How will Coronavirus affect the market?

David Goldsmith

All Powerful Moderator
Staff member
For quite some time I have been saying that while the market has been struggling, we have still been under very favorable conditions for selling Real Estate:
- All Time low mortgage rates
- Booming stock market
- Great employment levels

Yet still the market has been faltering, sales volume down, and prices receding. On top of this we have huge inventory even with record numbers of Off Market and New Construction Shadow Inventory.

I claimed elsewhere for quite some time that this is happening in the absence of any "event" which has caused past downturns (1987 Black Monday, 9/11, 2008 Financial Crisis, etc). Then I said this virus outbreak could potentially be such an event. Now the DOW fell almost 2,000 points and everyone is nervous.

What's going to happen to the Real Estate market in NYC if everyone panics?
 

Noah Rosenblatt

Talking Manhattan on UrbanDigs.com
yeah thats the black swan event if I ever saw one. Human fear is the x factor. Hard to talk about this from my chair where I dont know anything about any of this. Im kind of hoping that headlines of a few dozen cases that we know will eventually get here, won't cause a mass panic leading to mass changes in behavior. But if schools start to force close, or something similar, that could be a trigger to a new level of fear I guess.
 

David Goldsmith

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I absolutely agree that it depends on closures, not just schools but businesses, etc like some other cities. But if the stock market keeps tanking (right now Dow down another 700 points today) that could be enough of a shock itself.
 

John Walkup

Talking Manhattan on UrbanDigs.com
What's going to be interesting is the Fed's response if the economy goes into a 2-month hibernation. The 10-year Treasury is already down to 1.3 and the 30-year is at 1.79... If mortgages become virtually free, will they juice the market, or are the underlying economic issues beyond the virus going to keep the lid on things?
 

David Goldsmith

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What's going to be interesting is the Fed's response if the economy goes into a 2-month hibernation. The 10-year Treasury is already down to 1.3 and the 30-year is at 1.79... If mortgages become virtually free, will they juice the market, or are the underlying economic issues beyond the virus going to keep the lid on things?
This article from BankRate questions why they haven't fallen further:
 

David Goldsmith

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Staff member
Fritz Frigan's Open House Report showed a big increase in attendance this past weekend with an average of 5.62 per open house. The weekend prior it was 4.19. It will be interesting to see the effects of this week's Dow meltdown on Open House attendance this weekend.
 

David Goldsmith

All Powerful Moderator
Staff member

David Goldsmith

All Powerful Moderator
Staff member

“No one is going to be able to do anything with investment sales for at least 30 days,” said Martin Burger, the CEO of Silverstein Properties. “Everyone is going to have to wait for the dust to settle and reassess where everything is because there’s a bit of panic right now, which is never a good thing for markets.”
 

David Goldsmith

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"Starting Monday, Compass’ New York regional employees are going to be working from home for at least two weeks, according to memos emailed to staff and agents by regional president Rory Golod on Thursday. A Compass spokesperson noted that agents with key cards will still be able to enter the offices.
...
Elliman closed all its offices — including New Jersey, Florida and California — Friday for cleaning. A spokesperson for the firm said the move was just a precaution and there had been no cases of the virus at its sites."
 

David Goldsmith

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"Showing showdown: Resi brokers split on apartment tours amid pandemic
While some argue “moral imperative” to stop showings, others say brokers should simply take precautions like donning booties and gloves


Should brokers be showing homes in person right now?

It’s a question that’s dividing the real estate industry as agents across the city grapple with complicated professional and personal decisions in the grip of a fast-moving pandemic.
...
Those calling for a temporary halt to in-person showings share the concerns of health and other officials who have pushed for schools, restaurants and other non-essential businesses to close in order to promote “social distancing” and slow the spread of COVID-19.
...
On Sunday, New York City Council Speaker Corey Johnson called for the city to shut down nonessential services, and Mayor Bill de Blasio later announced that the city’s public schools would close until at least April 20.

“We are in a state of emergency and we must move quickly to mitigate the impact of coronavirus/COVID-19 on our city,” Johnson said in a comment posted on Twitter.

At least one real estate attorney put home showings in the nonessential bucket.

