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Commercial real estate can't seem to shake these COVID symptoms


The market's 2021 comeback won't save all the properties that remain beset by debt woes caused or exacerbated by the pandemic.

Alby Gallun                                                                   June 25, 2021                                   Crain's Chicago Business

The Palmer House Hilton has reopened, but foreclosure looms. Gurnee Mills has won a reprieve from its lenders. The Civic Opera Building is in purgatory.

After a scary 2020 for commercial real estate investors, the fading pandemic and recovering economy are easing their worst fears of a prolonged and painful slump—and wave of foreclosures. But the market's 2021 comeback won't save all of real estate's long-haulers, the properties that remain beset by debt woes caused or exacerbated by COVID-19.

The Chicago-area delinquency rate on a key category of debt, commercial mortgage-backed securities, or CMBS, fell to 11.2 percent in May, according to Trepp, a New York-based research and consulting firm. That's an improvement from the peak of 14.0 percent in June 2020, but it could take years for the rate to return to its pre-COVID level of 2 to 3 percent.

"I don't think we're out of the woods yet," says Tom Fink, senior vice president and managing director at Trepp.

That statement applies to some of the biggest properties contributing to the area's high delinquency rate. The 1,635-room Palmer House, the city's second-largest hotel, reopened June 17 after being closed due to the pandemic for 15 months. But its future remains a question as its owner, New York-based Thor Equities, tries to resolve two foreclosure suits totaling more than $410 million.

Gurnee Mills, the area's third-biggest mall, with about 1.9 million square feet, is in a better spot. After defaulting on about $124 million in CMBS debt last year, the mall's owner, Indianapolis-based Simon Property Group, negotiated a forbearance agreement with a loan servicer in December, protecting the property from a potential foreclosure suit.

In the West Loop, the owner of the Civic Opera building, Nanuet, N.Y.-based Berkley Properties, also is trying to work out a forbearance agreement after stopping payments on about $164 million in CMBS debt, according to public securities filings. Foreclosure is a still possibility.


The properties represent the three real estate sectors—hotel, retail and office—hit hardest by the pandemic.

Hotels suffered massive losses last year as business and leisure travel came to a halt and occupancies plunged.

The CMBS delinquency rate for Chicago-area hotels jumped to 57.1 percent in October, largely due to the Palmer House's troubles, and has declined only slightly since then, to 55 percent in May, according to Trepp. Local hotels with delinquent CMBS debt include the W Chicago City Center, the Marriott Chicago River North and the Hilton Orrington Evanston.

A rebound in tourist and business travel could lift many hotels out of the danger zone. The owners of some, like the Godfrey in River North, have already worked out loan modifications.

But lenders, after being patient with delinquent hotel owners during the pandemic, also could start demanding that borrowers do more to recapitalize their properties now that the market's improving, says attorney David Neff, a partner at Perkins Coie who specializes in hotel bankruptcies and restructurings. If a hotel owner asks a lender to forgive some of its debt, the lender will require the borrower to invest more equity in the property, he said.

"I think you're going to see lenders get more aggressive," says Neff, who represents lender Wells Fargo in one of the foreclosure suits against the Palmer House.

Though he wouldn't make any predictions about the Loop hotel's fate, Neff says the hotel's reopening is a positive step. A Thor spokeswoman declines to discuss the suits but says Thor "looks forward to a lively summer" at the hotel.

The recovering economy also is a good sign for retail landlords, which were crushed last yearas retailers went bankrupt, closed stores or stopped paying their rent. The CMBS delinquency rate for Chicago-area retail properties rose as high as 29.6 percent in August, according to Trepp.

In an encouraging sign, retail delinquencies dropped to 11.9 percent in May. Owners of some big properties, like Yorktown Center in Lombard and North Riverside Park Mall, have negotiated loan modifications and averted foreclosure. Rather than seizing a big mall and bringing in another firm to fix it, many loan servicers and lenders would rather work out a deal with a mall owner that has the expertise to turn it around.

"People are trying to be rational about what they're doing, because the alternative is to be a hard-ass and take a loss," Fink says.

Still, the long-term outlook for retail is anything but bright. For many housebound consumers, the pandemic merely reinforced the convenience of online shopping, which had been taking big bites out of the brick-and-mortar retail sector for years. Though shoppers are returning to stores, e-commerce will remain a growing threat to shopping malls and other properties, one reason to expect more distress in the future.

The future is uncertain for the office market, too. The CMBS delinquency rate for local office properties has edged up but is still relatively low, just 3.8 percent in May. The question is what happens in the coming years: Will demand for office space decline as more professionals work from home in the post-pandemic era? No one knows right now, but Fink is bracing for higher delinquencies.

"Office is going to be a slow burn," he says.

Just one big downtown property, a 487,000-square-foot office building at 401 S. State St., fell into foreclosure last year, and its owner handed the building over to its lender. Rialto Capital, the loan servicer overseeing the Civic Opera Building, has not ruled out a foreclosure suit against the 915,000-square-foot tower at 20 N. Wacker Drive, according to public filings.

Though Berkley, the owner of the Civic Opera Building, stopped making mortgage payments, the property's problems are mostly temporary, says Brian Whiting, president of Chicago-based Telos Group, the building's leasing agent. Two co-working tenants, Bond Collective and TechNexus, had a hard time making rent payments as people stopped coming into the office, but their business is coming back, Whiting says. He's confident Berkley will be able to work out an agreement with Rialto.

"There are amicable discussions going on between the lender and the landlord," he says.

Investors that seek out distressed properties could find some compelling opportunities in the future. The volume of distressed deals has been pretty low so far, but it's still early, says Jim Costello, senior vice president at Real Capital Analytics, a New York-based research and consulting firm.

But the deals will require different skills than those employed after the recession of 2008-09, he says. Many properties that ran into trouble then suffered from financial distress: They were simply carrying too much debt that financial pros restructured.

This time around, more properties are suffering from operational distress—not enough cash flow. It takes a different person to solve those problems, Costello says.

"It's not the financial sharpshooter," he says. "It's the people who understand the cost of rebar."


Homeowners get clobbered by county property tax appeals board


The Board of Review has largely reversed moves by the Cook County assessor to shift the tax burden from homeowners to businesses. So says a new report from the assessor himself.

Gerg Hinz                                                                  January 05, 2021                         Crain's Chicago Business

An effort to shift much of the property tax burden in Cook County’s north and northwest suburbs from homeowners to commercial properties was largely undone by the Board of Review, a new report issued by Cook County Assessor Fritz Kaegi asserts.

The report says billions of dollars in higher assessments that Kaegi wanted to impose on business properties were nullified by appeals to the board, which legally has the power to overrule Kaegi. That means the taxes involved—at least tens of millions of dollars a year—instead will be paid by homeowners, not apartment developers, shopping mall operators and the like.

An effort to shift much of the property tax burden in Cook County’s north and northwest suburbs from homeowners to commercial properties was largely undone by the Board of Review, a new report issued by Cook County Assessor Fritz Kaegi asserts.

The report says billions of dollars in higher assessments that Kaegi wanted to impose on business properties were nullified by appeals to the board, which legally has the power to overrule Kaegi. That means the taxes involved—at least tens of millions of dollars a year—instead will be paid by homeowners, not apartment developers, shopping mall operators and the like.

In every one of the 13 townships, Kaegi proposed to increase the share of the total tax load on commercial properties, usually by at least 6 or 7 percentage points. But in every township, most of that was reversed.

In Barrington Township, for instance, Kaegi proposed to increase the share of non-residential properties collectively from 34 percent of the total to 51 percent, a shift of $217 million. But the board reversed the shift and cut another $3 million.

Similarly, in Evanston, the commercial share of valuation went from $600 million (40 percent) proposed by Kaegi to $402 million, or 32 percent, by the board. 

In Schaumburg Township, Kaegi’s proposed $1.32 billion in proposed non-residential assessments became $942 million.

Overall, according to Kaegi’s office, the $10.17 billion in property valuations Kaegi proposed for non-residential properties was reduced to $7.19 billion, a reduction of about $3 billion. That means the actual tax bills will have to be levied on the remaining valuation, most of it “residential property owners,” according to Kaegi spokesman Scott Smith. The board’s action “significantly reduced the potential tax burden on commercial owners,” Smith added.

Neither Smith nor the report itself takes a direct shot at the board. Smith said Kaegi was releasing the report because taxpayers have a right to transparency. Kaegi has one view of what commercial property is worth, but the board “saw it differently,” Smith said.

