“Widespread Panic” Hits Commercial Property Markets: Deals Implode, Renters Disappear, Businesses Shut Down

As a result of the coronavirus outbreak, and the ensuing lockdown, the commercial property market has essentially frozen.

Buildings that were used for all types of purposes: offices, diners, restaurants, hotels – they’ve all been shut down. And industries like the travel industry are forgoing $1.4 billion per week in revenue, according to Bloomberg.

Source

The shutdown is also having an effect on apartment buildings and industrial properties. Nothing is off limits, and it’s sending the commercial property market into chaos.

Alexi Panagiotakopoulos, partner at Fundamental Income, a real estate strategy firm, said: “On the investor side, there’s widespread panic. There’s downward pressure on every aspect of every asset class.”

And there’s no way to value a market when you don’t have a bid and an offer – and you’re not sure when the market will “re-open”. Further, there’s no way to try and model the future value of such properties when everyone is unsure of what the real estate landscape will look like when everything is said and done.

Scott Minerd, chief investment officer at Guggenheim Partners said: “There will likely be long-lasting changes.”

It’s estimated that investment activity in the space could fall by 45% this year, which would be further than post-9/11 or the 2008 financial crisis.

The drumbeat of large deals has already gone silent. For example, Bloomberg reports that the Canada Pension Plan Investment Board’s planned sale of a 50% stake in the 900 million pound Nova development in London’s Victoria district collapsed on Friday. Similarly, Singapore-based ARA Asset Management Ltd., which was lined up to purchase the pension fund’s half of Nova, has balked on the deal.

Viacom also announced last week that it’s suspending its plans to sell the Black Rock building in Manhattan because potential buyers can’t visit the property. Simon Property Group’s proposed acquisition of Taubman Centers, Inc., is also now up in the air.

More than $13 billion in funds in the UK has been frozen in property funds while appraisers warn that the virus makes it impossible to assess their value. China’s office market has been devastated with plunging rents and spiking vacancy rates, which could climb as high as 28% next year in Shanghai, according to estimates.

REITs in the U.S. have been destroyed. Names like Brookfield Property Partners, which made a $15 billion bet on malls in 2018, expects “severe consequences” in coming weeks. The company’s CEO says it has $6 billion in undrawn credit lines and cash.

Matthew Saperia, an analyst at Peel Hunt, commented on the potential threat to landlords: “The implications could be far-reaching, but quantifying these is highly speculative at present.”

As the uncertainty grows, the level of credit available begins to shrink. Financing has dried up for hotel, mall and senior living projects and it’s estimated that up to 15% of loans on commercial property could default over the next couple of years if the recession continues.  The value of commercial mortgage-backed securities is collapsing…

Mark Fogel, CEO of Acres Capital, commented: “Nobody knows where deals will be priced and nobody knows just how long this issue is going to affect the world and how much it’ll affect the underlying collateral.”‘

And Minerd believes there won’t be a “back to normal” once this is all over: “I think there’s going to be a permanent change. People are more comfortable at home. Why do they need to commute?”

via zerohedge

4 comments

  1. What we really need to do in a crisis like this is PANIC! Everyone should be screaming at the sky that THIS ISNT FAIR!…….no we shouldn’t.

  2. Not everyone can work from home as most people need to be “ managed”.

    Those who think working at home will be permanent will have a shocker. Only those who work efficiently at home and keep company running will be rewarded. Those who mooch off the “ home bound” event will find they may not have a purpose when jobs come back online and fully operational.

    About 10% of people always are sick Monday’s and Friday’s, take extended lunches, play games online on company time and dawdle and they will find out practices in place to search out those who are non productive and wont really be needed anymore when companies automate and streamline operations.

    The people who actually perform, doing their jobs will be greatly rewarded.

    You will find many companies keeping automation in place ( hotel and food) and even farming will do more to machine pick and process crops as machines don’t pollute the food supply and machines show up for work, much more reliable.

    This is a turning point for many operations and plans are in place to run companies more efficiently.

    ( I’ve owned companies and i would use this time to streamline even tighter protocols and keep the best staff )

    The bad employees will stick out like a sore thumb and be recognized and adjustments will be made. Computer tracking and performance will be easier to spot.

    Will teachers (public schools) and universities really be needed if work can be done online?
    Many basic studies may convert to online only and those teachers may not be needed following years especially if kids perform better online vs in classrooms- also this is a cost savings for students and will keep more kids in college- if basic studies can be done online.

    If your a model employee, good work practice and attitude always striving to help the company and works well with others your going to be fine.

    The world is changing and the good will be rewarded.

    My guess is company cars may not be needed for many and credit allowances will be removed .
    You will need to submit any requests in advance. Office supplies wont be stollen ( huge cost to companies), you can clearly see depts where stock is not matching work product.
    Online shopping, searching internet, social media, gaming can be tracked the last 12 months and if you do this on work time thats theft of company time.

    For those claiming to work 4/10’s will be monitored much tighter on work product and complaints can go direct to managers if employees not getting back to consumers during those times. So those who cheat the system will be discovered. I found govt employees to violate this the most- i have yet to have anyone answer phone @ 7 or 8 am, usually get a call back days later after multiple requests. So those 4/10 day a week hours maybe a thing of the past. Not necessary for most operations. Everything is getting revised for the better.

    Streamline operations will be tight as it has to be for lost production and that can take years to balance!

  3. Business, no, society as we have known it, will change forever. Ways to educate, ways to do some businesses… will change and not relate to anything we’ve known up til now. For starters, anything that “requires” a crowd, from churches to sporting events will face a population that won’t automatically go back to what they once did. We’re all learning in this together, but the truth is we can get along quite well without some of the “things” we used to do. If you can all of a sudden worship from home, who go to church? If you can get a degree from home, why go to college? And that can be applied over and over across the board. It will make for more time with friends and family at home… or not at home, but the facts include this… we are being deprogramed right now and “normal” isn’t normal anymore.

Leave a Reply

Your email address will not be published. Required fields are marked *

*