A weekend topic starting with Bisnow New York. “New York City’s commercial property values are expected to fall substantially this year. A summary of the past year said that the real estate markets ‘collapsed’ after the coronavirus gripped the city, with the decline in property transfer tax by 50% revealing how hard of a hit investment sales took. The city expects transfer tax revenue to decrease by 20% this year.”
The Real Deal on New York. “Seven Manhattan hotels are hitting the auction block. The portfolio, owned by a joint venture between Hersha Hospitality Trust and Chinese investment firm Cindat Capital Management, is scheduled to be auctioned on Jan. 21 as a result of the owner’s default on an $85 million mezzanine loan, according to a public notice. The seven hotels are located in Times Square, Chelsea, Herald Square and the Financial District.”
From AM New York. “Including listed and shadow inventory, Manhattan sponsors have 7,600 newly developed condos on their hands. Brooklyn has 3,690. At the current pace at which condos in each borough are selling, it will take Manhattan eight years to unload its current inventory. It will take Brooklyn four years and Queens just over three.”
From Boston Agent Magazine in Massachusetts. “The median rent for a one-bedroom apartment in Massachusetts was $1,730 at the end of 2020, and rents dropped in 17 of the 24 Boston metro cities over the last 12 months, according to Zumper. Cambridge saw the biggest decline in median rent over the year, dropping 20%. That’s followed by Everett, which declined 18.4%, and Waltham at 17.5%.”
From Bisnow on Massachusetts. “Boston’s office market struggled mightily in 2020, recording historic levels of negative absorption and sublease availability. The metro area recorded negative 4.2M SF absorption in 2020, a record for both a calendar year and a four-consecutive quarter period, according to Colliers. Boston also counts its largest sublease market ever at 3.3M SF, topping the 2.8M SF of sublease space following the early 2000s tech bust and the 1.5M SF following the Great Financial Crisis, Colliers reported.”
“Some landlords are increasing offers of rent-free periods from 12 months to 18 months, relying on cash reserves from the pre-pandemic boom, Hunneman Director of Research Tucker White said. Rents in a central business typically take two to three years before a downturn starts knocking them down, he said.”
The Real Deal on Florida. “Miami-Dade County’s Office of the Property Appraiser announced on Thursday that it will consider landlords’ financial losses when assessing 2021 fair market values. That’s good news for some of the harder hit properties in the area. Landlords in the Miami-Dade office market, for example, have offered incentives in exchange for keeping rents from dropping as workers go remote.”
“‘The effects of the COVID-19 pandemic in the commercial real estate market have been unprecedented,’ Miami-Dade Property Appraiser Pedro Garcia said in a statement. ‘Many property owners relying on rental income to cover operating expenses are struggling or unable to meet their financial obligations.’”
The South Florida Business Journal. “A group of four South Beach hotels that double as apartments could be seized in an $8.75 million foreclosure lawsuit. Attorney Matthew T. Blackshear, who represents the lender, declined comment. The special servicer on the loan is Greystone Servicing Co. All 31 units in the portfolio are advertised online as both apartments and hotel rooms. Data on the CMBS loan indicated they are mostly operated as limited-service hotel rooms.”
“Miami attorney Michael I. Bernstein, who represent the borrowers, noted Covid-19 has severely impacted the hotel business in South Florida. ‘We are disappointed that instead of electing to work with my client, the lender has elected to seek foreclosure,’ Bernstein said. ‘This is an economically difficult period of time for small business owners as government closures, shutdowns and Covid restrictions imposed over the last year have decimated the entire travel industry and reduced daily occupancy rates to all-time lows.’”
“Bernstein continued: ‘Unfortunately, these same state, local and federal governments which have demanded these shutdowns, closures, curfews and restrictions have abandoned these small businesses and failed to help balance the difficulties caused by Covid. My clients intend to utilize all remedies available to them in law and equity to prevent this injustice.’”
From Bisnow Washington DC. “The owner of the historic Washington Marriott Wardman Park Hotel has closed the hotel permanently, filed for bankruptcy and is looking to sell the asset. The hotel closed on March 25 after Mayor Muriel Bowser declared a public emergency due to the coronavirus pandemic. It then lost roughly $1.5M per month through the rest of the year, Wardman Hotel Owner LLC Manager James Decker wrote in a court filing. ‘Through this Chapter 11 case, the Debtor intends to conduct an orderly sale of substantially all of its assets, distribute the proceeds of such sale to creditors, and wind down its remaining business,’ Decker wrote.”
The Milwaukee Journal Sentinel in Wisconsin. “A stalled market-rate apartment community planned for Milwaukee’s far south side could be revived as an affordable housing development. The Common Council and Mayor Tom Barrett in 2017 approved plans for the apartments, proposed by developer Nabil Salous. Salous, who operates Salous Construction Management LLC, said then he planned to develop higher-end apartments with underground parking. But Salous said Monday he was unable to obtain financing because the market-rate apartments wouldn’t generate high enough rent.”