Michael Cabonargi, one of two Democrats on the three-person board, said the report "continues to show how significantly runaway assessments increase property taxes. . . .Predictably, many property owners were concerned and appealed their property taxes because they are seeking relief, and because it is their right. We believe and support taxpayers in their right to appeal their property tax assessment—and to make sure they pay their fair share, and not a penny more. . . .We will never shy away from being an open and transparent avenue for taxpayers to seek a fair review of their assessments and to obtain property tax relief."

Smith said Kaegi attempted to use actual market values as much as possible in reaching proposed assessments, but the board takes other factors into account, including the actual tax load.

Says the report itself: “The office revised its approach . . . in order to better reflect what buyers and sellers experienced in the market. The office believes its approach is more accurate than its past approach and more closely tracks the market.”

Some commercial owners have argued the market can and does fluctuate from year to year, and a property ought to be valued on how much value it can spin off.

Single-family home and small apartment-building owners already get a tax break, with their property supposed to be assessed at 10 percent of its market value. Commercial property, including large apartment buildings, are assessed at 25 percent of market value.

Virus Siphons $2.5 Billion in N.Y.C. Property Tax Revenue


The value of office buildings and hotel properties, which have all but emptied out since the pandemic began, is expected to take a nosedive.

By Dana Rubinstein and Jesse McKinley                   Jan. 14, 2021                         New York Times

As New York City officials fight to control the coronavirus by this summer, it is becoming clear that the economic fallout will last far longer: The city’s property tax revenues are projected to decline by $2.5 billion next year, the largest such drop in at least three decades.

The anticipated shortfall, which Mayor Bill de Blasio announced on Thursday, is largely driven by a sharp decline in the value of office buildings and hotel properties, which have all but emptied out since the pandemic began. 

City Hall officials said that the market value of the tax class that includes hotel, retail and office properties has fallen by 15.8 percent, putting the city’s budget in a precarious position for the foreseeable future: Roughly half of the city’s tax revenue comes from real estate. 

For now, the city will partially offset the loss with increased revenues from income taxes: The “rich got richer,” according to a slide from the mayor’s presentation. 

But the city will still have to substantially cut spending, although officials gave no clear indication what services might be at risk. Mr. de Blasio said that since last January, the city had already cut 7,000 jobs through attrition and a hiring freeze; he now plans to reduce the city’s head count by another 5,000. 

“This is just a total economic dislocation for certain industries,” the mayor said. “We’ve never seen anything like what’s happened to the hotel industry. We’ve never seen Midtown in the situation it is now.”

New York has been devastated by the pandemic’s dual paths of destruction: The virus has killed nearly 26,000 people in the city, while hundreds of thousands of jobs and billions of dollars in tax revenue have been lost.

At the height of the pandemic, unemployment exceeded 20 percent; today, a half million New Yorkers remain unemployed. And although some businesses remain open, many workers are staying at home rather than using mass transit to commute to densely packed office buildings in Midtown and Lower Manhattan.

Mr. de Blasio and Gov. Andrew M. Cuomo, who have battled with the Trump administration for more federal aid, have expressed optimism that President-elect Joseph R. Biden Jr., together with a Democratic-led Congress, will bring substantial assistance.

Indeed, just before Mr. de Blasio’s announcement, the incoming Senate majority leader, Chuck Schumer, said that he and Mr. Biden had reached a deal for the federal government to cover the full cost of state and city expenses related to a disaster declaration from last March, when the virus was first discovered in New York. The city had been on the hook for 25 percent of the expenses eligible for federal emergency reimbursement.

The move is expected to save the state and city about $2 billion, money that Mr. Schumer’s office said can be used to “tackle Covid-related budget gaps.”

On Thursday, Mr. Schumer was promising more to come.


“This is just prelude of better days ahead out of Washington for New York,” he said. “With Biden as president and me as majority leader, it’s going to get better.”

A $1.9 trillion proposal unveiled on Thursday by the president-elect contains $350 billion to help state and local governments. Still, few expect the federal government to be able to fully meet their budgetary needs, especially with the economy in such flux.

In November, the city projected that the budget for the next fiscal year, which starts in July, would include $31.8 billion in property tax revenue. On Thursday, the city said it was recalibrating those expectations downward by $2.5 billion.

“This is an unprecedented drop,” said Thomas P. DiNapoli, the New York State comptroller. “We have not seen property tax collections decline in more than 20 years and never at these levels.”

Even if normal economic activity resumes in New York City, it will not necessarily result in the full-scale return of office workers to office buildings, now that so many have become acclimated to working from home.

In early January, only 29 percent of Manhattan hotel rooms were occupied, compared with 69 percent the year prior. More than 230 Manhattan hotels have closed, at least temporarily, during the pandemic.

The Manhattan retail sector, which was getting battered by e-commerce before the pandemic set in, continues to suffer, too, with rents declining and vacant storefronts increasing.


In 2020, tenants leased just 20.5 million square feet of office space in Manhattan, the lowest level in at least 20 years, according to a recent report from Savills, a real estate services firm.

It “will still be several quarters before workers return to the office in earnest and the full implication of demand shifts due to work-from-home or new location strategies can be seen,” notes the recent Savills report.

Landlords have responded by embracing unconventional ideas, like converting large swaths of underutilized Midtown office space into apartments, a notion recently embraced by Mr. Cuomo.

The agreement with the Biden administration to pay 100 percent of coronavirus-related emergency expenses — similar to one that New York had with the Obama administration in the wake of Superstorm Sandy — will mean about $1 billion for the state and the city each, Mr. Schumer said.

The Trump administration had previously committed to such an arrangement, the senator said, but had never actually acted on it, leaving the city and state to cover 25 percent of those costs.

“I asked Trump for this personally two or three times,” Mr. Schumer said. “He said yes, and he never did it.”

Thanks to the arrival of more aid, the city will be able to put off nearly $200 million in cuts to education funding, including a $44 million cut to the expansion of the mayor’s “3-K for All” preschool program.

Earlier this week, Mr. Cuomo announced that the state government was facing a $15 billion shortfall, which he characterized as the largest in state history, something he, too, said he hoped the federal government would help backfill. 

“We expect basic fairness from Washington,” he said on Monday. “Finally.”

Mr. Schumer said he had spoken to the president-elect and Nancy Pelosi, the speaker of the House, about the need for direct aid to state and local governments — something that was left out of a December coronavirus relief bill — and both leaders were committed to providing it.

But as to whether it means a complete bailout for New York, Mr. Schumer was more circumspect.

“We’re going to do everything we can to get the state all the money it needs,” he said.

Kaegi jacks up assessments on south suburban landlords


Owners of commercial properties in the south and west suburbs of Cook County could face higher property tax bills next year. But homeowners will bear less of the burden.

Alby Gallun                                                               November 5, 2020                      Crain's Chicago Business

After jacking up assessments on commercial properties in the northern Chicago suburbs in 2019, Cook County Assessor Fritz Kaegi has delivered a repeat performance south and west of the city this year.

Kaegi’s office assessed all nonresidential property in the south and west Cook suburbs at $5.25 billion, up 56 percent from 2019, according to data from the assessor’s office. The total assessed value of residential real estate in the suburbs rose 8 percent, to $8.42 billion.

The figures underscore the major shift underway in the Cook County property tax system under Kaegi, who set out to reform the office and improve the accuracy and transparency of its assessment process after he was elected in 2018. He has hit office buildings and other commercial properties with big assessment hikes, drawing criticism from landlords and property tax appeals attorneys that he’s trying to redistribute the county’s wealth by shifting the tax burden onto them.

Landlords in south and west suburban Cook County most definitely will shoulder more of the tax load next year, when they receive tax bills based on the 2020 reassessment. The new valuations mean nonresidential properties now account for 38 percent of the total assessed value in the area, which stretches from Oak Park to Sauk Village, up from 30 percent last year, according to the assessor’s office.

That’s good news for homeowners there, many who pay excessively high taxesrelative to the value of their properties. Residential properties now make up 62 percent of the assessed value in the area, down from 70 percent last year.

Assessed values would have risen more if it weren’t for the coronavirus pandemic. As the virus swept into the Chicago area, Kaegi’s office set out to account for it in the assessment process, assuming it depressed the values of many properties. In Berwyn Township, for instance, the assessor lowered values on single-family homes and condominiums by 9.6 percent to 11.3 percent because of COVID-19.


Kaegi is in the second year of a three-year reassessment cycle in Cook County, an often opaque process that determines who pays what in property taxes used to fund schools, police and fire departments and other local government functions. His office assessed the north and northwestern suburbs last year and will tackle the city of Chicago in 2021.

Higher assessments don’t automatically result in higher property taxes. What matters is the relative change in assessed value. If a single-family homeowner’s assessment rises, but everyone else in the neighborhood receives a bigger increase, the homeowner’s tax bill would likely decline.