“I can’t see a situation where a real estate showing would be deemed essential,” said Michael Romer, managing partner and co-founder of Romer Debbas, LLP."
 
One of my sellers is TOM, one is renovating in preparation to sell, and my two active sellers requested that I stop holding Open Houses a couple of weeks ago. If someone wants an appointment to see those properties in the next week or two, I will probably ask the sellers to show rather than ride the subway "unnecessarily" myself.

I would, however, note that there are concerns that need to be balanced. Most of the people call for near-complete shutdowns are salaried.

Here in the gig economy, if I don't close deals my kid doesn't eat. And I'm in a better position than my friends in the arts are; they generally know that they can't work at all. Handing sixty billion dollars to the airlines won't help any of us.
 

David Goldsmith

All Powerful Moderator
Staff member
From Fritz Frigan's excellent Open House Report:


  • Hello Halstead Open House Index supporters and subscribers!

    How are you adjusting to this new corona order of things? Is someone writing a screenplay or a book with a working title “Open Houses in the Time of Coronavirus”? And before I go into averages, just know that Midboro Management has prohibited open houses in all of their buildings. I just heard that 50 Lexington Avenue did the same. Orsid Management sent a long e-mail instructing owners and brokers on how they will operate during the coronavirus siege. Did you get it? If not, e-mail me privately, I will send it to you. Also, Tudor Realty cancelled all closings for the time being. Share news from the front lines, and I will include in my newsletter next week.

    As expected, the average attendance in NYC cratered last weekend. The average fell to 2.36, from 181 open house surveys received. The number of open houses held last weekend dropped dramatically. There were 3927 scheduled for Saturday and Sunday, but it is a safe bet that much fewer were actually held. There was a slew of e-mails on Saturday and Sunday morning informing us that “open house was cancelled.” This is 28% less open houses scheduled this past weekend compared to the weekend of March 8. On average, each weekend this year, from January 5 to February 16, 5279 open houses were held. I expect the number of open houses planned for this coming weekend to drop further.

    The average of 2.36 per open houses is 42% less traffic, compared to the weekend earlier when our Index recorded 4.10. In turn, 4.10 was 14% less than the weekend of March 1., when we recorded 4.77. And March 1 was 15% down from the weekend of February 23, when we recorded 5.62 visitors per open house. All in all, we are witnessing a 58% reduction in traffic at open houses from February 23 to March 15. But not as bad as the stock market, which is down about 33%, as I am writing this on Wednesday at 1pm.

    32% of open houses in our survey had zero traffic. 58 open houses reported zero, out of 181 in our survey. If that % holds across the board, it means that 1256 open houses last weekend had zero attendees. Very gloomy!

    PS: Do not forget to check my reports on my blog at https://halsteadopenhouseindex.blogspot.com/.​



 

David Goldsmith

All Powerful Moderator
Staff member
European property markets are at a near standstill over coronavirus
Retailers worry about rent payments and deals are put on hold

European real estate markets have all but ground to a halt as the threat grows from the coronavirus COVID-19 pandemic.
The pandemic is impacting just about every sector in Europe, from retail to residential, according to Bloomberg.
Property sales are on hold across the continent and landlords are trying to assess which tenants will be able to make rent. There is about $12.7 billion frozen in British property funds because managers struggle to valuate assets.
Retailers including H&M, Superdry PLC, Burger King, and New Look have either asked for concessions from landlords or said they’d hold rent payments, according to Bloomberg.
Some malls have been forced to shutter as well, putting pressure on landlords like Unibail-Rodamco-Westfield. British retail landlord Intu Properties Plc has been forced to postpone a 1.3 billion pound capital raise.

While the European property market has been buoyed by cheap debt, investors worried about a European bubble even before the virus became a real threat in Europe.
Concerns over Brexit and the bubble prompted some investors to turn to other markets — for the first time in three years, foreign investors put more money into U.S. real estate than European real estate.
 

David Goldsmith

All Powerful Moderator
Staff member
This is not surprising given that commercial brokers tend to be driven by facts and figures, and residential brokers by wishful thinking and puffery.


Broker confidence hits all-time low: REBNY
The quarterly confidence index for NYC brokers fell to just 3.72 out of 10

The industry’s eternal optimists aren’t putting on a brave face any longer.

