CBRE has published an interesting report on the potential impacts of COVID-19 on our industry.
Report is linked below:
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link broken. pls fix, tx.
-vc
Same. Would love to see what this is about haha
https://www.cbre.us/research-and-reports/US-Viewpoint---Potential-Impac…
Username checks out.
I was actually thinking of this on my drive to work today. With tariffs Chinese tariffs, pricing for LVT, quartz/engineered stone, and cabinets were significantly affected, along with some impact to appliances and lighting/plumbing fixtures.
With production reduction, we'll probably see some increased lead times for these goods, especially things that are VE options and lower cost. I'm interested to see whether we moved enough sourcing out of China to minimize this impact, a surprising benefit of the tariffs.
Good article today from CMA about the virus, conduit spreads, and general concerns if you guys are able to read it
CMA? link? or actual terminology of what you are talking about...?
CMA = Commercial Mortgage Alert, there's no link I have. We just get it sent to us from admin staff
Basically saying that spreads are poised to widen given the volatility with the virus and that there are concerns with asset types like lodging, retail, and industrial buildings connected to global trade. The main talking points were of two all-bank conduit offerings whose super senior bonds were priced wider than original pricing - when bank deals like that usually price tighter than other conduit offerings. There was also a $16MM offering from two 2019 all-bank deals that failed to trade this week.
Here's a quote "The Treasury rally would certainly put pressure on CMBS spreads. Without significant spread-widening, many investors would be unable to meet their absolute-yield targets"
A sub on one of our development projects just gave written notice of a delay because they can't get their equipment out of china due to coronavirus. Our GC will likely give notice of force majeuere next week. No telling how long the delay will be but our AMs are now stress testing all deals under construction for a one month delay.
What do you think a reasonable delay to expect at this point is?
I think 30-60 days is a reasonable estimate but who knows.
6 reasons (value) investors may want to avoid buying the recent stock market decline as markets are in chaos approaching full panic as novel coronavirus, also known as COVID-19 appeared.
https://www.cityfalcon.com/blog/investments/6-reasons-value-investors-m…
This is starting to have a real impact. Some anecdotal points:
Regarding the supply chain issue - last week we heard from a borrower with an ongoing construction project that was paused waiting for delivery of materials from both Italy and China. Suppliers were apparently radio silent for a while, which gave them some concern. Hopefully things will pick up again as more factories re-open.
To add a perspective of how this is starting to have an impact, with regards to entitlements. I have four properties under contract that I am currently rezoning all with zoning contingency thankfully. After speaking with several city planners there is a real possibility that public hearings are postponed or canceled as COVID-19 cases increase which would effectively halt entitlement efforts. Start thinking about how to extend or amend contracts with sellers or be ready for buyers to need extensions.
Supply chains and construction has already started slowing. I've had to shut down a job due to risk, and I'd imagine that this will really start to affect projects for the immediate future.
I've heard of a couple of sites testing temperature and any signs of sickness are sent home. I really think we'll have a dead period of at least a couple weeks at bare minimum for the foreseeable future.
We are selling three multi-family assets. Buyers are eager to try and close but lenders are pulling term sheets. Some Lifeco's are halting business while some seem more than willing to keep their floors at 2.70% seeing the vig as an automatic increase in spread. Buyers willing to borrower even though they are way under the floor as those were close to proforma rates anyways.
Some interesting things going on but still deals to be done.
I'm curious, anyone working form home this week? My company is a technologically old family office, no way to outfit people to work from home. Average age in the office is probably mid 50's, only 4 people under the age of 30 in the office of 150. These older people don't have new enough computers at home and the office doesn't have any laptops to give out.
Nope. 10-person shop here. We certainly have the tech to do it, but there's little interest from those in charge.
One of the owners called it a hoax for a while, then said it would naturally go away when it got warm outside. Now his wife might have it and he only started staying home today.
We're still moving ahead as normal.
Edit: This week we're working from home
Whoa, the AVERAGE age is mid 50's in your office of 150? That's a lot of old people. Hopefully you guys stay healthy and safe.
I'm at a small institutionally backed shop (dozen folks), but only one person in my firm is > 50 years old (one of the partners). We still have to get out to do diligence for new deals or be on property for asset management duties, but Slack is great for team communications. We're probably going to start using Zoom soon too.
You should really get your team to transition to Slack and Zoom ASAP because people need to implement social-distancing measures to prevent the transmission of Covid-19.
Its definitely an issue here. The average tenure of employees here is 21.5, AVERAGE. Everyone in my department (finance, leasing, acquisition, AM type work) has been at the company longer than I've been alive (31). I've been here 7 years and in that time there has only been 5 new hires that I know o. My secretary got her first job here 43 years ago straight out of secretarial school! Very top heavy organization in terms of tenure and age. Big risk group here.
how will student housing be impacted with universities canceling classes? The guarantees on the leases are not meaningful. This can have huge implications if you have large skips in only 2 months. not to mention your true year 1 depends on pre leasing units months in advance
I've long thought student housing was a disaster as risk was priced on par with multifamily, but it was hard to put your finger on exactly how the risk could be exposed meaningfully. This virus has made it obvious how
article is Costar this morning says student housing is already overbuilt see link below. Should work for anyone with or without a subscription
[https://product.costar.com/home/news/shared/1919526839?utm_source=newsl…)
We're a MF landlord and we're scrambling to figure out how to staff larger buildings if the supers/porters have to quarantine. Can probably not sweep the hallways for a few weeks, but trash needs to be taken out, boilers need ongoing maintenance, etc...
