Coronavirus Impact on CRE
Use this thread to ask any questions and discuss the impact of coronavirus in your market. How will your business adjust to this evolving challenge?
[{"id": "fka3z2s", "text": "I need to refinance asap. Out of 14 suites, 5 of them are empty. I'm currently negotiating with a few people, but I have to get an evaluation and refinance before they can officially sign a lease.\n\nIs the crashing market going to make finding someone to refinance with more difficult?", "replies": [{"id": "fkasog1", "text": "If your cash flow is strong and has been strong historically, you shouldn\u2019t have trouble refinancing. Also depends on the market and product type but typically hotels and retail are having the toughest time refinancing", "replies": [], "depth": 2}, {"id": "fkav5g3", "text": "Our lending platforms are shut down", "replies": [], "depth": 2}, {"id": "fkb7fkh", "text": "Message me I underwrite plenty of similar deals. Can let you know where I shake out by end of business.", "replies": [], "depth": 2}, {"id": "fkbixxu", "text": "For the next few days/weeks you might have trouble as everyone is refinancing and there are huge backlogs.", "replies": [], "depth": 2}, {"id": "fkkkp7g", "text": "Absolutely. As a former lender I can say confidently that they\u2019re primary concern is downside risk, real or imagined. I believe this is real but it doesn\u2019t matter. They will act on it either way and pull back hard. Hotels, retail and office the most. MFR less so (until we have job losses)", "replies": [], "depth": 2}, {"id": "fkmmngp", "text": "Need refi of 30m hotel at this critical point in time. I am hopeful houston hospitality will come around.", "replies": [], "depth": 2}, {"id": "fl8w6hf", "text": "It's been a week, just curious how things are now?  I have some vacancies as well and think that rent income will drop 75% in the next two months.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fka4604", "text": "Debt cost to rental rates\n\nShort term industrial demand? This happened a little with SARS. Back stocking at home to stay afloat.\n\nPeople are not traveling, so people are not touring.", "replies": [{"id": "fkbl55r", "text": "This. I just came out with a building that is considered institutional product. I had 3 off market tours (all of them from SF) who were flying in this week and all of them cancelled due to travel restrictions. My brokerage has also cancelled all corporate travel till the end of the month. \n\nMy guess is that this trend will continue for the next 2 months or so then hopefully start going back to normal.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fkaoj1i", "text": "I'm in Houston and I'm more concerned with oil. With COVID we just don't know yet. I have many doctor clients and their feedback is one of two things: just wash your hands before you eat and don't touch your face and you'll be fine; or we have no idea yet so I can't say whether it's bad or not or whether it'll last long enough to impact real estate. None of the have told me to run for cover or buy a HAZMAT suit. Still don't know why people are hoarding toilet paper.", "replies": [{"id": "fkbbkji", "text": "People are stocking up anticipating being quarantined. This is already happening in other countries. TP is an easy thing to stock up on - you\u2019ll use it eventually and it doesn\u2019t expire. It makes people feel safe and like they\u2019re taking action. Arguable whether rational or irrational, but those are the reasons why.\n\nThe middle of the country will start to feel it soon.  High end estimates of unknown infected in Washington state ALONE are 140k, more than the world-wide official count as of 3/11. The simple truth is that the US doesn\u2019t know what it has because we aren\u2019t testing people. I personally know several people getting sent home to the Midwest from the coast who could easily be carriers, and I\u2019m one person in California. Add to the fact people in the south will generally believe Trump when he says it\u2019s nothing to take serious and we\u2019re going to see exponential growth in the number of confirmed cases in the US for probably the next 6 weeks.", "replies": [], "depth": 2}, {"id": "fkkkf5q", "text": "It\u2019s going to get bad, like, Italy bad. As the other responder said, we\u2019re not testing people so don\u2019t know the extent but rule of thumb is the infection rate doubled every 48 hours without any mitigation. Anything else is just wishful thinking. \nThat\u2019s a lot of people and those people will not be able to get admitted to a hospital. We\u2019re going into a recession, without a doubt.