As the COVID-19 pandemic ground New York City’s economy to a near-standstill, the Real Estate Board of New York’s quarterly survey measuring broker confidence fell to an all-time low.

REBNY brokers’ overall confidence index fell to 3.72 out of 10, a 46 percent drop from the prior quarter. It’s the lowest value since REBNY began tracking broker sentiment back in 2012.

Given the difficulties in showing properties and transacting, it’s no surprise that broker confidence in the present situation checked in at 2.84. Most brokers don’t think the market will return anywhere close to normal in six months, with confidence for that period at 4.38.

When sentiment was broken out by sector, residential brokers were slightly more positive than commercial brokers.

Among residential brokers, confusion and a sluggish luxury market before the crisis loomed large, but some respondents pointed to low interest rates and industry’s forced embrace of digital tools as a silver lining.

“With low to zero occupancy of retail and office spaces, it is very hard to have any confidence in the market,” one commercial respondent noted. “COVID-19 has crushed commercial real estate,” said another.
 

David Goldsmith

All Powerful Moderator
Staff member
The Real Estate Board of New York Announces Broker Confidence Hits Record Lows as the Coronavirus Crisis Brings Economy to a Halt

April 9, 2020

REBNY’s Quarterly Real Estate Broker Confidence Index Underscores Critical Need to Support Key Drivers of New York City’s Economy as Planning for Recovery Begins

The Real Estate Board of New York (REBNY), the City’s leading real estate trade association, reported that broker confidence has hit its lowest point on record, according to its Q1 2020 Quarterly Real Estate Broker Confidence Index released today.
In light of the rapidly changing economic situation due to the Coronavirus (COVID-19) crisis, REBNY tracked broker confidence on a weekly basis in March for this quarterly report to get a real-time sense of broker confidence as the crisis began to unfold and fully take hold of the City. The survey found that, overall, for the first quarter of 2020, broker confidence was 3.72 out of 10, a 46% decrease since REBNY last surveyed brokers in the fourth quarter of 2019. REBNY’s week-by-week analysis, which tracked broker reactions to the federal government’s declaration of a national emergency, New York State’s shelter-in-place executive orders and other emergency measures, illustrates how the sharp decline in industry confidence is directly attributable to the impact of the pandemic.
“With New York City as the national epicenter of this global public health crisis, it’s no surprise that, along with everyone else confronting the current humanitarian crisis, our industry is deeply shaken,” said REBNY President James Whelan. “REBNY remains confident that the hardworking men and women of our industry, and all New Yorkers, will weather this storm together, but we will need strong policies at the City, State and federal levels to get our economy back into shape and working for all those impacted by this unprecedented crisis.”
The real estate industry, which serves as the fundamental driver of New York City’s economic engine, represented more than half (53%) of the City’s total annual tax revenue in the last fiscal year. The industry employs hundreds of thousands of New Yorkers from building service workers to brokers and generates essential revenue for the City of New York to maintain the salaries of first responders, fund infrastructure improvements and provide for public services like schools, libraries and parks.
Other key findings from the Q1 2020 Quarterly Real Estate Broker Confidence Index report include:
  • Commercial broker confidence dropped to an all-time low of 1.89 after New York State issued its “stay-at-home” executive order. Overall, commercial broker confidence in the first quarter of 2020 was 3.23, representing a 56% decrease since REBNY surveyed brokers in the fourth quarter of 2019. After President Trump declared a national emergency on March 13, 2020, commercial broker confidence fell to 2.40 from 6.30 the previous week, a 61% drop. The next week, as Governor Andrew Cuomo issued a stay-at-home order for non-essential businesses on March 20, commercial broker reached settled at its all-time low of 1.89.
  • One commercial broker respondent said, “COVID-19 has crushed commercial real estate. The retail market was slow before Coronavirus, and this enhances and expedites the upcoming recession.” Another broker added, “The federal stimulus package will be essential in aiding struggling small businesses to recover lost revenue and operating costs to begin recovery.
  • Residential broker confidence is slightly higher than commercial broker confidence. REBNY’s residential brokerage member confidence fell to 3.72 in the first quarter of 2020, a decrease of 46% since the previous broker survey in the fourth quarter of 2019, compared to a 3.23 commercial confidence index. Residential confidence fell 37% after the Governor’s stay-at-home order, from 5.4 on March 13 to 3.42 on March 20, compared to 1.89 commercial broker confidence at that same time.
  • Even amid these unprecedented times, both residential and commercial brokers expressed confidence in the future of the market. Overall real estate broker future confidence, which accounts for brokers’ 6-month forecast, is 4.38 out of 10, noticeably higher than present confidence, which stands at 2.84 out of 10.
  • One respondent noted, “Agents are adapting by conducting virtual tours, online board interviews and other online resources that will positively impact the future real estate market.”
 