Taxes also depend on the levy: how much local governments decide they need to collect in property taxes to fund their operations.

Kaegi has irked landlords mainly with his use of a common real estate valuation metric called a capitalization, or cap, rate. He contends his predecessor, Joseph Berrios, used unreasonably high cap rates, resulting in especially low, and unfair, assessments of office and apartment buildings, shopping centers, hotels and warehouses.

Kaegi says his office uses lower cap rates that more accurately reflect true—and in many cases, much higher—market values.

“I’m not a sadist. It doesn’t give me pleasure to do that,” he said. But he’s “correcting for substandard procedures from previous administrations.”

Nonetheless, the correction resulted in tax hikes for commercial landlords in the northern suburbs. Kaegi’s office boosted total commercial assessed values in the northern suburbs by 77 percent last year, versus a 14 percent increase for residential. After the Cook County Board of Review acted on property owners' appeals of their assessments, total commercial assessed values rose by a smaller amount, 25 percent, as did residential, increasing 11 percent.

But many north suburban landlords suffered sticker shock when they received their tax bills earlier this year: The average commercial and industrial tax bill rose 15.8 percent, while the average residential bill rose 1.1 percent, according to the Cook County treasurer.

Landlords in the south and west suburbs won’t receive tax bills based on their new assessments until next year, but some could be in for some hefty increases. In Orland Park, Kaegi’s office valued the Orland Square Mall at $227 million, more than double its previous value of $110 million. The assessor’s estimated value of Oak Park Place, a 204-unit apartment building in downtown Oak Park, rose 85 percent, to $36 million.

Representatives of Indianapolis-based Simon Property Group, which owns Orland Square, and Oak Park Place owner John Hancock Real Estate, a unit of Toronto-based Manulife Financial, did not respond to requests for comment.


Vacancy Climbs As Rents Fall Across Asset Classes

Most metros are seeing “bleak” fundamentals in apartments, office and retail, according to a new Moody’s Analytics.



 By: Kelsi Maree Borland                                       January 11, 2021                   


Apartments, office and retail are all following a similar trend: rising vacancy rates with declining rents. A new report from Moody’s Analytics calls the dynamic “bleak, but not dire,” noting that while most metros are following a similar pattern, most of the declining fundamentals are more moderate than originally expected.

The national apartment vacancy rate climbed to 5.2% in the fourth quarter, up nominally from 5.1% in the third quarter and 4.7% in the fourth quarter 2019. Apartment rents fell an additional 1.4% in the fourth quarter and are down 3.1% for the year. Major metros are bearing the brunt of the damage. Boston, Washington DC, San Jose, New York City and San Francisco had the most significant decline in apartment rents in the fourth quarter. New York and San Francisco are leading the pack with rents down 12.2% and 14.9%, respectively, for the year.

The national office vacancy rate climbed to 17.7% in the fourth quarter, up from 17.4% in the third quarter and 16.8% a year ago. Office rents have been slower to decline, falling .6% in the fourth quarter and only .7% for the year. Like apartments, New York City and San Francisco led in declining fundamentals with rents falling 1.9% and 1.5%, respectively. However, Orange County, California had the steepest declines in office rents, down 2.3% for the quarter alone. The report found the vacancy rate increases more concerning, noting that 54 markets had an increasing vacancy rate and 26 metros have a vacancy rate higher than 20%.

Of course, retail has been among the hardest hit commercial real estate sectors; however, fundamentals have not deteriorated more significantly than apartments of office. Retail vacancy increased to 10.5% at the end of the year, up from 10.4% in third quarter and 10.2% last year. Rents were down .4% for the quarter and 1.2% for the year. Of the 77 metros Moody’s reviews, 64 markets had a decline effective rent in the quarter.

It isn’t all bad news. Select markets had improving fundamentals this year. In apartments, some secondary markets—Chattanooga, Las Vegas, Sacramento, Ventura County, Memphis and Fairfield County—had effective rent growth of 0.7% to 1.1%. In office, five markets had an increase in effective rents, including Lexington, Raleigh-Durham, Tulsa, Milwaukee and Buffalo. Retail is perhaps the most impressive with 13 metros seeing rising rents, although the growth was moderate.

Unfortunately, Moody’s doesn’t have a better outlook for 2021. The report expects fundamentals to continue to decline this year, particularly in office and retail where tenants that have been locked into long-term leases have not yet had the opportunity to downsize or vacate the property.

COVID Forces Texas Mall Closing

As a recent study shows the dangers of indoor gatherings, more shutdowns

could be on the horizon.


By Les Shaver                                                       November 12, 2020                   


Spiking COVID-19 cases in Texas have forced Simon Property to close the Cielo Vista Mall in El Paso, Texas, according to CNBC.

As Coronavirus cases rise around the country, many other mall operators could be following Simon’s lead, which could mean a second round of COVID shutdowns after the initial wave last Spring.

Right now, Cielo Vista Mall is Simon’s only property that is closed. CEO David Simon told CNBC that he thought enclosed malls were being treated “unfairly and inconsistently,” and there wasn’t sufficient proof that the mall environment “spreads anything.”

However, a recent study published in the journal Nature, found that restaurants, gyms and indoor venues accounted for 8 in 10 new infections from March to May in 10 cities, according to The New York Times. The study showed that less affluent areas were harder hit by COVID because the public venues in those areas were more crowded than in affluent areas. It also indicated that setting caps on the number of people in a facility could help slow the disease’s spread. 

Before shutting down Cielo Vista Mall in El Paso, all of Simon’s malls had been open since Oct. 7. During Q3, seven of its retail properties in California were temporarily closed on July 15 due to a governmental order. Six of the properties reopened on Aug. 31. 

As of Sept. 30, 2020, Simon’s occupancy was 91.4%, and its base minimum rent per square foot was $56.13, which was an increase of 2.9% year-over-year.

While Simon and enclosed mall owners have struggled with shutdowns, open-air retail has generally remained open throughout the pandemic.

“In open-air centers in many jurisdictions, retailers are currently generally permitted to operate with in-store shopping, although subject to some conditions aimed at limiting congestion and high customer traffic within the store,” Scott Grossfeld, a partner at Cox, Castle & Nicholson, told in an earlier interview. 

Landlords and retailers in enclosed retail spaces have tried to compensate by offering curbside and other pick-up services, according to Grossfeld. “Although such options provide retailers with some element of economic relief, they, unfortunately, are not the same [or as good] as providing in-store shopping,” he told

COVID Forces Texas Mall Closing

As a recent study shows the dangers of indoor gatherings, more shutdowns

could be on the horizon.


By Les Shaver                                                       November 12, 2020                   


Spiking COVID-19 cases in Texas have forced Simon Property to close the Cielo Vista Mall in El Paso, Texas, according to CNBC.

As Coronavirus cases rise around the country, many other mall operators could be following Simon’s lead, which could mean a second round of COVID shutdowns after the initial wave last Spring.

Right now, Cielo Vista Mall is Simon’s only property that is closed. CEO David Simon told CNBC that he thought enclosed malls were being treated “unfairly and inconsistently,” and there wasn’t sufficient proof that the mall environment “spreads anything.”

However, a recent study published in the journal Nature, found that restaurants, gyms and indoor venues accounted for 8 in 10 new infections from March to May in 10 cities, according to The New York Times. The study showed that less affluent areas were harder hit by COVID because the public venues in those areas were more crowded than in affluent areas. It also indicated that setting caps on the number of people in a facility could help slow the disease’s spread. 

Before shutting down Cielo Vista Mall in El Paso, all of Simon’s malls had been open since Oct. 7. During Q3, seven of its retail properties in California were temporarily closed on July 15 due to a governmental order. Six of the properties reopened on Aug. 31. 

As of Sept. 30, 2020, Simon’s occupancy was 91.4%, and its base minimum rent per square foot was $56.13, which was an increase of 2.9% year-over-year.

While Simon and enclosed mall owners have struggled with shutdowns, open-air retail has generally remained open throughout the pandemic.

“In open-air centers in many jurisdictions, retailers are currently generally permitted to operate with in-store shopping, although subject to some conditions aimed at limiting congestion and high customer traffic within the store,” Scott Grossfeld, a partner at Cox, Castle & Nicholson, told in an earlier interview. 