From Bisnow Chicago in Illinois. “A resurgence of the coronavirus this winter led officials in Illinois and multiple other states to reimpose last spring’s restrictions on much commercial activity and on gatherings of more than 10 people. Many businesses and commercial properties can’t freely operate until those restrictions are fully lifted, HVS Managing Director Stacey Nadolny said. The hospitality sector has been hit particularly hard, decimated by the cancellation of all convention and group business as well as a steep drop in leisure travel.”
“It now has several high hurdles to get over before a true recovery takes hold, Nadolny said. The conventions that help fill up many of Chicago’s roughly 48,000 hotel rooms each year won’t return until at least 2022. Other business travel, along with the tourist trade, will also stay slow if there are few places to shop and eat. Nadolny recently walked through downtown Chicago, and she said the change from a year ago was shocking. ‘Only one out of five restaurants and retail outlets appear to still be open,’ she said. ‘The government has to do something to help these spaces get occupied again.’”
“About 20 downtown hotels closed at some point during the pandemic, including the 1,281-room Sheraton Grand Chicago, the Park Hyatt Chicago and the 1,641-room Palmer House Hilton, which went into foreclosure this past summer when owner Thor Equities failed to make its loan payments to lender Wells Fargo. CRG Senior Vice President Geoffrey Kasselman said he expects many lenders will reach the end of their patience as the economy remains in the doldrums as cold weather continues to smother business while government officials get vaccination programs up and running.”
“‘The first three quarters of this year, economically at least, will be much worse than people expect it to be,’ Kasselman said. ‘I’d like to say something more positive, but there is a lot of hurt coming.’”
From The Oregonian. “The cost of renting an apartment in Portland plummeted in 2020 amid the coronavirus pandemic, with rental prices in downtown and Northwest Portland driving the sharp decline. The decline eclipsed the rent drop that occurred in Portland during the Great Recession in 2009, according to Costar. An increase in construction prior to the pandemic also meant that new units came on the market at a time when demand was decreasing. Costar estimates that 15% of downtown Portland apartments are currently vacant.”
“‘This is not at all a Portland-specific phenomenon,’ said Steve Basham, CoStar Group managing analyst. ‘We’re seeing that same trend playing out across the country. Usually renters are paying top dollar to live downtown and you’re justifying that expense because you are close to your job, you are close to the restaurants and the cultural scene downtown. In the era of COVID, a lot of the things that make that downtown living so appealing aren’t there anymore.’”
“‘I don’t think you’re going to see the quasi-ghost towns that you might see right now if you go to a downtown area,’ Basham said. ‘But I do think there’s a definite possibility that our peak levels of demand when everything gets back to normal are maybe not at the peak levels they were prior to the pandemic.’”
The New York Times on California. “The Bay Area struck a hard bargain with its tech workers. Rent was astronomical. Taxes were high. Your neighbors didn’t like you. If you lived in San Francisco, you might have commuted an hour south to your job at Apple or Google or Facebook. Or if your office was in the city, maybe it was in a neighborhood with too much street crime, open drug use and $5 coffees. That is, until the pandemic. They fled.”
“‘I miss San Francisco. I miss the life I had there,’ said John Gardner, chief executive of Kickoff, a remote personal training start-up, who packed his things into storage and left in a camper van to wander America. ‘But right now it’s just like: What else can God and the world and government come up with to make the place less livable?’”
From Mission Local in California. “Victor Gomez lives in a $2,000-a-month studio apartment with his partner, their two kids, and his partner’s brother. He used to work full time doing interior remodeling, until the Covid-19 outbreak made clients more reluctant to have workers in their homes. Gomez now owes his landlord more than $10,000 but, without reliable work, he has no idea how much his tab will grow, or how long it will take him to pay it back.”
“The landlord has told Gomez they can set up a payment plan once Gomez starts working regularly again, ‘But even then, I think about the debt a lot… And it just keeps getting worse,’ Gomez said. Thousands of residents are currently in a position similar to Gomez — working fewer hours than before, or out of work entirely, and sinking further into debt every month.”
“Every month from April to September, between $13.5 million and $33.2 million in residential rents went unpaid in San Francisco, according to an October report by the San Francisco Budget and Legislative Analyst’s Office. If those figures remained consistent through December. San Francisco entered 2021 with between $122 million to $294.3 million in residential rent debt alone.”
“If landlords are unable to recover debts from tenants, and banks are unwilling to work with the landlords they’ve loaned to, Scott Weaver, a volunteer for the San Francisco Tenants Union and a supervising attorney at the Eviction Defense Collaborative, said many residents in similar positions to Gomez might consider filing for bankruptcy to eliminate their debt. Weaver speculated that landlords who oversee fewer apartments might be put out of business. ‘There will be some landlords who won’t be able to stay in business,’ Weaver said.”
“The federal relief bill passed in December, 2020, included $25 billion in rental assistance, and documents from the Department of the Treasury show California could get up to $2.6 billion, but it is unclear how much will come to San Francisco. And if the money is disbursed through the Housing Stabilization Program, it is unclear how long it will take for the money to get into the hands of residents. ‘A shitstorm is the only word I can think of to describe it,’ Weaver said.”