David Goldsmith

All Powerful Moderator
Staff member

How the coronavirus crisis is gutting real estate
A deadly pandemic, sweeping lockdowns and an imminent economic crisis shake the foundations of the real estate industry

In just three months, the coronavirus ravaging the globe has infected at least 750,000 people and killed nearly 37,000. And those are just the confirmed numbers.
The pandemic has also stopped the longest-running bull market in history, put the world’s biggest economies into intensive care and become a mortal threat to storied companies. In less than a month, the Dow Jones Industrial Average sank 35 percent before Congress passed a $2 trillion stimulus package, the largest ever.
The full impact of the outbreak is impossible to calculate. But the devastating effects are already clear — especially in the United States and in New York City, which alone generates $1.7 trillion of economic activity — 8 percent of America’s total.
By March 31, the U.S. had 163,539 cases, more than any other nation. Nearly half were in New York state, and most of those were in the city, which had more than 40,900 confirmed cases.
“It’s amazing and scary when you see the lines of people trying to get into emergency rooms just to be tested,” RXR Realty CEO Scott Rechler said during an interview on TRD Talks Live, a series of webinars prompted by the coronavirus panic.
“Now is not the time to try to make this perfect,” Rechler said as a debate raged over the details of Washington’s intervention. “We need to get liquidity in the system and make sure that people don’t lose jobs.”

What started as a marginal concern for New York’s real estate industry in February now poses an existential threat to commercial landlords, office and retail tenants, hoteliers, a growing number of real estate lenders and a brokerage industry built on face-to-face dealings.

Swanky shopping districts are boarded up, once-bustling office skyscrapers stand empty and even the iconic Plaza Hotel is closed.

Nearly everyone across the city is holed up in their homes, and all entertainment venues and “nonessential” stores are shuttered. The real estate industry is scrambling to adapt as landlords, developers, investors and others wait to see if the stimulus package can save them from a massing tidal wave of red ink.

Donna Olshan, who has been running her own Manhattan-based residential brokerage since 1980, echoed the assessment of many as she described the sense of a world-changing cataclysm.

“I have been in business for 40 years,” she said, “and this looks like a cross between 9/11 and 2008.”
Economic earthquake
As the virus engulfed the globe, the world’s markets went into a free fall, even dragging down most real estate investment trusts, which are typically safe havens during volatility because their revenue streams are based on long-term leases.
Initially, the hardest hit were publicly traded companies that have exposure to Asian hotels. But the contagion soon spread to other real estate stalwarts such as the country’s largest mall REIT, Simon Property Group, and even diversified giant Brookfield Property Partners, which saw its share price fall from $17 in early March to $8 by month’s end.
 

David Goldsmith

All Powerful Moderator
Staff member
Repeated interventions by the Federal Reserve have failed to slow real estate’s meltdown. The central bank slashed interest rates to nearly zero, but its purchases of commercial mortgage-backed securities and investment-grade bonds were too narrow to include most real estate firms that needed help. Several insiders say the worst is yet to come.

Trading in securitized commercial mortgages ground to a halt as investors balked at pricing the risk. “The CMBS market is shut down,” one mortgage broker told The Real Deal in mid-March.

Just days before TRD’s April issue went to print, Congress passed its $2 trillion stimulus, which includes direct payments to most Americans and even a $170 billion windfall for real estate investors in the form of increased depreciation write-downs.
But while the unprecedented rescue package — officially called the Coronavirus Aid, Relief and Economic Security (or CARES) Act — earmarks aid for several troubled sectors, such as airlines and retailers, it largely passes over the real estate industry’s backbone.