Landlords and retailers in enclosed retail spaces have tried to compensate by offering curbside and other pick-up services, according to Grossfeld. “Although such options provide retailers with some element of economic relief, they, unfortunately, are not the same [or as good] as providing in-store shopping,” he told

Some Apartment Markets Draw Eye-Popping Rent Growth in Pandemic

Multifamily Hubs Withstanding the Coronavirus Have Certain Things in Common


By David Kahn and Sam Tenenbaum                   November 2, 2020                               CoStar

Demand for apartments in more affordable Sun Belt cities is rising while asking rents in pricey coastal cities are falling as the pandemic roils the country's apartment markets. 

To get a better sense of what's driving both the best and worst metropolitan areas for rent growth, CoStar Analytics analyzed the top 20 and bottom 20 multifamily areas nationwide.


For this analysis, only submarkets with more than 5,000 units were examined. This allows for a large enough sample of rent observations from and CoStar’s other listing websites, as well as CoStar’s multifamily research team.

Many of the areas of the country with the highest rent growth are in fast-growing Sun Belt cities such as Atlanta, Phoenix and the Inland Empire in California. Those locales benefit from net migration from more expensive coastal markets, boosting demand for housing.

Digging deeper, another common thread is a lack of supply. The top 20 rent growth submarkets collectively completed 1.2% of total inventory over the past 12 months and have 1.9% of inventory currently under construction. For comparison, the national average is roughly 2.5% for trailing 12-month deliveries and 3.4% for inventory under construction.

And speaking of supply, the existing apartments in these areas is heavily tilted toward mid-quality, three-star housing stock, which is outperforming the national average. Of the top 20 rent growth nodes, 50% of inventory is three-star, or Class B, properties.

The booming industrial market has also benefited many of the submarkets on the list, as people employed in lower- to middle-wage industrial jobs often fall into the three-star rental demographic pool. Areas south of Atlanta, such as Henry County, South Fulton, Clayton County and Southeast DeKalb, all benefit from the region’s booming industrial sector, as do greater Ontario and Riverside County-Temecula in the Inland Empire.

But not all of the top submarkets are squarely in the country’s southern high-growth region. South Lake County, a suburban submarket of Chicago located in Indiana, ranked second among all submarkets for rent growth over the past year. Northwest Indiana has seen strong population growth as Illinoisans flee the higher taxes while maintaining access to the commuter rail available into Chicago, said Brandon Svec, CoStar’s director of analytics for Chicago. The submarket’s low vacancies have given landlords confidence to push rents more than 12% over the past year.

As for the bottom 20, the biggest standout here is the sheer number of submarkets in the Bay Area that fell into this category. Of the 20 worst submarket performers in terms of rent growth, 12 are located in the broader San Francisco, San Jose and East Bay markets. This shouldn’t come as too much of a surprise due to the region’s poor performance amid the pandemic. Expensive markets have seen consistent outflows of households over the past few months, as white-collar workers with the option to work from home seek larger, and cheaper, housing.

Most of the other areas include downtown or core-urban nodes such as Downtown Chicago and Downtown Seattle, Midtown New York, and pricey Northern Virginia neighborhoods such as Rosslyn, Ballston and Crystal City. 

These areas have been developer favorites in recent years. The bottom 20 rent growth areas collectively delivered 3.4% of total inventory over the past 12 months and have 7.2% of inventory currently under construction. Both figures are above the national average.

Unlike the top performers, the underperforming submarkets are all some of the most expensive regions in their respective markets. Each submarket’s average rents are more than $2,000 per month, or in the top 10% of rents across the country. Most of the residents that had been living in these pricey locales have had the ability to work from home. 

With no end of the pandemic in sight, renters have opted to avoid being locked into expensive leases, instead moving to places such as Dallas-Fort Worth, Phoenix and Boise, Idaho.

Economist Report: Remote Workers

on the Move


Upwork Press, News & Media Coverage   -    No bye-line    No date - Estimated to be November 2020




More than half a year into the pandemic, remote work continues to be the reality for businesses across the country. Even as stay-at-home orders and lockdown measures have eased, many professionals are still working from their homes. This persistence, coupled with findings from early survey results, suggest that remote work is here to stay. While remote workers are already experiencing the direct impacts of this, with fewer commutes and less meetings, there are also early indicators of some larger, indirect effects of remote work. Perhaps the most significant of these effects is around the ability to access job opportunities far beyond one’s local labor market. In this analysis, we will explore how the ability to work remotely has impacted where people plan to live. 


Key Findings

  • Remote work will increase migration in the U.S.: Anywhere from 14 to 23 million Americans are planning to move as a result of remote work. Combined with those who are moving regardless of remote work, near-term migration rates may be three to four times what they normally are. 

  • Major cities will see the biggest out-migration: 20.6% of those planning to move are currently based in a major city. 

  • People are seeking less expensive housing: Altogether, more than half (52.5%) are planning to move to a house that is significantly more affordable than their current home.

  • People are moving beyond regular commute distances: 54.7% of people are moving over two hours away or more from their current location, which is beyond daily or even weekly commuting distances for most.

  • Housing market data confirms that the highest priced markets are taking the biggest hits: Rental data from reveals that the top 10 percent most expensive markets saw a 13% percentage point larger decrease in rent prices than rental markets in the bottom 10 percent.

Home Is Not Where the Company Is 

Over the past few decades, work opportunities have become increasingly concentrated in a handful of superstar cities. At the same time, a lack of new housing supply and high building regulations in these cities have drastically risen the cost of living. In some of these expensive cities, such as San Francisco and San Jose, median house values are now well above $1 million, making it much more difficult for workers to find affordable housing in areas with these high concentrations of job opportunities. However, remote work has presented an alternative to this by allowing us to disconnect where we work from where we live.


Paying high housing costs is no longer a requirement for accessing high paying labor markets, and the geography of where people can live greatly expands. But will professionals seize this moment as an opportunity to relocate? 


On the Move

To answer this question and to understand the impact of remote work on moving plans, we surveyed over 20,000 people to learn about their moving intentions. What we found is that the greater ability to work from home post-COVID-19 has increased the likelihood that a significant number of households will move out of the area where they currently live. In total, between 6.9% and 11.5% of households are planning a move due to the growing availability of remote work due to COVID-19.

Of this group, 6.5% are planning on moving to a different area due to the greater ability to work from home. However, remote considerations also extended to those beyond the current, remote capable professionals. An additional 2.5% are moving because someone in the household can work from home, and another 2.5% are moving due to overall greater working from home job prospects.

To further confirm these results, we ran two alternative surveys with varying ranges of possible responses. In a second survey, we found that a smaller, but substantial, 6.9% are planning on moving due to the ability to work from home. In a third version of the survey, we allowed them to indicate that they had already moved in 2020 as a result of greater ability to work from home. In this survey, a total of 7.9% said that would be moving or had already. 

Altogether, across the main survey and two alternatives, there is a consistently significant percentage moving due to a greater ability to work from home, ranging from 6.9% to 11.5%. These estimates imply that 14 to 23 million Americans are planning to move as a result of remote work. To contextualize this number, Census data from 2018 to 2019 suggests that 3.6% of people moved to a different county or state from 2018 to 2019. This means that between two to three times as many people are planning to move this year because of remote work than normally move in any given year for any reason. In other words, combined with people who are moving regardless of remote work, near-term migration rates may be three to four times what they normally are.


Where Is Everyone Moving?‍

With so many people on the move, it’s natural to wonder: where is everyone moving? Our survey data reveals that people in major cities are the ones most likely to see out-migration as a result of remote work. Among those currently living in a major city, 20.6% say they are planning to move. The next group that is most likely to relocate are those living in the suburbs surrounding cities (12.2%), followed by mid-sized cities or surrounding suburbs (8.6%). The least likely to see outmigration are small cities, towns (6.7%), or other suburbs and then rural areas (5.7%).

To understand the motivations for moving, our survey also asked about the type of place that people are planning to move to. In further support of this big city exodus, we found that density and housing costs play a key role in moving plans. In fact, those moving are more than twice as likely to move somewhere less dense than more dense, and are also twice as likely to move somewhere with lower housing costs than higher housing costs. 

When asked specifically about housing costs, the importance of lower costs became even clearer. By broad majorities, people are planning on moving into less expensive homes. More than one in five are planning on moving into homes that are 50% less expensive or more. And altogether 52.5% are planning to move to a house that is 10% or more cheaper than their current home, compared to only 25% are planning on moving into a more expensive home.





The plan to move to less expensive housing is also more common for those who are leaving major cities. 







To further understand moving intentions, we also asked about the distance of people’s moves. While it could be that some people are simply moving to cheaper buildings just down the block, we attempted to rule this out by asking about moving “out of the area.” We also asked how far people are considering moving. The results showed that 41.5% are moving more than 4 hours away and another 13.2% are within 2 to 4 hours. With 54.7% of people moving beyond daily or even weekly commuting distances, it suggests that most people are not simply moving out to the closest suburb near the office. Instead, it further supports the notion of a growing separation of where people work and where they live. 








