A report from Realtor.com. “It seems like it was only yesterday when America’s downtown business districts thrummed with life. Since onset of the coronavirus pandemic, though, the pulse of those once-thriving districts has subsided to a faint quiver. That doesn’t bode well for the long-term future of office buildings and hotels in these neighborhoods. Some will likely shut down for good. But an abundance of vacant commercial real estate could be transformed into what the real estate market is most desperately clamoring for: housing.”
“But hold on. Many of these offices and hotels are in crowded city centers, which many residents are fleeing for suburban and rural areas where they can get more square footage for their money—and more social distance from their neighbors. So even if those spaces are converted into apartments and condos, will people want to live in them?”
The New York Times. “Five months into the pandemic, hotel rooms remain largely unreserved, office space sits empty and hardly anyone is venturing into malls. Commercial tenants are struggling to pay their rents, and property owners are struggling to make payments on the loans they took out to finance the buildings.”
“Some real estate investors, including the hedge funds and private equity firms that hold those loans, have had enough. Unwilling to risk any more missed interest payments, they are taking property owners and developers to court, hoping to foreclose on their interests in the properties and minimize their financial losses. ‘When this all started in March, the first reaction was this was temporary and let’s just see how this plays out,’ said H. Scott Miller, a real estate lawyer with Carlton Fields. ‘But we’re getting to the point where people are saying, ‘How much longer can this continue?’ This just can’t be open-ended.’”
“In cities across the United States, commercial hubs are lying silent. In Midtown Manhattan, usually a hive of activity filled with office workers, tourists and vehicles, the pandemic has cut pedestrian traffic in Times Square by 83 percent. Office buildings are all but empty because employees are working from home or have lost their jobs. Restaurants and stores are shuttered or operating at greatly diminished capacity.”
From Bisnow on New York. “Upper East Side art gallery Venus Over Manhattan is making a similar argument, claiming that Gov. Andrew Cuomo’s March executive order banning in-person retail means its lease at RFR Realty’s 980 Madison Ave. is unworkable. Luise Barrack, who leads Rosenberg & Estis’ litigation department, is defending multiple landlords against suits and is taking action against tenants who aren’t paying their rents. She declined to give specifics on her clients. ‘You have to enforce contracts or people can’t rely upon anything,’ she said. ‘I don’t think [courts] will let tenants walk.’”
“Columbia Law Professor Jody Kraus said jurisdiction in New York City is very ‘unreceptive’ to letting commercial parties out of their obligations. If courts declare many retail contracts no longer binding, Kraus expects it would open the floodgates to litigation into the trillions of dollars. ‘This is a zero-sum game. Someone is going to bear this loss,’ Kraus said. ‘Letting tenants out of contracts, you are not avoiding the loss, you are just shifting it.’”
From Market Place. “Christopher Wallace is still collecting this month’s rent for the hundreds of apartments his firm manages in Washington, D.C., and he isn’t optimistic. ‘Since this all started in March, it’s been progressively getting a little worse,’ he said.”
“Most of Wallace’s buildings are known as Class C properties. Late or skipped payments aren’t the only problems, said Wallace. ‘I think a lot of people, if they’re unable to pay, what they’re doing is moving out and moving either back home or moving in with other people,’ he said. ‘We’ve seen a lot more vacancies than we normally would get this time of year.’”
From Bisnow on Texas. “DFW’s average apartment rent is down compared to March. The market’s abundance of newer Class-A properties is largely to blame for the decline. ‘Housing is essential, but the amount of Class-A new supply in the pipeline will face challenging lease-up times,’ ApartmentData President Bruce McClenny said. ‘At the other end of the class spectrum, rent collection looms as a huge problem as Congress painfully crafts a second stimulus package.’”
The Ahwatukee Foothills News in Arizona. “How do you see the market for commercial and office space in this region? Mary Nollenberger, a commercial real estate specialist: The East Valley for me is home, where I live and I do my work. The vacancy rate is just under 7 percent in those areas as opposed to other areas of Metro Phoenix that are in the 20 percent and 30 percent vacancy rates.”
The San Diego Downtown News in California. “After years of a housing shortage crisis, the region is facing a new crisis of missed rent and broken leases amid the economic downturn due to coronavirus. An analysis from global advisory firm Stout Risius Ross found 40% of renter households in the U.S. are at risk of eviction as eviction moratoriums wind down.”
“As for commercial real estate, experts paint a grim picture. Jason Hughes, the CEO of Hughes Marino, said over one-third of office space in Downtown San Diego is vacant with some buildings 99% empty, which could lead to foreclosures in the future.”
The Mojave Desert News in California. “An planned sale approval of the Silver Saddle Ranch property and surrounding Galileo Project lots could unravel should a judge approve a request to cancel the escrow during an Aug. 27 court hearing in San Diego. In an update on Aug. 4, the receiver Thomas W. McNamara reported he had received a complaint from Rick Jones regarding the sales process and interaction with the real estate broker handling the sale. Jones owns several California City businesses.”
“The Galileo Project consists of around 1,020 acres of land involved in a fraudulent land sale scheme. Silver Saddle Ranch and Resort was used as a ‘marketing centerpiece’ that bilked $30 million from thousands of investors who purchased undeveloped land between 2011 and 2019, according to the California Department of Business Oversight. The resort itself was not part of the Galileo Project.”
“Silver Saddle Ranch was at the heart of a massive land sale fraud, where defendants were accused of selling 1,020 acres of land to more than 2,000 people — largely Filipino, Chinese or Latino immigrants — for undeveloped land that later was deemed useless. The California Department of Business Oversight launched an investigation into the scheme in 2019 and took the defendants to court.”