The rents being collected by commercial tenants this month for my CRE firm are down 40%.
PPP Loans are helping cover some of our payroll, and banks have agreed to defer (not forgive) our payments for the next 3 months. Other than this, we are at a loss of how to deal with this crisis.
What are your firms doing to mitigate risk and avoid insolvency in these crazy times?
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We took big ole paycuts and it looks like we will ultimately make it. None of our assets will be distressed thankfully since it's all Class A MF and infill office.
Out of curiosity, how much of your portfolio is retail?
Unfortunately most of our properties are retail, grocery anchored. The grocers are supporting the mortgage payments right now. How large are the rent reductions in MF?
Our collections in April were 95%+ and we are expecting 90%-95% in May
Wow I'm sorry to hear that. I have not read of many furloughed CRE employees.
Less than 3% multifamily borrowers have requested forbearance
Not over-leverage and have cash on hand for a rainy day. Oh, wait...
In other words, we were responsible landlords with a conservative business plan. We can run at 50% collections for over a year on every asset we own.
Overextended businesses should go belly up. Those guys are the reason for the asset bubble in the first places/
could not agree more, anything else is moral hazard. the only question I have, and this is more philosophical, is do you give some of these firms a pass because the reason for lack of collection is due to mandatory stay-at-home? or, do you look at this crisis like any other economic downturn? I don't know the right answer, but I think it's important to ask
CRE not seeing much declines in multifamily? that's interesting, what types of properties? nice apartment buildings in big cities? I would imagine many of your renters are barely scraping by, but you might not be invested in lower-income multifamily
We're merchant builders, so everything we own is either in its first or second year. Not always top of the market, but not lower-income either by age or intention. Leasing velocity has actually been rather decent on top of it with virtual tours, which was unexpected.
I am worried that April rents, which everyone made a big deal of weren't the tell that most of the industry thought they were. Most people already made the money they would use to pay April rents and had been planning on paying already. I am far more concerned with May and June rent payments given the shocking unemployment numbers nation-wide. Still, it should not hit brand new MF development the hardest. If anyone has savings or access to 0% APR credit, it's our tenants.
We are far more concerned with our student properties, both in terms of leasing and current lease terminations. Students sign 12-month leases knowing they will only be there for 9 and most plan on subletting for the summer. With internships, this is never really a problem, but as internships continue to get pulled, the subletter market is nonexistent. A lot of students (or more specifically, a lot of students' parents) want out of their lease.
Further, we have had at least one university president not only cancel classes, but tell students they should not be living in their off-campus apartments and should go home with their parents. How that makes any logical sense is beyond me, as off campus student housing is, legally and practically, no different than market rate apartments. It also is so beyond that president's scope of authority, but parents are using that as further proof they should not remain in their lease.
All of that doesn't account for the fact that you have to lease student up essentially by the end of July or you're fucked for the year (unlike market rate where you can make up a bad month with the month after) and right now, no one knows what college will look like in 2020-2021. Will it be all online? When would/will that call be made? If so, you can bet our properties won't fill up.
I hate student housing.
yikes. what kinda financial position does that put your group in? are the properties mostly paid for or are you carrying some debt on them? apologies if these are dumb questions, I know very little about CRE
All good questions.
Luckily we sold all but two of our student properties before all of this happened and have not actively pursued new student deals, as cap rates between student and market rate, which were in lockstep for a few years, started to spread higher for student making them less valuable in comparison.
But for the two we own? All are leveraged and I fully expect at least one to require a capital call since I doubt we lease up to the point of covering debt service. Pretty brutal, but we live in interesting times. Also, the longer we hold these deals, the worse the waterfall looks for us...and deal flow is drying up.
They are not my projects so I'm not intimately involved, but I know the people who work on those two are looking into alternative use strategies - renting floors to AirBNB type users, renting to market rate people, etc. It gets hard though because the buildings aren't set up that way - no separate entrances or amenities, a lot of 4 bedrooms units, etc. Plus, most adults don't want to live with rowdy students throwing bangers on the pool deck on a Tuesday night and most college students don't want creepy old men drooling over the sorority girls. (Sidebar: checking out our property's hashtag or location on Instragram is absurd.)
Good lord, man. Retail?
I'm seeing 3%-5% in the MF space. I bet that grows as people continue to be laid off and eat through their savings, but 40%?
I've heard from a couple retail groups now that collections in the 30% to 50% range is typical. Just absolutely bonkers .
I'd be curious to hear how apocalyptically bad it is on the hotel side
Occupancys are ranging from 0-30% on our hotel properties. Breakeven operationally for most of our stuff is high single/low double digits. Oddly, I'm way more concerned about our retail assets long-term. Who is backfilling the space that is vacated by retailers that go belly-up?
Spoke to a large midwest retail investment sales broker today. Collections are in the 10-50% range on retail. We collected 70% in May, but are an outlier. One lifestyle center in my city collected 22% of rent.
Retail is ranging from 90% down to 40% down. The 40% stuff is actually the B/C class product, but folks still need groceries vs. downtown restaurant dinners (90% losses)
West Coast office/industrial investor here.
We are ±80% here.
Co-working & retail exposure make up most of the missing rent.
April was a jab - May is the right hook.
The former. Why do you ask?
if you're a property management employee your payroll should be covered by PM fees and, granted, those fees are tied to collections as a percent of collection so you could argue that's in flux right now but it should still be less volatile than cash flow from investments.
question is then what about asset managers or acquisition guys. if the only source of cash for their payroll is "profit resulting from real estate equity investment" then it's just not my favorite model, but perhaps that's more common than i realize.
What about Hotels? Are they trading at a discount or will it take some more time to see them trading lower? Any impacts on lending for Hotel acquisition/refi/construction?
I can't imagine any hotels are trading right now. Anyone under contract to purchase prior to the stay-at-home orders has surely dropped out. I've heard anecdotally from debt fund and banking friends that the hospitality lending market is a bloodbath - almost all in technical default.
40% collection on retail and 70% on mixed-use here. Close to 90% on a Class B- MF property we own and close to 98% on a Class A- MF property. (SoCal/Texas)
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