Although the greater ability to work remotely is impacting people across the country, it appears that those living in major cities and those in major city suburbs are the ones most likely to relocate. There is a clear rationale as to why the ability to work remotely would lead people to seek out lower cost of living places and leave high cost of living places. Expensive places used to have a monopoly on the access to their valuable labor markets, and as work goes remote, they no longer do. 


What Housing Markets Are Telling Us

Although the survey reflects only the intent to move,  other data supports that many are putting intent into action. When looking at housing market data, we confirm that the highest price housing markets are taking the biggest hits.

Rental data from illustrates a strong relationship between average apartment rents and the decline in rents over the past year. The most expensive places have seen the biggest decline in demand, while lower cost of living places have seen stronger demand. 


While the data shows the relationship between high cost and falling demand, there are a variety of caveats and complexities to this. For example, places that are relatively expensive due to factors beyond labor market access, like location or public school systems, may see growing rather than falling demand. Additionally, suburbs that are expensive, but less expensive than nearby superstar cities may also be exceptions. 

Regression analysis shows that the statistically significant relationship holds across cities, counties, zip codes, and states. The models also show the story remains the same if you compare places within the same states. Overall it is clear: the most expensive housing markets are taking the biggest hits. A doubling of rents, which is a little less than going from the 10th percentile to 90th percentile of cities, is associated with 13 percentage points greater fall in rents. 



Additional models show that the relationship between higher costs and falling rents is really about the most expensive places. If the sample is divided into the 50% of lowest cost cities and 50% of highest cost cities, the relationship between price and change in demand only holds for the most expensive places. Being a fairly cheap place to live doesn’t matter more than being a very cheap place, but being a very expensive place is a lot worse than just being a little expensive. 

Both the survey data and housing market data suggest that major cities, especially the most expensive ones, will take the biggest demand hit from this. While this will have negative repercussions for those cities, it is important to step back and look at the wider economic meaning of this trend. A significant portion of the cost of housing in these places consists of economic rents created by regulatory constraints that limit the building of new housing. If remote work reduces those economic rents, as this analysis suggests it will, it has the potential to be a massive increase in economic efficiency. All else equal, it is better for people to live in places that actually build new housing when demand increases.  

What This Means for Businesses
In addition to the impacts to cities, the results of the survey also present an important lesson for businesses on the future of remote work. In order to capture and provide professionals with the full benefits of remote work, businesses must allow full-time remote work. While a partial-remote model, a policy that requires a blend of both remote work and in office work, may have some appeal as a “best of both” choice, it also means forgoing many benefits.  A professional cannot move hours and even states away if they still have to go into the office two days a week. Our survey shows that for 41% of people moving out of the area because of remote work, they are going 4 or hours farther away. This is not a weekly commute distance, and is not something workers can do easily with a partial-remote model. 

Likewise, with a partial-remote model businesses forgo one of the biggest benefits of a remote workforce; the ability to hire from a larger talent pool. Businesses cannot hire workers wherever they are if weekly office visits are still required. ‍


The pivot to remote work is the biggest, fastest transformation of the labor market since the World World II mobilization. The direct impacts on professionals and businesses are profound, but the indirect effects are arguably just as large, even though they are just beginning. 

Both survey data and housing market data provide early evidence that these indirect effects of remote work are real and likely to be economically important. This should make us optimistic that remote work work has the capacity to help lean against housing and affordability issues across the U.S. by enabling businesses and professionals to access talent and opportunities beyond their local markets. 

However, to unlock the full potential economic gains from remote work, businesses and professionals have to embrace policies that enable full-time remote work as an option offered to employees. This is an important consideration for businesses considering limiting remote work to a hybrid approach. 



A Closer Look at Multifamily’s

Widening Cracks

The multifamily asset class is still sound, but signs of softness are emerging that may give some investors pause. 


By Natalie Dolce                                                November 03, 2020                        

Six months ago in the pre-pandemic world, concerns about matters such as rental growth stagnation for the multifamily asset class would have been laughable. Even as COVID-19 began to spread within the US, multifamily properties held their own, however more recently, a slightly different picture has emerged and cracks in the asset class have begun to widen. takes a closer look at what was once a seemingly unassailable asset class.

Recent Signs of Improvement (Amongst Concession Challenges)

MRI Real Estate Software recently reported that move-in numbers for multifamily assets have improved; behind only 3% compared to last year as of September. While new applications have also increased, traffic on the other hand, has decreased since hitting a post-pandemic peak in June. However, traffic still remains above 2019 numbers.

Throughout the pandemic, landlords have increasingly adopted new technologies to drive leasing activity, and as a result, new leasing and move-in activity within the sector has improved.

Additionally, tenant move-outs peaked in June following the pandemic, and have been flat since July. Now move-out activity is below 2019 levels, however, renewals decreased in September and are down compared to 2019. According to the MRI report, the key take away is that tenants are staying in place during the pandemic.

Moreover, a recent report from RealPage also showed an improvement in apartment leasing activity during the third quarter; up 8% year-over-year and more than four times the activity in the second quarter.

Contributing to the signs of progress within the market, and chief among the sector’s escalating challenges is the rising level of concessions. Landlords are offering incentives to prospective tenants, which has likely helped to drive strong leasing activity.

MRI Real Estate Software reported that concession volume is up 21% compared to last year, while concession values are up 13% from last year and have increased 82% since April.

In September, there was a significant jump in concessions from August—which was the first rental month after the CARES Act benefits expired. Concessions now total nearly $6 million.

The concessions, however, have not assisted in stabilizing rental rates. Apartment rents were down 3% in September, despite the increase in concessions. In addition, pricing compared to renewal term is down the lowest since the start of the pandemic for longer lease terms and the highest it has been since the start of the pandemic for shorter lease terms. During the pandemic, many tenants have shifted to shorter lease terms, however, the industry standard of 12-month lease terms have started to normalize again. New lease term prices are trending 3% below 2019 numbers.

Class A’s Rise in Concessions

The pandemic has placed added pressure on the multifamily sector, and as a result, apartment concessions have primarily increased within the nation’s most expensive markets. According to research from Fannie Mae, metros with higher rent levels and more construction activity are experiencing a substantially higher increase in concessions than lower priced metros.

New York currently has the highest concessions in country, which have increased to 12.6% this year from 7.5% at the end of 2019. San Francisco concessions are trailing New York at 11.3%, while Boston follows at 9.6%. Modestly priced markets, like Orlando and Phoenix, have seen a lower increase in concessions compared to last year and relatively low concessions overall. Orlando concessions increased from 5.3% to 6.6%, and Phoenix concessions have increased from 4.9% to 6.4%.

Fannie Mae notes that these markets have also seen the most new construction apartment deliveries this year. In 2020, 450,000 new apartment units have hit the market, but most of these units have been concentrated in 12 metros. New York, Washington D.C., Los Angeles, Houston and Dallas have seen the largest number of new apartment deliveries, while Austin, Seattle and Boston follow with slightly fewer units, and Orlando, Atlanta, Phoenix and Miami complete the list of the top 12.

In terms of asset class, the highest-priced apartments in the most expensive markets are experiencing the highest concessions. Class A apartment concessions have increased from 7.2% at the end of 2019 to 9.2% in August 2020. In addition, this market segment has seen the most new construction activity. This year, 246,000 units have already been completed and another 204,000 units are scheduled for completion this year. As a result, class A concessions should continue to rise.

Class B and class C asset classes have also seen an increase in concessions since April, but to a lesser extent than class A apartments, as these apartments are generally part of the older building stock and not new construction. Class B concessions increased from 5.5% in 2019 to 7.2% in August 2020, while class C apartments increased from 5.6% in 2019 to 6.8% in August 2020.

The rising concessions in class A apartments could serve an indicator for the rest of the market. As class A concessions increase, pressure will be placed on class B and class C assets to do the same. As a result, Fannie Mae is anticipating rising concessions across asset classes in markets with high rates of new apartment deliveries. The agency additionally suggests that apartment demand will increase in step with job gains as the market unfolds over the next 12 months.

Stalled Recovery in Gateway Product / Urban’s Drive

Overall, apartment demand rebounded in many metros in the third quarter, according to a report from Yardi Matrix, which suggests the resurgence helped stabilize the apartment market and kept asking rents from declining further. However, Yardi Matrix reported that while apartment demand has picked up in some areas of the country, recovery has stalled in high-priced gateway markets. As the pandemic sent workers home, these gateway markets experienced the largest exodus of people; possibly resulting in long and difficult recoveries. As a result, these expensive gateway markets and markets with new construction activity have generally seen the most significant decline in asking rents.

