Apartment Owner Group Sues CDC Over Eviction Moratorium

The National Apartment Association has joined the New Civil Liberties Alliance in a lawsuit challenging the US Centers for Disease Control and Prevention’s national eviction moratorium that it ordered earlier this month.

The New Civil Liberties Alliance is a group focused on reigning in the expansion of federal agency powers.

The associations are seeking a stay to the CDC’s order as part of the initial filing, NAA President and CEO Bob Pinnegar tells GlobeSt.com. “Then we will move on from there.”

There is a two week waiting period after the filing, he explains, and the hope is to get a hearing as soon as October on the matter.

Richard Lee Brown, et al. v. Secretary Alex Azar, et al., has been filed in the US District Court for the Northern District of Georgia Atlanta Division.

The suit argues that federal agencies do not have powers to waive state laws and the CDC has encroached on private property rights with no legal authority.

Unauthorized Action

CDC’s actions are not authorized by statute or regulation, the suit says. “But even if they were, they are unprecedented in our history and are an affront to core constitutional limits on federal power. If allowed, the Order would abrogate the right to access the courts, violate limits on the Supremacy Clause, implicate the nondelegation doctrine, and traduce anti-commandeering principles.”

With the moratorium the CDC reached far beyond its broad powers, Pinnegar says. “It does fine work but it is out of its depth on the issues of economics and housing.”

The CDC is able to regulate movement from state to state to keep disease from spreading and it also is able to step into local jurisdictions if that area has no ability to respond and has not protected the public from the health crisis, Pinnegar continues. “We feel the CDC has moved beyond its original authority.”

Pinnegar also points out that the pandemic will not magically end on Jan. 1, 2021 when the moratorium is due to be lifted. “We are worried it could be extended,” he says.

Industry Pain

The apartment industry is already hurting from the crisis, he notes.

Small mom-and-pop landlords have reported lower rent collections this year, with 25% of them borrowing money to cover operating costs, according to a survey by The National Association of Hispanic Real Estate Professionals and UC Berkley’s Terner Center for Housing Innovation.

Affordable housing landlords are also reporting lower rent collections and Pinnegar says there is a real risk that this housing stock could be significantly reduced by the time the pandemic has passed. If apartments that have been financed with tax credits go into foreclosure, the bank is the entity that will decide if it keeps the affordable housing mandate, Pinnegar says. Even market rate properties have a similar risk, he adds. “If a property goes into foreclosure, the resident will still be there and who will want to buy that? There could be a severe loss of units.”

Institutional landlords also have their problems although they have not been as badly affected as they tend to own class A and class B properties, which have generally been unscathed from the economic dislocation resulting from the pandemic. Yet there has been a steady decline of people paying their rent at the first of the month, Pinnegar notes, and the institutional investors are starting to see some fraying in their portfolios as well. “Based on the conversations that I have been having with them, they have people with financial hardship but it is not as widespread.”

But there is starting to be more movement in rent trackers showing fewer and later payments from class A and class B tenants. Many of these individuals are accumulating mounting rent debt, which is significant, Pinnegar says, and it is unclear whether these tenants will be able to repay. “Either the landlord gets a judgment against the individual and likely won’t be able to collect or the tenant will declare bankruptcy.”

Congress’ Inaction

This is not to say the multifamily industry is unsympathetic to tenants’ plight. The answer to the current crisis, Pinnegar and others have long maintained, is federal government support. Before the weekly $600 in federal unemployment benefits expired, rent payment collections held relatively steady.

The lawsuit, Pinnegar says, “is the result of Congress’ inaction on a new stimulus bill, which has forced the industry to push back.”

The apartment industry is not a high margin one, he says, and is unlikely to remain resilient until early summer or late fall of next year, when a vaccine is widely expected. Of every dollar received in rent, according to NAA stats, 39 cents goes to a mortgage payment, 27 cents to paying staff and operations, 14 cents to paying taxes, 10 cents for reserves leaving anywhere from 9 cents or less for profit.

“Given the stress the industry is experiencing already, we need Congress to act right now to assist renters,” Pinnegar says.

https://www.globest.com/2020/09/19/naa-files-suit-against-cdc-over-eviction-moratorium-seeks-stay/

Amazon Plans to Put 1,000 Warehouses in Suburban Neighborhoods

Amazon.com Inc. plans to open 1,000 small delivery hubs in cities and suburbs all over the U.S., according to people familiar with the plans. The facilities, which will eventually number about 1,500, will bring products closer to customers, making shopping online about as fast as a quick run to the store. It will also help the world’s largest e-commerce company take on a resurgent Walmart Inc.

