to strong demographic growth, employment growth, and high levels of tourism, says Cody.

That strong performance stopped with the spread of the coronavirus in early 2020.

“Retail assets in dense, urban areas have been heavily impacted by the current period,” says Cody. “People are working from home at a high rate and tourism has greatly diminished.”

Not surprisingly, the retail tenants that have held up the best for apartment owners in recent months are those that were deemed essential. Drugstores, convenience stores, restaurants equipped to do takeout business are among tenants that been able to continue operating amid the vary levels of shutdowns throughout the country.

From the landlord side, apartment owners have largely been willing to work with their retail tenants on an as-needed basis.

“We have heard that owners of retail space are offering rent deferrals or relief to some tenants that have been impacted by the virus,” says Cody.

“There [usually] isn’t a public balance sheet or strong capitalization,” adds Todd Siegel, senior vice president, CBRE, based in Chicago. “The solution to mutual success requires an individualized and bespoke approach.”

Fortunately, apartment properties generally don’t rely much on the income from  small retail tenants.

“On a pure, net operating income basis, it shouldn’t skew the balance sheet to warrant a default,” says Siegel. “Mixed-use retail in general doesn’t drive the overall value [of an apartment property].”

The managers of apartment properties are also not yet desperate to squeeze money where ever they can get it. That’s because the income from apartment rents has remained strong, so far.

“I would expect apartment owners to have a greater ability to offer rent deferral or relief for their retail tenants, due to the greater rate at which they have been able to collect rent from apartment renters,” says Cody.

As for down the line, while they will need to implement social distancing measures until a vaccine or reliable treatment becomes available, multifamily owners will continue to include ground-level tenants.

“Mixed-use was a strategy we really liked heading into the pandemic,” says Cody. “In the long-term we still believe in it… we expect urban areas to come back, but in the near to medium term, retail will experience reduced spending and foot traffic. We expect migration to slow; there has been a shift to working-from-home, which will sustain to some extent; and tourism has slowed, which will take time to recover.”


Source:  NREI

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

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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Why Multifamily Rents are Holding Up Better than Expected

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 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

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What CRE Will Look Like as America Reopens

The United States has had more than 1 million confirmed COVID-19 cases, with a death count approaching 70,000, as of Monday. And new reporting from the New York Times revealed that the Trump administration is “privately projecting a steady rise in the number of cases and deaths from the coronavirus over the next several weeks, reaching about 3,000 daily deaths on June 1 […] nearly double from the current level of about 1,750.”

The Federal Emergency Management Agency, meanwhile, is forecasting “about 200,000 new cases each day by the end of the month, up from about 25,000 cases now,” according to the Times.

So while some cities and states have begun to relax “stay at home” orders in recent days, those numbers shed doubt on whether the U.S. as a whole is on a steady path toward reopening yet.

Still, at some point the worst of the pandemic will subside. When it does, we will not be returning to the same world. That has sparked many discussions in the commercial real estate industry as to what a post-COVID-19 landscape will look like and what that will mean for the various sub-sectors in the industry. How we use buildings will change. That means layouts, density and uses will have to evolve in order to allow for people to safely come back. As just one example, restaurants will not be able to squeeze tables as tightly together as they did previously. Not many people will be willing to eat meals while rubbing elbows with fellow diners as we used to.

There will be universal changes. Temperature checks might become the norm to enter any business. Masks could be required for a while. Hours of operation may be altered to allow for staggering the workday to reduce density. We will also see an increased premium placed on cleaning and hygiene.

“All of the sustainability certification systems–including LEED and WELL–prioritize indoor air quality for the health of the occupants of buildings, but reducing air filter quality was a common strategy in non-certified projects for saving construction costs because most people would not notice or care about the difference. In the post-COVID-19 world, the quality of the air that we breathe in our homes matters, even if we cannot physically see or feel it,” says Benjamin Kasdan, AIA, LEED AP, principal, KTGY Architecture + Planning.

In other ways, though, it’s not so much a reimagination of commercial real estate, but an acceleration of trends that had already begun to emerge.

“While the pandemic and its associated stay-at-home orders have suddenly and unexpectedly interrupted all of our lives, many of the architectural design impacts that will ‘result from’ the pandemic were actually already growing trends for contemporary residential design,” Kasdan says. “In particular, we expect the emphasis on building healthy communities to continue to gain momentum as a result of this shared experience, as will a renewed interest in self-reliant design strategies and resilience.”


Source:  NREI

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Lease Insurance Could Come Into Play Amid COVID Crisis

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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Warnings Multiply As South Florida Retail Landlords Brace For Coronavirus Fallout

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.

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