According to Yardi Matrix, as rent growth is strongly correlated to the overall expense of apartments by market, higher-end units have experienced the largest decreases in rents and occupancy post-COVID-19. While class B and class C apartments were the first to struggle with rent and rent collections, urban core market apartment rents have begun to drop as the impacts from the pandemic set in.

For example, landlords in San Francisco, Chicago, Los Angeles and San Jose experienced steep drops in rent growth and absorption year-to-date through August. In New York, rents declined sharply as absorption floundered.

Data from RealPage shows that rents have declined 1.7% in the top 50 markets in the US; marking the first time since 2010 that rents in these markets have decreased. By comparison, national rents have only dropped .2% during the same time.

As such, suburban rents are outperforming the urban core. During the pandemic, rents in the suburbs have actually increased by .4%. Though suburban rents have been surpassing urban rents for the last several years, urban markets are experiencing more dramatic impacts from the economic destabilization.

During the first half of the year, occupancy rates within the urban core fell by more than 100 basis points. Upon a decrease in asking rents, the urban core remained stable at or above 95% for the last business cycle, and now nears 93%. While occupancy rates also fell in suburban markets, to a lesser degree, suburban markets have yet to see the same decrease in asking rents.

Class B and C Apartments Will Be Next to Face Headwinds

Though future sector activity could be impacted by various factors, such as unemployment rates, government relief plans, economic recovery and the upcoming election, certain experts suggest that problems could be on the horizon for multifamily assets.

Fitch Ratings’ recent report suggests that US apartment REITs with high exposure to class B and class C assets and properties in gateway cities are vulnerable to the economic fallout of the coronavirus pandemic, due to the risk of urban flight and high job losses among lower-income households.

While federal stimulus payments and expanded unemployment benefits have assisted the apartment sector, Fitch Ratings cites Federal Reserve data displaying that job losses are highest among lower-income households, and others are seeing the same trend. “Low-income workers feel little financial stability,” CoStar Advisory Services consultant, Joseph Biasi told in an earlier interview. “You can see that with those making less than $75,000.”

Unemployment among lower-income households increases the risk for apartment REITs with sizable exposure to B and C assets in low-income neighborhoods. Still, the pressure might be partially offset by renters trading down to B and C properties due to greater affordability, according to Fitch.


Other Risk Factors

As previously stated and as others additionally points out, apartment REITs’ exposure to gateway cities could serve as another risk factor. Many speculate that renters will relocate to more affordable suburban and Sunbelt markets as they seek more space in single-family rentals.

“We’ll see some of those higher-income households pushing out into the suburbs and taking advantage of cheaper rents,” Biasi says. “On top of that, they’ll have a little more space because they’re not in a city anymore.”

RCLCO forecasts that demand for build-to-rent homes is set to increase. “Given demographic trends RCLCO forecasts much greater demand than the current pace of production, which could result in a significant supply shortfall, suggesting the sector presents a strong market opportunity in the coming decade,” according to the RCLCO report, written by managing directors, Gregg Logan and Todd LaRue.

If the urban flight continues, concessions are likely to continually rise in class A apartments in gateway cities. Enduring geographic and age-related demand shift preferences by renters could limit longer-term growth rates within these assets, according to Fitch.

Though larger than expected same-store net operating income declines could pressure ratings, most Fitch-rated entities can withstand anticipated levels of delinquent rent payments that are consistent with recent trends. Still, Fitch says government-mandated moratoriums on evictions, high unemployment and lack of federal stimulus permanency are negatives for REITs’ top line.

Late Loan Payments Spike / Recent Spike in Late Loan Payments 

Though certain entities have been able to withstand recent delinquent rent payments, the sector is currently experiencing a spike in late payments for both agency and non-agency loans, according to Moody’s Analytics REIS.

In September, late payments for agency loans rose to 1.4% from 0.46% in August. Non-agency late payments rose from 1.83% in August to 2.78% in September.

“Now, thirty days of performance does not make a trend, but the magnitude of change is noteworthy,” according to REIS. “Nevertheless, the amount of the change is minuscule relative to changes we have witnessed in loans for retail and lodging properties. We will be watching this carefully as remits come in this month and thereafter.”

According to Trepp, the special servicing rate hit its highest mark since May 2013, increasing 44 basis points to 10.48% in September. In August, the rate was 10.04%. While retail and lodging drove the increases, multifamily special servicing rates rose 10 basis points to 2.66%.

Expecting further issues in the multifamily sector, principal, managing director and global head of Avison Young’s asset resolution team, Michael T. Fay states, “What is going to be interesting is what happens to multifamily with the expiration of the unemployment money that was coming out from the stimulus packages.”

While landlords have been challenged to make rent payments throughout all sectors of commercial real estate, industry stakeholders will continue to watch closely as cracks continue to emerge within the market.


According to the National Multifamily Housing Council’s Rent Payment Tracker, apartment rent collections declined by 2.4% in September, and fewer renters made a full payment in mid-September than in mid-August.

Leading the urban core in rent decreases was Austin’s Downtown/University submarket, which declined by 8.4%. Downtown San Francisco and Downtown Los Angeles rounded out the top three on the list, with rents falling 7.8% and 6%, respectively. As a result, the list included four markets in California, which until the pandemic had seen strong rent growth, and in markets like Boston, which are both expensive and heavily supplied.

Austin was really the only anomaly on the list; however, the Real Page report notes that it has been both a high-development market and a high-performing market at times during the last decade, and as a result has seen big increases and decreases in rental rates. In 2009, apartment rents fell 13%—the steepest decline on record, while rents climbed 14% in 2011. These swings have become typical for the market. Furthermore, the Downtown/University area is the most expensive neighborhood in Austin, which is on trend with the other markets.

Affordable Housing Growth The migration to lower-cost housing could eventually give a boost to affordable housing, which is one demand driver for the asset class. Earlier this year, Novogradac, a national accounting and consulting firm, released a report saying that occupancy rates and rental income at low-income housing tax credit properties recover quickly after economic downturns. As the economic dislocation continues, market-rate apartment residents will start to seek more affordable housing options, increasing demand for affordable units. In a separate report, MRI Software’s Brian Zrimsek predicts that affordable housing demand will not decline.

Other Demand Drivers John Burns Real Estate Consulting thinks short-term suburban rentals, which it defines as one-to-two-year lease terms—could also be demand drivers for residents looking for work-from-home space and outdoor access. John Burns believes these opportunities will be most available in suburban markets. Renters are seeking larger units in these areas, usually two-to-three bedroom apartments. These renters are less concerned about density, walkability and access to amenities, particularly as many restaurants, retailers and bars are shuttered.

Affordable Housing Rent Collections Fell When CARES Act Relief Expired

Affordable housing provider Community HousingWorks saw an increase in rent delinquency in August and September, and more could be coming. 


By Kelsi Maree Borland                                      November 02, 2020                  


Affordable housing developer and operator Community HousingWorks has remained stable and above-market rent collections throughout the pandemic, but noticed a notable increase in rent delinquencies in August and September, when the additional unemployment benefits under the CARES Act expired.

“Many affordable housing providers were seeing 11% of residents that either couldn’t pay rent or were behind on rent. At CHW, we have done a little better. As of September 5% of residents were not paying full rent. We expected a deterioration in rent collections, and that has occurred but not nearly as much as we collectively would have thought,” Sean Spear, the newly named CEO at Community HousingWorks in California.


The pandemic has severely impacted service-driven industries, which employ many residents of affordable housing properties. As a result, the housing segment has been the hardest hit early in the recession, compared to market-rate product. “This is an evolving issue,” says Spear. “Everyone’s assumption was that our communities would be particularly affected by this situation. Residents have had a hard time meeting their rent or getting behind in rent at a dramatic scale and they are facing higher potential evictions. That being said, we have been surprised that many of our residents were staying up to date on rent.”

However, Spear also believes that the strong rent collections indicate a bigger issue. “People are sacrificing other needs to pay the rent. The alternative of losing housing is a worse situation,” he says. “To me, this isn’t a good thing that we are seeing higher rent collections than expected. It is creating real stresses on families and individuals in supportive housing. That is an unfortunate consequence of the COVID crisis.”


As residents begin to face more challenges, rent collections have been negatively impacted. After the additional unemployment benefit under the CARES Act expired in late July, Community HousingWorks saw an increase in rent delinquencies. “We definitely saw an increase,” says Spear. “We had been at a little less than 1% of non-payment before the COVID crisis, and in the first months, we increased to 2%. In August, it went up to 3% and in September it went up to 5%.”