Amazon couldn’t fulfill its two-day delivery pledge earlier this year when shoppers in Covid-19 lockdown flooded the company with more orders than it could handle. While delivery times have improved thanks to the hiring of 175,000 new workers, Amazon is now consumed with honoring a pre-pandemic pledge to get many products to Prime subscribers on the same day. So with the holidays approaching, Chief Executive Officer Jeff Bezos is doubling down by investing billions in proximity, putting warehouses and swarms of blue vans in neighborhoods long populated with car dealerships, fast-food joints, shopping malls and big-box stores.

A worker places a label on a box at the Amazon fulfillment center in Baltimore, Maryland.Photographer: Melissa Lyttle/Bloomberg

Historically, Amazon gnawed away at brick-and-mortar rivals from warehouses on the exurban fringes, where it operated mostly out of sight and out of mind. That worked fine when the company was promising to get products to customers in two days. Now Walmart and Target Corp. are using their thousands of stores to beat Amazon at its own game by offering same-day delivery of online orders. Walmart also recently started is own Prime-style subscription service, upping the competitive ante.

A recently opened warehouse in Holyoke, Massachusetts, exemplifies Amazon’s answer to this existential challenge. Located not far from a once vibrant mall, it’s just a short drive from more than 600,000 people. The goal is to creep closer to almost everyone in the U.S. 

Beyond Amazon’s retail rivals, the mass opening of small, quick-delivery warehouses poses a significant threat to United Parcel Service Inc. and the U.S. Postal Service. Being fastest in the online delivery race is so critical to Amazon’s business that it doesn’t trust the job to anyone else and is pulling back from these long-time delivery partners. Amazon is basically duplicating UPS’s logistics operation. Many of Amazon’s new hubs are within walking distance of UPS facilities.

“In just a few years, Amazon has built its own UPS,” says Marc Wulfraat, president of the logistics consulting firm MWPVL International Inc., who estimates Amazon will deliver 67% of its own packages this year and increase that to 85%. “Amazon keeps spreading itself around the country, and as it does, its reliance on UPS will go away.”

A worker unloads a truck of Amazon packages at a UPS hub in Hodgkins, Illinois.Photographer: Daniel Acker/Bloomberg

Amazon shares were up less than 1% at 9:37 a.m. on Wednesday and have gained about 70% this year. 

The company declined to comment on the expansion plans, but has said its last-mile delivery efforts are meant to supplement, not replace, its long-time partners. “Our dedicated last-mile delivery network just delivered its 10 billionth package since launching over five years ago, and we’re proud to provide a great service for our customers,” a spokeswoman said. 

The company’s appetite for real estate is so strong that many analysts have speculated that Amazon would convert vacant department stores into distribution centers. In fact, that option is only a last resort, said the people privy to the company’s plans, who requested anonymity to discuss an internal matter.

Department stores such as J.C. Penney are often two stories and lack sufficient loading capacity, they said, meaning they require extensive remodeling to accommodate an Amazon delivery hub. Moreover, mall leases with existing tenants often prohibit the owner from introducing a delivery hub that could spoil the shopping experience, and city officials might not quickly approve an industrial use in a retail area. It’s more likely that dead malls will be bulldozed to make way for an Amazon warehouse, as they have in the Midwest, than for an Amazon delivery station to sprout in a half-vacant mall to coexist with Kay Jewelers and Cinnabon.

Still, analysts expect underutilized retail space to make way for more e-commerce delivery stations due to rising rents for industrial space, along with a surge in store vacancies. “Any time you see retail being occupied by non-traditional retail uses, they’re just holding off what’s inevitable,” says Rick Stein, principal at Urban Decision Group, who estimates the U.S. has 50% more retail real estate than it needs. “It’s a Band-Aid, and at some point that mall is coming down.”

In the past three years, 13.8 million square feet of retail space has been converted to 15.5 million square feet of industrial space, including vacant shopping malls razed to make room for new warehouses, according to a July report by the commercial real estate firm CBRE Group Inc. That trend will continue but not quickly enough for Amazon, which is building new facilities and moving into existing warehouses where it’s faster to get a hub up and running.

Amazon usually puts new delivery stations inside existing warehouses or signs long-term leases with development firms like Prologis Inc. to build them to its exacting specifications. Typical delivery stations are about 200,000 square feet—about one-fourth the size of one of the company’s giant fulfillment centers—with large lots where workers can park their personal vehicles and Amazon can stage delivery vans. About 20 tractor-trailers arrive each night to drop off packages, which are loaded into hundreds of vans each morning before drivers fan out to make their rounds. In the afternoons, hundreds more Amazon Flex drivers, who use their own cars, arrive to deliver whatever’s left. A typical hub can generate more than 1,000 vehicle trips each day, often in areas where roads are already congested.