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fkap5u6", "text": "I think restaurants and hotels will see the first impacts (and already are). That is an easy and immediate change for people to make. Conferences are being cancelled and people are/will eat at home more instead of going out. I think logically that is going to lead to a lot of restaurants coming to their landlords in the coming months to try to renegotiate their rent.", "replies": [], "depth": 1}, {"id": "fkaqg5i", "text": "I'm a tenant and suppose to be moving from one warehouse to another sometime in April/May during my fixturing period. Kinda worried that some trades may not be available to complete me TI upgrades.", "replies": [], "depth": 1}, {"id": "fkawahu", "text": "I\u2019ve had some clients get scared and others get excited for buying opportunities.  Still too early to tell. The stock market was looking for a reason to dive but the consumer is still doing well and e-commerce let\u2019s them buy from home.  \n\nThe supply chain already had some pre orders built in because this hit coincidentally at the same time as the Chinese New Year which is a yearly shutdown shippers plan for.  \n\nI think the next 2-3 weeks will settle in to the real data and facts, not just media fear that doesn\u2019t include factual comparisons to how this virus compares to flu statistics and other relative health precautions. \n\nNo one in the health field I\u2019ve talked to yet has been running for the hills.  \n\nStay clean....", "replies": [{"id": "fkkla4g", "text": "You\u2019re right that in the next 2-3 weeks we\u2019ll have clarity but it won\u2019t be good. I don\u2019t understand why everyone is being so caviler about this. Every country that\u2019s had infections and does not mitigate with testing and quarantining sees infection rates double every 48 hours (ie exponentially). See Italy or Iran.  There are graphs online showing how many days behind the rest of Europe and the US are behind Italy. We all have the same exact trajectory, just with a time lag. For a different perspective, all my friends and family in the medical field and military are freaking out right now.\n\nEdit: [heres a graph of delay infection rate](https://www.google.com/search?q=covid+19+infection+rate&amp;rlz=1CDGOYI_enUS808US808&amp;hl=en-US&amp;prmd=nisv&amp;sxsrf=ALeKk03rH1H6_FUxddqvpRJ-1MDU5jYlHw:1584286420802&amp;source=lnms&amp;tbm=isch&amp;sa=X&amp;ved=2ahUKEwi9iNbq5pzoAhVPu54KHfpUCXEQ_AUoAnoECAwQAg#imgrc=DlY41fF8XxKZ7M) it\u2019s from the daily mail, the most reputable newspaper of all time/s. So, take that for what you will but I think it\u2019s right.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fkax3v4", "text": "My buddy works for a large office tenant rep leasing office in NYC.  He said that he has lost 3 deals due to the uncertainty of the virus.  These are large SF deals that would have netted the company over 4mm in commissions.  While I like to say everyone is overreacting, it is certainly impacting everyone's lives.", "replies": [{"id": "fkbh99x", "text": "A lot of this sounds like temporary holdback. Once the dust settles and the virus stabilizes - volume should pick back up.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fkb2etr", "text": "I\u2019m curious to see what\u2019s going to happen once the virus goes through and things go back to normal. With so many companies resorting to telecommuting I think many of them are going to reassess their office foot prints and there\u2019s going to be a tremendous amount of space coming on the market when their leases expire. People are going to see a cost savings and wanna shave it off to help get out of the recession we seem to be moving into. As a result I think you\u2019re going to see smaller spaces and more Hotelling.", "replies": [{"id": "fkbhyoz", "text": "&gt; I think many of them are going to reassess their office foot prints\n\nI don't think this is really true. Office leases are long-term commitments. The peak virus impact will only be a few months.\nThere are benefits from physical offices vs. telecommuting, people are more collaborative, innovative, etc and that doesn't change.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fkbb726", "text": "Obviously biggest hit will be hospitality. Occupancy rates in SF for example already in the low 20% range. As a lender we\u2019re only looking at new hotel deals that are super low leverage and could still cover with a 75% reduction in RevPAR.