The expiration of unemployment benefits is just part of the issue. Unemployment benefits could expire altogether soon, and the market has yet to recover. This could increase rent delinquencies in the coming months. “I think we are particularly concerned because the additional $600 was helping to blunt the rent delinquency issue,” says Spear. “When that went away, we saw the impact. The other factor is that people were eligible for unemployment insurance, and that typically runs for six months. I think that we will start to see a dramatic increase as people’s unemployment benefits burn off and they aren’t able to find work again.”



US Hotels Fall Below Half Full, Real Estate Rebound May Begin in 2021, Lower Parking Revenue Dings REIT

By Richard Lawson                                              October 28, 2020                                      CoStar News

Hotels Fall Below Half Full


The two-week run of U.S. hotels hitting the half full mark ended last week with demand for rooms showing the biggest weekly drop since the early days of the pandemic.

The average occupancy dropped to 48% for the week ended Oct. 24, according to the latest data from hotel industry research firm STR, which is owned by CoStar Group. Revenue per available room, another key metric for the lodging industry, remains more than 50% lower than last year. 

STR’s data showed demand for rooms dropped 4.1% last week from the previous week. Weekend occupancy, which had been going strong with leisure travelers, slipped below 60% to 57.2%. 

Jan Freitag, CoStar’s national director for hospitality analytics, said it could be a sign that leisure travel is starting to slow.

Occupancy at midscale hotels dropped just below 50% for the first time in months while upper midscale and economy hotels stayed above half full, with 52.2% occupancy for each class. The figures are used by investors and lenders to value hotel property.

Mountain areas, particularly the Great Smoky Mountains, performed well. Knoxville, Tennessee, topped the country for weekend occupancy at 90.7%, and weekday occupancy at 71%. 

The Tennessean, an 82-room boutique hotel in downtown Knoxville, for example, was fully occupied last weekend largely because of two weddings, according to staff. They said the hotel never closed during the pandemic.

Meanwhile, the average hotel occupancy in China continues to climb, hitting 67.4%, moving toward seasonal norms, Freitag said.

But the country also serves as an indicator of what to expect when U.S. travelers start feeling safe and travel more, particularly business travelers for corporate group meetings and conventions. A new outbreak of COVID-19 cases could delay the recovery, though.

Europe hotel occupancy, for example, has been sliding since the end of August as countries grapple with a rise in new cases. Occupancy now is back down to 30.1% after having peaked near 45% in late August.

Real Estate Rebound Could Begin Next Year

Real estate economists and analysts forecast the industry will remain in a slump this year but begin recovering next year and accelerate that improvement in 2022, according to a survey from the Urban Land Institute.

The September-October survey drew conclusions from 43 economists and analysts at 37 real estate firms around the country.

They forecast that gross domestic product will fall 5% for 2020, then show 3.6% growth next year and 3.2% in 2022. Their 2021 and 2020 forecast reflects slower growth than they thought when they were surveyed in May.

They forecast then that 2021 Gross Domestic Product growth would be 3.9% and 3.6% for 2022. Their 2020 forecast, though, is an improvement from the 6% GDP decline they forecast in May before early indicators showed a bigger initial bounce back than expected.

The ULI survey revealed that the respondents said transaction volume will hit $300 billion this year, $25 billion higher than they projected in May. They maintained their earlier projections that 2021 transactions will hit $400 billion in 2021 and $500 billion in 2022.

Industrial and single-family real estate will be the top performers, according to the survey. The economists forecast that national vacancy and availability rates for industrial and apartments will be below the 20-year average. But rates will be above average for office and retail.

Lower Parking Revenue Dings Highwoods' Results

Real estate investment trust Highwoods Properties Inc. reported parking revenue fell as fewer workers drive to work.

Parking revenue dipped to help drag revenues down $6.4 million to $181 million for the quarter, the Raleigh, North Carolina-based REIT reported.

Executives with Highwoods had warned during the second quarter that parking revenue would be lower because of the pandemic and persist through the rest of the year. Mike Mulhern, the REIT’s chief financial officer, said in a conference call to discuss its most recent earnings that it has offset much of the effect with lower operating expenses across properties.

Ted Klinck, Highwoods' chief executive officer, said in the call that office capacity usage among tenants across its 27 million-square-foot portfolio rose to 25% in the third quarter. “We don’t expect a sizable increase in utilization until at least early 2021,” Klinck said.

Another Hurricane Hits Louisiana

Hurricane Zeta made landfall as a Category 2 hurricane Wednesday afternoon in southeastern Louisiana, about 65 miles southwest of New Orleans. 

Zeta is the fifth named storm to hit Louisiana this hurricane season, which doesn't end until Nov. 30. 

Zeta was expected to bring life-threatening storm surge, damaging winds and heavy rain to Louisiana and surrounding states. 

Class B and C Apartments Will Be Next to

Face Headwinds

Fitch says that renters could relocate to more affordable suburban and Sunbelt markets as they seek more space.


By Les Shaver                                                        October 22, 2020                      


While the apartment sector has withstood the COVID-19 pandemic reasonably well due to federal stimulus payments and expanded unemployment benefits, problems could be on the horizon for multifamily assets, according to Fitch Ratings.


Fitch says that US apartment REITs with high exposure to class B and C assets and properties in gateway cities are vulnerable to the economic fallout of the coronavirus pandemic due to the risk of urban flight and high job losses among lower-income households. 

Fitch cites Federal Reserve data showing that job losses are highest among lower-income households. Others are seeing that same trend. “Low-income workers feel little financial stability,” CoStar Advisory Services Consultant Joseph Biasi told GlobeSt in an earlier interview. “You can see that with those making less than $75,000.” 


Unemployment among lower-income households increases the risk for apartment REITs with sizable exposure to B and C assets in low-income neighborhoods. Still, the pressure might be partially offset by renters trading down to B and C properties due to greater affordability, according to Fitch.


Another risk factor for apartment REITs is exposure to gateway cities, where the pandemic has an outsized effect due to density. Like others, Fitch speculates that renters will relocate to more affordable suburban and


Sunbelt markets as they seek more space. 

Biasi told GlobeSt that he sees similar trends. “We’ll see some of those higher-income households pushing out into the suburbs and taking advantage of cheaper rents,” Biasi says. “On top of that, they’ll have a little more space because they’re not in a city anymore.”


Many of these renters could find themselves in single-family rentals. RCLCO, for instance, is forecasting that demand for build-to-rent homes is set to increase. 


“Given demographic trends RCLCO forecasts much greater demand than the current pace of production, which could result in a significant supply shortfall, suggesting the sector presents a strong market opportunity in the coming decade,” according to the RCLCOreport, written by managing directors Gregg Logan and Todd LaRue.

If this urban flight continues, concessions are likely to continue to rise in class A apartments in gateway cities. Enduring geographic and age-related demand shift preferences by renters could limit longer-term growth rates in these assets, according to Fitch. 

While larger than expected same-store net operating income declines could pressure ratings, most Fitch-rated entities can withstand anticipated levels of delinquent rent payments that are consistent with recent trends. Still, Fitch says government-mandated moratoriums on evictions, high unemployment and lack of federal stimulus permanency are negatives for REITs’ top line.

Big warehouses are hardly feeling

the recession

The industrial real estate market typically rises and falls with the economy, but the flourishing e-commerce and logistics industries have kept it from falling much during the current recession.


ALBY GALLUN                                                            October 13, 2020               Crain's Chicago Business



Local industrial landlords are surviving the pandemic as owners of other commercial properties suffer. But they’re not immune.

The vacancy rate for industrial property in the Chicago area rose to 6.73 percent in the third quarter, up from 6.42 percent in the second quarter and 6.15 percent a year earlier, according to brokerage Colliers International.


Still, it hardly feels like a recession to investors that own big warehouses, which remain in high demand as e-commerce and logistics firms continue to expand. With more homebound consumers shopping online due to the COVID-19 pandemic, the companies that sell and distribute the products they buy need more warehouse space. Amazon has leased more industrial space in the Chicago area this year than any other company by far.

After a frenzied second quarter, Amazon took a breather in the third, signing just one lease for two buildings in Cicero totaling 576,000 square feet, according to Colliers. But the Seattle-based e-commerce giant is on the hunt for more space, said Jeffrey Devine, principal in Colliers’ Chicago office.

“They still have a huge appetite to grow here,” he said.

Other companies picked up some of the slack in the third quarter but not enough to keep the local vacancy rate from rising. The primary measure of demand, net absorption—or the change in the amount of leased space vs. the prior period—totaled 1.1 million square feet in the third quarter here, an improvement from just 355,000 square feet in the second quarter but way down from 9.2 million square feet a year earlier, according to Colliers. Absorption in the Chicago area totaled 8.6 million square feet through the first nine months of the year, less than half the total for the same period in 2019.