Amazon Flex drivers load packages for customers in San Francisco, California.Photographer: David Paul Morris/Bloomberg

The surge in online shopping creates challenges for cities that still plan for growth and transportation needs based on people shopping at stores. They’ll have to make more room close to residential areas for warehouses with big parking lots that generate a lot of traffic, creating inevitable clashes with local residents who want things delivered to their homes but don’t want to have to look at a delivery station or get stuck in traffic behind a convoy of Amazon vans.

“Regulation is definitely flat-footed right now,” says Nico Larco, an architecture professor at the University of Oregon, who studies urban land use. “The warehouse doesn’t want to be tucked away in an industrial district any more. It wants to be right next to you. But when these things come to our neighborhoods, they’re unsightly.”

NIMBY wars haven’t slowed down Amazon so far. The company is opening three facilities in Kearny, New Jersey, this year, among more than a dozen slated for the Garden State. The small township near Newark airport offers proximity to shoppers in the New York suburbs and is less than 10 miles from Manhattan’s Lower East Side, making it a prime location. Mayor Alberto Santos has noticed a “weird gentrification process for warehousing” since Amazon came to town, with rents skyrocketing.

“They don’t stop at one,” Santos says of Amazon. “They keep picking up sites, which drives up prices for everyone else. Kearny is one of those locations that had large warehouse and small warehouse users. This could crowd out that small user that has to find an alternative further away.”

Back in Holyoke, planning board member Eileen Regan says Amazon’s delivery station prompted some concerns about traffic from nearby residents but didn’t face significant opposition. The company staggered shifts to keep delivery vans off roads during peak travel times, which is also in Amazon’s interest, she says. Initially, Regan worried that traffic from both Amazon and the mall during the holidays could clog streets, but Covid-19 will likely keep shoppers at home, leaving more room for those Amazon vans.

“I’m glad Amazon is there because so many retail facilities have gone under during this pandemic,” she says. “I’m glad that we have them to keep things running.”

https://www.bloomberg.com/news/articles/2020-09-16/amazon-plans-to-put-1-000-warehouses-in-neighborhoods

How Loan Workouts Are Going, According to People Who Handle Them

In an environment in which lenders have been triaging loans like a hospital would patients, as Lucrum Realty principal Aron Youngerwood described it, it is best for borrowers to approach them with caution, he and other panelists in Bisnow’s Loan Workout Tips and Tricks webinar said this week.

One of the most important ways successful borrowers are doing that is by being realistic about the extent of relief they can get from their lenders, the panelists said.

“It’s when somebody is coming in and expecting a wholesale, completely new restructuring like they would have gotten 10 years ago,” Atlas Capital Advisors principal Bert Haboucha said. “When they come in with that mindset, the asset manager on the other side is saying, ‘We are so far apart, I don’t have the time to even bother with this.'”

“Ironically, if you ask for too much, you get put on the back burner,” Youngerwood added.

LBG Real Estate Cos. Managing Partner Leslie Lundin, a former lender whose current firm owns shopping centers throughout the West Coast, said she has gotten complaints from friends who are lenders that “borrowers are going in and asking for everything when they just didn’t need it, and that was troublesome.”

Instead of that tack, Lundin said in March LBG did cash flow statements and looked at how it would handle six months without rent at its properties. Based on that analysis, it successfully suggested to its bank that it should not pay principal for three months, she said.

Lenders are especially hesitant for wholesale restructurings given the uncertainty presented by the coronavirus pandemic, effectively kicking the can down the road, Haboucha said.

At least for the time being, “this is going to be one of these things where the lenders are triaging every couple of months,” he said.

For much the same reason, Lundin said a lot of lenders, especially banks, are in no hurry to foreclose, given a lack of certainty around the long-term values of many properties, especially retail and hospitality.

With commercial mortgage-backed securities lenders, the calculus is trickier. How those loans are handled may depend on the motivation and property preferences of a given CMBS pools’ controlling class, Lundin said.

Youngerwood, whose company advises borrowers and owners on ways to seek loan relief, said he tells clients that know they are about to default to reach out to the servicer weeks earlier if possible.

That opens up the door to their loan file being handled in a “performing loan consent” bucket in effectively expedited fashion by the master servicer of the CMBS. In that case, relief in the form of aid like debt service coverage ratio waivers might be sufficient and take just a few weeks, with fees from $10K to $25K, he said.

Otherwise, delinquent loans are sent to special servicers, which means an origination fee of up to 1% on outstanding principal to the special servicer, other costs and anywhere from six weeks to four months or more, Youngerwood said.

“If you know what you need and it’s something minor, you really should look carefully at whether you want to throw yourself into special servicing because everything explodes over there,” Haboucha said, referring to the accumulation of fees and the long time frame.

