Investors Adjust to Cascading Effects of Absent Rental Income

NEW YORK CITY- Investors are poised to take precaution on portfolio decisions amid frozen market supply and demand because of the coronavirus pandemic, which has left businesses shuttered and a large number of tenants short on rent payments. As a result, borrowers are strained to make loan payments, which they fear could go into default, Hugh Kelly, CRE, real estate economist and special advisor to Fordham University’s Real Estate Institute, tells GlobeSt.com.

“We see cascading effects from any instrument based on rental income,” Kelly said. “Whether its a multifamily mortgage or residential mortgage counting in April for a rent check.”

Absent liquidity in the market could lead to financial instruments getting traded by lenders. Bonds that were allocated to make payments on April’s rental income and fail to do that because bonds downgraded they can go into default. Adding pressure to the situation, the level of uncertainty in the market is so great, stakeholders ability to clearly make decisions has led to a standstill. “The level of uncertainty in this situation is so extreme that any comments made are not with very much certainty at all,” Kelly said.

Although there is great ambiguity surrounding the market like ever before, the commercial real estate industry has proven resilient, according to Kelly. The silver lining is that most executives have now been through two or three catastrophic events in their careers, most recently the Great Recession and 9/11, and have been able to bounce back. “The loan industry has survived those catastrophes,” Kelly said.

According to a recent GlobeSt.com article, the firm has seen an influx of requests for abatement and rent deferrals as of recent with the current coronavirus pandemic, Ami Ziff, director of national retail, tells GlobeSt.com.

“On the asset management side, our team is busy triaging leasing matters where tenants are asking for rent release, some need it, some don’t,” Ziff said. “To give free rent to everyone, you’ll go out of business and have to hand properties back to the lender. That’s not the solution, so we have to handle each request individually.”

The firm has not laid off any of its staff and has repurposed certain folks from its acquisition teams to focus more on asset management, Ziff said. He dealt with similar situations in his career during the 2008 Financial Crisis and emphasizes taking it one call, lease and mortgage at a time to come up with fair and equitable solutions that allow survival for all involved parties. And not all tenants are in the same predicament. For instance, some of Time Equities’ grocery store tenants had sales jump up over 100 percent since the start of the pandemic, and craft stores are up 75 percent, whereas some restaurants have shuttered altogether.