In senior housing - have heard of multiple acquisitions falling by the wayside due to the virus. Obviously there's the risk of the virus spreading through a community and occupancy falling off a cliff like the nursing home in Seattle, but even outside of that operators are being very restrictive about who comes into their buildings (rightfully so) as the resident base is the highest risk population. That paired with more potential residents staying in their homes for the time being is bringing leasing/marketing activity to extremely low levels, causing concerns about how occupancy will look over the next few months even without the virus hitting a community. Buildings will still experience normal turnover, but currently there aren't normal marketing efforts to back fill those units. Coming at an extremely bad time as March is usually when senior housing occupancy trends in the right direction after turbulence during flu season. The industry also struggles mightily with staffing, which I imagine will only be exacerbated by this.
We've got a Senior Housing Asset that's in the middle of lease-up right now and personally, I'm a pretty anxious about it. Our operator is subjecting visitors to temperature tests and need to fill out a questionnaire. We're seeing an affect on our move-ins - several have pushed their move-in dates back a few months.
Several Senior Housing Communities in the city where I live are completely banning visitors except for "end-of-life" cases.
We're in the middle of a capital raise for a new development and I can imagine this is going to scare investors away.
What would you say the margins are for IL/AL/MC? Do total returns typically exceed those of multifamily?
Would you say that HUD 232 financing is a better option for the developer?
My firm is about to start due diligence on a ground up AL/MC project in CA. Would love to pick your brain about financing and the business in general.
What would you say the margins are for IL/AL/MC? Do total returns typically exceed those of multifamily?
Would you say that HUD 232 financing is a better option for the developer?
My firm is about to start due diligence on a ground up AL/MC project in CA. Would love to pick your brain about financing and the business in general.
I likely answered some of your questions on your other thread so will stay more brief here. Completely depends on market and the relative quality of your product, but a safe range for a stabilized IL/AL/MC building is probably an NOI margin of mid/high 30s to mid/high 40s. IL has better margins due to the lower care and staffing requirements whereas AL/MC you'll have more staffing/care expenses due to higher acuity residents, so kind of depends on how your unit count is weighted. Your operating margins won't touch multifamily due to the higher staffing and expense load but returns will appropriately be higher (when you're doing it right) since you're taking on a higher degree of operational risk.
The HUD question would be dependent on strategy. If you're looking to build, stabilize, and sell then I can't imagine HUD would be the right option. While the terms are great (35-40 year term, fully-amortizing, low interest rate, etc.), HUD loans can take an unbelievable amount of time and effort to close. I've seen HUD construction loan processes take upwards of 18 months to close. If you're a developer trying to build this thing and flip it, and assuming you have solid access to other sources of debt, then there's no way the terms will be worth the time, effort, and headaches from that process. 232 construction financing makes the most sense for smaller owner/operators who are (i) long-term holders and (ii) have limited access to conventional financing.
Every borrower who locked index/rate in January is asking how to break their lock. Have been told it's essentially a relationship ending decision, and breaking a Fannie Mae SERL would trigger full YM.
Signed up a few deals around 2.80% - 3.00% in the past few weeks, but yesterday we got a quote from one of the agencies priced ~ 290 over for a 10/5 @ 75% LTV, and that's for a sponsor that they really like. Agencies are going to blow out pricing to reserve liquidity.
Also hit the lottery on a supplamental signed up back in January. No rate floor, 2nd mortgage is almost 40 bps below the 1st and proceeds are locked in 30% over the app amount.
Weird times.
Hotels guy here.
Let’s just say it’s basically free fall rollercoaster right now.
Id love to load up the truck and head out to Palm Springs for a few days knowing its so cheap to get a hotel, if only the hotel companies can somehow prove to me that the room is sanitary. Other than that, just basic fear in this situation makes things so uncertain. Travel pulled the E Break on the freeway....
For those of you in workforce housing, what conversations have you had about the potential spikes in bad debt due to lay offs? Some municipalities are putting moratoriums on evictions for non-payment of rent during the emergency.
it will be interesting to see if out-of-work people result from quarantine-type public measure (aside from the recession-related layoffs) or if we all decide that it's unamerican to stop people from working.
Basically, rent growth projections over the next 12-18 months are falling and a rise in delinquency is expected but the extent to which it’ll occur is still unknown and geographic specific. Say the service industry is unable to work for 6 weeks and you are able to evict, I would bet by then apartment showing slows to a glacial pace and there’s not much to gain from the turnover.
All leasing activity across all major asset types (office, retail, mulitfamily and industrial) is dead in the water. I feel bad for hotel guys as revenue fell off a cliff with no sign of abating.
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