As May turned to June, news of the coronavirus pandemic and the
pummeling it was delivering to the U.S. economy faded under the sounds
of protest in the streets of cities across the country.
The economy is showing possible beginnings of an upswing.
Restrictions on businesses are beginning to lift, white-collar workers
are getting accustomed to remote working and benefits from the federal
stimulus package have kept the vast majority of households treading
financial water.
But the recovery is limited, and signs are showing that broader pain
to the real estate sector, often a lagging indicator of the economic
realities on the ground, could be coming in the next few months. In
dozens of interviews last week, owners of retail, office, multifamily
and industrial properties across the country told Bisnow that early June
rent collections were largely keeping pace with April and May, despite
fears that this month would be when the country’s unprecedented economic
decline started showing fully in rent collections.
Retail remains the source of most landlord pain. Some owners
expressed optimism that people were venturing back to their properties
and the rent deferrals or payment plans they had given some of their
tenants would result in happy endings.
But all of them said they expect a long road ahead, and expressed
frustration that the large companies in their portfolio were the most
consistent non-payers. National chains like Church’s Chicken, Cheesecake
Factory and Ruby Tuesday were once sure-thing investments for
landlords. Then the pandemic taught them otherwise, said David Andes,
the chief investment officer for Atlanta-based Newburger-Andes, which
has a 1M SF portfolio of net-leased retail properties.
“With retail, we’re getting punished,” Andes said. “Restaurants are
not paying.” Ten of Andes’ tenants have given up on their businesses and
turned in their keys, he said.
NewMark Merrill Cos. President Sandy Sigal said of the 1,600 tenants
in his company’s portfolio, 11 have closed permanently. Sigal had
collected 16% of his tenants’ rent as of June 1. That is expected to
pick up in the coming days, he said, but was still 9% lower compared to
the same day last month. NewMark collected 66.8% of tenants’ rent in
May. In April it was 74%.
“Our tenants are still hurting. They need time to build back
clientele,” Sigal said. “It really doesn’t matter. So even if my rent
collection is 100%, we still have a long way to go.”
Nearly half of all retail businesses didn’t pay rent in April or
May, according to Datex Property Solutions. One landlord who owns office
and retail properties in more than a dozen cities, including New York,
Boston and Atlanta, said they have had more success making deals with
smaller businesses than the ones with large corporate balance sheets.
“For restaurants, we are just working with them, and we want them to
survive, but the bigger retailers we are saying, ‘You have to pay,
guys. What are you doing? We are not your bank,’” said the person, who
spoke on the condition of anonymity. “It makes me angry. They have
better means than we do to make these payments, and it’s not right.”
In some cases, the company has reached arrangements with retailers
to pay half of the rent for the time being and make up the rest in
September. For well-capitalized retailers, the company is issuing them
default notices if they haven’t paid.
“We will evict if we have to,” said the landlord, who collected 60%
of retail rents in May. “Some said, ‘It’s our corporate policy not to
pay rent.’ Well, it’s our corporate policy to collect rent.’”
Apartment owners are faring far better, reporting collections
anywhere from just below 90% to nearly 100%. But most of them
acknowledge it is not because the economy is healthy, but because of the
expanded unemployment benefits from the Coronavirus Aid, Relief, and
Economic Security Act passed in March. Those benefits expire in July.
“That stimulus is going to die down in the next four to eight weeks,
so hopefully those jobs that are coming back are going to replace that
spending in the economy,” said Sean Burton, the CEO at CityView, which
owns more than 6,000 apartments, mostly in California. “We still think
we’re in for a slog here, in the trenches fighting every day. That’s our
attitude. But we are hopeful that we are in an upward trend.”
While May’s employment numbers showed surprising gains from April,
unemployment is still north of 16%. And while the stimulus has helped
millions of people make ends meet, one-third of those eligible haven’t
received benefits, Bloomberg reported last week.
As of the first few days of June, multifamily landlords said rent
collections have mostly held steady, but some are reporting small
declines. Nearly all said they have had to come up with creative
solutions to collect some rent, such as a stretched security deposit or
deferred or delayed rent.
Acumen Cos. Chairman Abiud Zerubabel, whose company owns over 1,000
apartments in the D.C. and Los Angeles markets, said the firm’s rental
income is down about 11%. He said this figure, while still below the 25%
he had initially forecast, has worsened over the last month.
“In April, nobody asked [for help], they may have been unable to pay
but were not vocal about it,” he said. “Now, everybody is vocal about
where they stand and the challenges they have.”
The renters asking for help now, Zerubabel said, are a combination of
service industry workers who have lost their jobs, and young
professionals who are looking to terminate their lease and move back
with their parents. He said more renters have sought to terminate leases
in expensive D.C. neighborhoods like Shaw or Columbia Heights, as they
now look to find a more affordable option.
“We’re hearing people saying, ‘I’m going to have to move back to my
parents’ house or into a more affordable neighborhood,’” Zerubabel said.
“We’ve seen a number of people raise their hands and ask for deferment
or an early termination of their lease if they want to move out.”
The same is true in high-cost markets like New York and the Bay
Area, where long commute times to downtown offices no longer feel like a
fact of life as more companies tell workers they can work from home as
long as they want. As a prolific multifamily owner in the thick of the
Bay Area, Anton DevCo is seeing firsthand some of the changes possibly
coming to the region. A handful of residents at the company’s 394-unit
Menlo Park community left, starting the day after one of the city’s
largest employers made that an option, Anton DevCo Managing Partner and
Chief Investment Officer Trisha Malone said.
“Right now, something we’re seeing in the Bay Area is the effects of
Facebook’s work-from-home policy,” she said. “We’re seeing an uptick in
tenants who are paying the breakage to get out of leases and relocate.