Lundin said LBG has one CMBS loan hit with a minor shortfall tied to Chuck E. Cheese and 24 Hour Fitness, both of which have filed for bankruptcy amid the pandemic. LBG didn’t want to go into special servicing and take on extra fees with a small shortfall, so it just made up for it itself, according to Lundin.

“You have to really make a judgment call on how much aid you need because you don’t want to be put in the bad-child pile,” Lundin said with a laugh. “You want to be in the good-child pile.”

https://www.bisnow.com/national/news/commercial-real-estate/loan-workout-post-webinar-105991

Distress Deals Are Coming, Just Not Overnight: Blackstone’s Caplan

Blackstone, one of the world’s largest owners of real estate, is far from inactive, but it’s also playing a waiting game of sorts. Blackstone Global co-Head of Real Estate Ken Caplan said the private equity giant knows from experience that the type of distress deals that helped elevate it to new heights coming out of the last recession don’t unfold overnight.

“If you go back to the [Great Financial Crisis], it took a couple years before that activity really picked up in terms of what you think of as traditional investment opportunities, but I think we’re going to see things coming up over time,” Caplan said on a Bisnow webinar Thursday.

“There is sometimes this expectation there’s a shock or crisis, and then the next day you can buy anything you want at like half-price,” he said. “That isn’t really how it works.”

Blackstone navigated the last recession and aftershock and turned a handsome profit, eventually coming out as one of the world’s largest property owners. Bets like its $39B acquisition of Equity Office Properties in 2007 and $10B spent on home rentals starting in 2012 have paid off, and the company now has a real estate portfolio valued at over $300B. Caplan leads Blackstone’s global real estate team alongside Kathleen McCarthy, which has about 600 employees.

Amid the throes of the coronavirus pandemic, the company remains active. In one of the largest U.S. deals since March, it acquired a 49% interest in a $1.65B joint venture with Hudson Pacific Properties that owns 2.2M SF studio facilities and Class-A office buildings.

On the webinar, Caplan said he had just left a review committee meeting in which three new investments were approved, one of which was an urban logistics portfolio.

Caplan said he anticipates the uncertainty tied to once-bankable assets like offices and hotels to present plenty of opportunities in the coming months and years.

“I’m highly confident, given what we’re seeing and what our pipeline is now, that we’re going to see a lot of opportunities to invest across the real estate space, particularly in these areas that have been more disrupted and where there are more questions about,” he said.

There are also likely impending opportunities in retail and hospitality, he said, as the sectors have been particularly damaged — but not uniformly.

“There are also opportunities that do get created from an entire sector being painted with a broad brush and being able to look through that into where there might be greater strength and opportunity,” he said, going on to talk about grocery-anchored shopping centers and home-improvement retail.

Distress aside, Caplan said Blackstone has “even stronger convictions” for distribution centers, life sciences space and certain rental housing, especially U.S. suburban garden-style properties.

On the residential front, the company has returned to the rental housing market by leading a $300M investment into Tricon Residential, an owner of more than 30,000 units across the U.S.

Just this week, the company was in talks with Summit Communities to acquire about 40 mobile-home parks for $550M, Bloomberg reported Monday.

Caplan said Blackstone’s investments are more targeted than the company’s scale — it has $167B of investor capital under management — leads some to believe.

“We get a lot of data out of that portfolio that informs how we see the markets, how we see investment opportunities and, for us, developing our convictions, because despite that scale of capital, we don’t just dribble a little bit of capital across the entire market,” Caplan said. “We focus on where we have that highest conviction.”

Blackstone’s real estate strategy helped lead it to a bounceback second quarter after reporting a loss through the first three months of the year. In July, Blackstone Chief Financial Officer Michael Chae said in an earnings call about 80% of Blackstone’s total real estate portfolio was “in sectors showing strong resiliency to COVID-related headwinds,” attributing the performance to its logistics, residential and office assets.

Caplan pointed out logistics real estate and life sciences space as two prior focuses of the company that have been intensified by the pandemic. The company has given a special level of attention to logistics real estate, which has grown in value in the last six months as other property types have stagnated or dropped. That is something Caplan said will continue, with an even greater focus on last-mile properties.

“We think there’s a growing recognition, but still not a full kind of recognition, of just how transformed this asset class has been,” Caplan said. In the last decade, Blackstone says it has bought over 1B SF of warehouse and logistics space around the world, and the sector now makes up about a third of its real estate portfolio.

There is clearly tenant demand for last-mile, as well. Amazon alone is reportedly looking to amass a 1,500-strong portfolio of last-mile warehouses. Blackstone is still a big believer in the purpose an office serves, Caplan said. But even that sector is facing questions about its utility post-pandemic makes for a captivating investment market, he said.

“To us, it’s a really interesting investment environment because now you could have a different view on the future path of all these different areas,” Caplan said.

https://www.bisnow.com/national/news/investment/blackstone-webinar-105994