\n\nRefinancing activity still strong. Expect investment sales to taper off dramatically- no one wants to be the idiot that bought at the peak.\n\n11% of all high yield debt is exposed to energy- massive defaults at the worst, pulled credit lines due to breached operating covenants at the minimum are expected. Lenders\u2019 portfolios will  take a hit from energy/transportation sector, likely resulting in tightening credit rippling through other sectors including CRE. we\u2019ve already seen spreads widen 200 bps, expecting a drastic flight to quality sponsors, lower leverage, less appetite for IO.", "replies": [{"id": "fkkmt5k", "text": "I would also expect a tightening of the money supply as well. I know the Banks just got access to a $1.5T repo line from the Fed but if it\u2019s like last time, they\u2019ll certainly take the cash to shore up their balance sheets but won\u2019t actually lend it out.\n\nAs you\u2019ve noted, credit is and will continue to get tight. That\u2019s a death knell for an industry built on a plentiful supply of cheep credit.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fkbc7v6", "text": "We\u2019re watching and weighing probabilities.\n\nRight now, it looks like we\u2019re going to have an extraordinary launch pad once the virus runs its course: a booming economy underwritten by record low interest rates and pent up demand.", "replies": [], "depth": 1}, {"id": "fkbjqsn", "text": "In the business. Debt markets have been affected immediately. All Hotel lending is paused. Other lending moving very slowly. Spreads widening as index drop. Every lender putting LIBOR/SOFR floors in now. \n\nCapital markets are next. Expect re-trades and fall-outs on sales. Leasing too early to tell, but naturally will pull back.", "replies": [], "depth": 1}, {"id": "fkbrar5", "text": "I talked to a big time office broker last night in California. He said that it's only in the past 24 hours that he's starting to see reactions, worry, questions. \n\nHe did mention that he got two inquiries from money looking to purchase CRE immediately as a safer place when moving money from the stock market collapse.", "replies": [], "depth": 1}, {"id": "fkbs1q4", "text": "With the trade interruptions, some of the construction material and FF&amp;E I need for my hospitality projects may be interrupted.  Especially if the factories themselves slow down.  As I'm sure most of you who are developers know, projects take 1-2 years to plan, 1-2 years to construct depending on complexity, and then a year or so to at least stabilize depending on the asset (some as long as 3 years to stabilize).  The issue here is that I've got some projects that are nearing completion and if travel goes down, my average daily rates will likely fall and revenue will fall, thus I won't be able to justify the value of the product I've built. This means without the higher values, I may not be able to get under the expensive construction financing that is currently in-place because the perm financing won't be enough to cover it. \n\nSo...as a developer, this can be a big concern for hospitality.  I would think it is less so for any leases that I have in my office buildings.  I could see retail being hit though and if they don't have a strong liquid position, them not being able to pay rent on-time.", "replies": [], "depth": 1}, {"id": "fkft0j2", "text": "Honestly, the biggest thing I'm wondering about for mine is if IT loaded up enough of those free AOL disks to power our VPN for all the people who are remote.", "replies": [], "depth": 1}, {"id": "fkix0yj", "text": "I\u2019m a Senior about to graduate from college this May. I\u2019m in the middle of talking to as many people as I can to break into the industry. I\u2019m guessing hiring will be slow for at least the next couple months. I\u2019m also signed up to take the brokers class to get licensed next week so we\u2019ll see if that is cancelled... what tragic timing.", "replies": [], "depth": 1}, {"id": "fkphiu6", "text": "I'm in the mall sector as a Landlord Rep. Industry trends have been and continue to be shifting. In high-end markets we're finding success in digitally native brands as these brands use brick-and-mortar to acquire tenants equally as sell product. COVID-19 has brought my pipeline to a halt. Deals OFS are being put on hold, and many negotiations are bring delayed until things change.", "replies": [], "depth": 1}]