APRIL 11 -First, Happy Easter and Passover to all.
In this post I will list everything I have encountered about real estate and what participants are observing and projecting. I hope you find this information helpful.
Nearly 1/3 of apartment renters paid no rent the first week of April.
Initially office buildings were considered a safe holding or investment due to typically long leases. However, tenants have stopped paying rent or asked for reduced rent. Sales of skyscrapers are reportedly falling apart.
I think the above shows a trend towards tenants simply refusing to pay rent until they can afford to. The Cheesecake Factory and hundreds of retailers are doing the same. Tenants are rightfully challenging landlords – are they going to kick us out and have a vacant building? Who are they going to get to replace us?
40% of oil and natural gas producers are expected to go bankrupt if oil stays around $30 a barrel. Remember, it went down to $20 before rebounding to the $30 area. The four largest banks are setting up independent oil and gas companies to operate the assets they will be taking back. Of course, they will likely hire people from the companies that go bankrupt to run these fields for them…as they say, people get promoted to their level of competency. In this case the people that fail at business get rewarded with new jobs.
75% of debt relief requests have come from hotel and retail real estate owners.
Over $80 billion in commercial rent comes due each month.
One of the best weekly reports I have come across is put out by David Wirgler at Stan Johnson Co. His email is firstname.lastname@example.org I do not know how much it costs. But, it is an incredible source of real estate information obtained from hundreds of interviews with market participants. If you are involved with CRE in any way, I highly recommend you checking this product out.
Developers remain active and are moving forward with projects. Investors are slowing down though. Not much information out there about what is happening to cap rates. If you have seen anything, please forward to me so I can share it with everyone (GeorgeRMann@Aol.Com).
As of March 13th (early on in this crisis), 53% of respondents to a survey agreed with the statement “I will not go out to eat at restaurants as often.’ I am with them. I can’t see eating inside a restaurant again for ages. Just not worth the risk until we have a vaccine in place. Remember, the expectation is that 1/3 of all restaurants nationwide will close up for good. That will be lots of real estate needing new tenants and users.
I used to love Macy’s, but it has gone way downhill in its offerings over the past decade. The expectation is they will not survive this downturn. Knowing that companies are living entities that will do all they can to survive, I expect Macy’s to die a slow death like Sear’s. The best thing that can happen to Macy’s is for Amazon to buy all of their real estate as it is great for last mile operations. We shall see how it plays out.
In my opinion, the two best sources of residential information are John Burns Real Estate Consulting (https://www.realestateconsulting.com/) and American Enterprise Institute (https://www.aei.org/). They both have free newsletters. I highly recommend subscribing to both.
I forget which of them it was, but the expectation is for home prices to fall 4% to 6%. This is the first specific decline I have seen for any real estate property types. Also, futures on home prices are showing a 5% to 10% decline over the next year for most markets.
I will end with a summary from AEI’s April 8th email:
1. Housing market is facing numerous stress points and at accelerated speeds. As a result the recovery will likely be an elongated U, not a V shaped.
2. Ginnie- and GSE-centric solutions are appropriate given that 64% of single-family mortgage loans are held or guaranteed by these federal mortgage agencies and 100% of these are covered by the forbearance provisions of the CARES Act.
3. While Ginnie’s liquidity challenges are substantial, a well-designed Ginnie-centric solution is being put in place.
4. The GSEs liquidity challenges are also substantial, however more needs to be done to implement a GSE-centric solution.
5. Non-bank servicers face substantial financial challenges.
6. Treasury and FSOC should continue to monitor progress by Ginnie, Fannie, and Freddie, as well as any stresses developing elsewhere in the mortgage market. The goal should be to have the needed solutions in place by the end of April. At the same time, a coordinated consumer-education effort should be undertaken, focused on best industry practices in handling forbearance requests.
7. Canary zip codes are highly susceptible to price declines, largely areas with high concentrations of FHA loans.
The full report is at:
I encourage you to email Mr. Pinto and get on his email list.
Lastly, I have heard of some entities essentially staying closed thru the Summer or even end of year. I have heard a few popular singers say they don’t expect to be able to have a concert tour until the Summer of 2022. Some companies are furloughing their employees for the 4 months that the government will be paying them the $1200 or whatever the amount is. I didn’t know that was being given out for 4 months, but….if so, then companies are saying hey let the Fed pay you and save us this expense. The point is many companies are not expecting to be up and running until after the Summer, if then. Some realize they have no chance until next year. For some industries there probably isn’t any hope until we have a vaccine. The recovery will break records because we will be bouncing from all-time lows (and I mean all-time…that being the entire history of the USA). But, it will likely be a staggered recovery as industries will differ in how long it takes them to get up to full speed again.
I hope everyone is safe and well and had a great Easter and Passover.