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.