“There’s nothing really in the CARES Act that provides for landlords,” said Alan Hammer, an attorney at New Jersey-based Brach Eichler.

Ripple effects

The coronavirus pandemic and economic fallout have shaken every facet of real estate.

The first sector to take ill was the hospitality industry, which was already weakened by oversupply and debt. With occupancy rates plunging, industry leaders on March 17 appealed to America’s hotelier president for a $150 billion taxpayer bailout.

Even before states imposed lockdowns, major retailers including Macy’s, Apple, Nike and Nordstrom announced plans to close stores for about two weeks. But New York state’s closure of “nonessential” businesses could be extended indefinitely.

Just days before TRD’s April issue went to print, Congress passed its $2 trillion stimulus, which includes direct payments to most Americans and even a $170 billion windfall for real estate investors in the form of increased depreciation write-downs.

But while the unprecedented rescue package — officially called the Coronavirus Aid, Relief and Economic Security (or CARES) Act — earmarks aid for several troubled sectors, such as airlines and retailers, it largely passes over the real estate industry’s backbone.
“There’s nothing really in the CARES Act that provides for landlords,” said Alan Hammer, an attorney at New Jersey-based Brach Eichler.

Shuttered to customers, some retailers warned their landlords they may not pay rent on April 1. And the day after hotel firms begged for a federal backstop, the International Council of Shopping Centers also asked for government support.
Office towers likewise began emptying as companies told employees to work from home. Then, Gov. Andrew Cuomo’s order for all nonessential workers to stay home completed the evacuation. Between March 9 and March 23, when the order took effect, physical occupancy rates for commercial office space went from 90 percent to 2.7 percent, according to the Real Estate Board of New York (see related story on page 30).

Because many workers in the city can’t telecommute, the order triggered mass unemployment and a looming rent crisis. On March 15, the state barred evictions — both residential and commercial — indefinitely.

And while the relationship between tenants and landlords is coming unmoored, the work of brokers is already swept out to sea. Open houses are history, and even individual showings ended after the governor told real estate agents to stop. With the brokerage business in an induced coma, REBNY and StreetEasy agreed to remove the number of days on the market from listings.
 

David Goldsmith

All Powerful Moderator
Staff member

Private real estate investment deals tumble worldwide
In North America, the number of deals drop 34% in March from the year before, and April has been worse

The number of private real estate investment deals plunged worldwide last month, the latest example of the coronavirus’ all-consuming effect on the global economy. And so far, April has been even worse.

Commercial real estate deals were down nearly 43 percent in March year over year, according to data from research firm Preqin. North America was essentially the same with a 44 percent drop.

(Credit: Preqin)

(Credit: Preqin)
In April, deal volume on the continent has cratered nearly 67 percent.

The drop has tracked with the pandemic’s spread across the globe. There were 495 deals globally in March, down from 588 the month before, according to Preqin. And in April, just 160 deals have been done.

In Asia, where the coronavirus originated — it was first reported in China in late December — just two deals were completed in March, compared to seven the month prior. Preqin did not provide total dollar amounts for the deals.

Commercial real estate research firm Real Capital Analytics on Thursday also reported drops in commercial real estate investment activity. By dollar amount, deal volume for transactions $10 million or higher dipped 1 percent for the Americas for the first 13 weeks of 2020 compared to last year. In Europe, the Middle East and Africa, volume was 18 percent lower; and in Asia, it was down 56 percent.

But it’s likely that the worst is yet to come.

RCA said the impact of the pandemic is expected to become more evident in the second quarter for the Americas, Europe, the Middle East and Africa because “large-scale shutdowns only began to occur in these regions in early March.” In the post accompanying its findings, RCA added that “transactions are typically in progress for several months before completion.

In New York last week, there were no mid-market investment sales uploaded to city records.

“Anytime there’s uncertainty in the market, if something is not a must sell or a must buy, people are going to take their time and take a step back,” one New York-based broker told The Real Deal at the time. “Because they want to measure twice and cut once.”
Pre-coronavirus, private equity real estate funds were already on pace for a slowdown. Those funds closed $18 billion in the fourth quarter of 2019, the slowest quarter since 2013 and down from $47 billion from the prior quarter.
 
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