There’s a lot of them moving out of state.”
Malone said it is much too early to tell whether that should be a
concern for developers like Anton DevCo, which owns about 4,000 units,
the majority of which are located throughout Northern California.
Residents of the developer’s nearby communities, like one in Sunnyvale,
have stayed put, she said. But a potential flight is something to watch,
as is the performance of corporate tenants like those Anton DevCo has
seen struggle amid the ongoing blow to the travel industry, according to
Malone.
“On a couple of our projects we were kind of heavy into corporate
tenants, and those are a different story,” she said. “Those folks
suffered quite a bit with the shelter-in-place [orders] and not having
people coming in and out of town.”
In April and May, residents in CityView’s core portfolio of Class-A
buildings in coastal areas turned in 97% and 98% of their rent,
respectively. As of June 2, 59% turned in their rent, Burton said. But
rent collections for Cityview’s Class-B and rent-controlled properties
have been trending in the high 80% the past couple of months, Burton
said. They had collected 49% from those residents as of June 2.
Burton said his company has been proactive in reaching out to
residents and dedicated a full-time staff lawyer to work with residents
impacted by the coronavirus and come up with a highly tailored
individual payment plan.
“It’s hard to come up with a one-size-fits-all approach,” Burton
said. “Some people lost their jobs totally, others may be supplementing
their income driving for Uber, or some are taking care of an aging
parent. Every situation is unique. We listen to our residents and craft
something unique to their situation.”
For major market-rate owners, like Houston-based Camden Property
Trust, the numbers paint a more optimistic picture. Camden CEO Ric Campo
said it is still early to know exactly how June collections will go,
but 95% of rents are typically collected in the first five days of the
month.
“If you look at the progression from April to May, collections
increased really nicely in May relative to April, and we expect June to
be a decent month as well,” Campo said.
Historically, delinquencies in Camden rent collections average about
1.5% each month. In April, that number jumped to 3.2%, before coming
down to 1.6% in May. Campo attributed the drop in delinquencies to the
CARES Act’s beefed-up unemployment insurance. Camden deferred 2.5% of
April rents and 1.8% in May.
Campo said that hopefully the need for deferrals in June will
continue to fall as state economies reopen and people start going back
to work. Office and industrial properties have been the most insulated
from the short-term effects of the coronavirus with their long-term
leases, and owners of those properties have felt less distress than
their retail and lodging counterparts.
Boxer Properties collected roughly 97% to 98% of all rents due in
April and May from its 8,000 or so office tenants, CEO Andrew Segal
said. June is on course to be even stronger, he said.
“They are down a tiny amount,” Segal said about rent collections. “I
mean literally 1 or 2% lower than we would normally expect, and it’s
been consistent in March, April and May. It would be hard to tell if you
looked at our numbers that there was a pandemic.”
But some cracks are starting to show. Chicago-based Dayton Street
Partners is a niche player in the logistics world, with about 30 tenants
occupying about 1.5M SF, and throughout this spring, the company has
had to help keep tenants afloat, founder and principal Howard Wedren
said.
Although many product distributors have fared much better than those
in the retail, multifamily or office sectors, the crisis hit some
logistics firms hard — even ones that provide essential goods — and
sometimes they need a break, he said. One of Dayton’s tenants is a
janitorial supply company, and shortages of toilet paper, disinfectant
and personal protective equipment began plaguing its operations.
“They try pleading with their customers, but some don’t understand they can’t get the products they need,” he said.
For such tenants, Dayton Street has agreed to provide rent
abatements. But the money they save has to be made up in other ways,
whether by adding several months to the original lease term or spreading
the payments out over time.
“We want to work with our tenants to make sure they stay in business
and are there for the long-term, but we still have mortgage payments and
real estate taxes to pay,” Wedren said. “None of our tenants have
defaulted, and we want to keep it that way,” he added. “It’s much easier
to work with tenants than to fight them. It costs money to fight.”
Even three months into the pandemic, the desire to work with tenants
still prevails over broader economic concerns, even for most retail
landlords. Boca Raton, Florida-based PEBB Enterprises, which owns
suburban shopping centers and office buildings, said it collected 60% of
rents in May and hopes for better in June, but the relationships it has
are considered more valuable than a month’s rent.
“We realize that these tenants are the lifeblood of our business,
and our M.O. during the pandemic has been that this is an opportunity
for PEBB Enterprises to build relationships instead of burn bridges,”
PEBB Senior Vice President of Leasing Chris Stewart said. “The
relationships we are creating and maintaining during the pandemic will
be lasting relationships.”
Alan Hammer, an independent apartment owner in New Jersey who is
also the chair of law firm Brach Eichler’s real estate practice,
collected 93% of his rents in May. Some of his tenants have applied
their security deposits toward rent, and Hammer hasn’t gotten many
requests for rental relief, although he is trying to help out long-term
tenants who have hit a rough patch, such as a restaurant owner unable to
pay his bills.
“I learned yesterday that a golf pro somehow or other got trapped in
Botswana,” he said. “She has told us that she can pay the rent, but
can’t do it in Botswana. That particular woman has been with us for a
long time, so we have no question that she’s telling the truth.”
The feeling of optimism is still thick in the commercial real estate
industry, but with the stimulus due to dry up next month, a feared
second wave of the virus in the fall and the potential looming loss of
more white-collar jobs over the next few months, no one is ready to call
it a recovery.
“The facts are the pandemic is really hurting,” said Andes, the
Atlanta-based net-leased retail owner. “We haven’t determined what the
new norm is going to be yet. A lot of people say we’re through this, but
we’re not. This is going to be through the end of the year.”
https://www.bisnow.com/national/news/economy/june-rent-collections-retail-apartments-coronavirus-effects-104708
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