“Obviously, the pandemic pulls a lot of companies into hold mode,” unwilling to make big investments when the future is so uncertain, Devine said.

Some didn’t hesitate in the third quarter. Detroit-based General Motors leased a 1 million-square-foot warehouse in Joliet, the biggest local lease of the quarter, according to Colliers.

McKesson, an Irving, Texas-based pharmaceutical company, leased a 570,000-square-foot building in Manteno, the third-largest deal after Amazon’s Cicero lease. Drug companies are expanding their U.S. supply chains, which could boost demand for warehouse space, Devine said.


The industrial sector, characterized by massive prefabricated buildings along the interstate, is hardly the sexiest part of the commercial real estate market. But it is the most stable these days. Owners of many hotels and shopping centers are struggling make loan payments, as the pandemic keeps travelers and shoppers at home. Office and apartment landlords are struggling, too.

The industrial market typically rises and falls with the economy, but the flourishing e-commerce and logistics industries have kept it from falling much during the current recession. The local industrial vacancy rate soared as high as 12.2 percent after the last recession, in early 2010, and then dropped as low as 6.15 percent in third-quarter 2019, according to Colliers.

Devine doesn’t expect the vacancy rate to rise much further, predicting it could fall again after the pandemic passes and economy recovers.

McDonald’s, Chipotle and Domino’s Are Booming During Coronavirus While Your Neighborhood Restaurant Struggles


A health crisis is creating a divide in the restaurant world. Big, well-capitalized chains are thriving while small independents struggle to keep their kitchens open. 


By: Heather Haddon                                                   October 12, 2020                     Wall Street Journal

The coronavirus pandemic is splitting the restaurant industry in two. Big, well capitalized chains like Chipotle Mexican Grill Inc. and Domino’s Pizza Inc. are gaining customers and adding stores while tens of thousands of local eateries go bust. 

Larger operators generally have the advantages of more capital, more leverage on lease terms, more physical space, more geographic flexibility and prior expertise with drive-throughs, carryout and delivery. A similarly uneven recovery is unfolding across the business world as big firms have tended to fare far better during the pandemic than small rivals, thinning the ranks of entrepreneurs who could eventually become major U.S. employers. In the retail world, bigger chains like Walmart Inc. and Target Corp. are posting strong sales while many small shops struggle to stay open.

The divide between large and small restaurants surfaced in the summer. Chipotle more than tripled its online business sales in the second quarter while Domino’s, Papa John’s International Inc. and Wingstop Inc. all reported double-digit same-store sales increases in the third quarter compared with the year-earlier period. McDonald’s also said U.S. same-store sales rose 4.6% in the third quarter. That included a rise in the low double digits during September, its best monthly performance in nearly a decade. It credited faster drive-throughs and promotions.

Off Menu


People are spending less than during the last recession at restaurants, particularly smaller independent ones, straining the finances of many businesses.


Many other big restaurant companies took additional steps to take advantage of the shift to takeout. Brinker International Inc.’s Chili’s division pushed up the summer debut of a delivery-only brand, Just Wings, that it expects to generate more than $150 million in sales in its first year. 

“The silver lining in this pandemic is we are going to emerge stronger,” said Bernard Acoca , chief executive of El Pollo Loco Holdings Inc., a chain of 475 Tex-Mex restaurants across the Southwest. El Pollo Loco has opened three restaurants in 2020 and aims to add more in years ahead, he said.

The prospects for many independent restaurants, meanwhile, are getting dimmer. Three-quarters of the nearly 22,000 restaurants that closed across the U.S. between March 1 and Sept. 10 were businesses with fewer than five locations, according to listing site

Frequent closings have always been a facet of the restaurant business. Restaurants typically run on slim margins. Some 60,000 restaurants open in an average year, according to the National Restaurant Association, and 50,000 close. 

But this upheaval is the most profound in decades. The association predicts 100,000 restaurants will close this year. The sudden loss of many independent restaurants could permanently alter the landscape of American cities. Some chefs and restaurant operators fear the recent revival of downtowns across the country will slip into reverse. 


Fewer Cooks in the Kitchen


Independent restaurants have shed more of their workers this year than chains as the industry takes a bigger hit than it did during the last recession. Many more restaurants are projected to close for good this time around.

Employment at restaurants and bars has dropped by 2.3 million jobs from a total of more than 12 million before the pandemic, according to the Labor Department. In fact, the broader leisure and hospitality sector experienced the largest total drop in employment since February in a major industry. 

The pandemic will wipe out $240 billion in sales this year, according to a projection from the National Restaurant Association, a trade group. Last year, the industry brought in more than the agriculture, airline and rail-transportation industries combined, according to Bureau of Economic Analysis figures.

Getting Bolder

The pandemic hasn’t spared all big chains. 

Many casual-dining companies have posted double-digit sales declines. More than a dozen companies have filed for bankruptcy protection, including Ruby Tuesday Inc. and California Pizza Kitchen. Shake Shack Inc. and Ruth’s Hospitality Group Inc. returned millions of dollars of federal aid meant for smaller businesses hurt by the coronavirus pandemic. Starbucks Corp. , Dunkin Brands Inc. and Pizza Hut said they are planning to close 1,500 stores between them in the next 18 months.

Yet many other chains say now is a time to get more aggressive. Olive Garden’s parent, Darden Restaurants Inc., is looking into expanding in urban areas including Manhattan where rents were previously too expensive to justify growth. Plenty of space is opening up: 87% of 450 restaurant bars, and clubs in New York said in a recent survey that they couldn’t pay their full rent for August, according to the NYC Hospitality Alliance. 

Starbucks, while closing some locations, plans to spend $1.5 billion during its current fiscal year partly to add 800 stores in its American and Chinese markets, speeding a shift to restaurants that emphasize drive-throughs and pick-up counters. Darden plans to spend $300 million by mid-next year, a chunk of it to add 40 new restaurants. Papa John’s franchisee HB Restaurant Group LLC plans to open dozens of shops and Wingstop said it added 43 restaurants in the quarter ended in September.

“There is no better time than now to get bold,” Wyman Roberts , Brinker’s chief executive, said in an interview.


Some customers have already moved more spending to chain restaurants in ways they say they expect to last beyond the pandemic.

Joyce Hill, a 52-year-old professor at the University of Akron in Ohio, said she has been ordering more from Cracker Barrel Old Country Store Inc. and Bloomin’ Brands Inc.’s Bonefish Grill and Carrabba’s Italian Grill divisions. She said she intends to stick with chains because it is easier and she doesn’t feel safe eating inside restaurants. 

“With a few clicks, I can order a whole meal, pay for it, and not have to leave my car to pick it up,” said Ms. Hill. She said she recently stopped by a local Mexican restaurant for shrimp tacos after not visiting for months. It was closed. 

One restaurateur benefiting from this shift is Tabbassum Mumtaz, the operator of 400 KFC, Long John Silver’s, Pizza Hut and Taco Bell restaurants in nine states. Things didn’t look good at first. He shut all of his dining rooms after the pandemic intensified in the spring, and his sales, typically about $500 million a year, fell by an average of 25%. 

But he said he shifted many of his 10,000 employees to cleaning and staffing drive-throughs—which he said became the core of his business.

“Everyone was of one rhythm,” said Mr. Mumtaz, owner of Richardson, Texas-based restaurant operator Ampex Brands LLC. 

Mr. Mumtaz said his cash balance improved around April after parent company Yum Brands Inc. deferred the 5% royalty payments he owed for several months. Yum introduced promotions for bigger family deals, such as $30 buckets of KFC chicken, to help boost sales as customer counts remained low. 

Some landlords provided rent breaks and his three banks agreed to let him pay only interest on loans, suspending principal payments. Mr. Mumtaz also received a Paycheck Protection Program loan valued at more than $5 million in April to help retain 500 jobs, according to federal figures. He said he used the money to avoid layoffs. 

At the same time, Mr. Mumtaz said, he started drawing new customers, including those who used to frequent nearby independent restaurants and bars that still remained closed. Mr. Mumtaz said that his Pizza Hut same-store sales were up 18% over last year by the summer, and that business at KFC, Taco Bell and Long John Silver’s also rebounded. He has since paid back some of his deferred royalties. 

Mr. Mumtaz said he is feeling optimistic: “I’m taking every step carefully.”

No Levers to Pull


Turmoil among independent restaurants is cascading down to a swath of suppliers, including many seafood companies and small farmers that mainly serve diners rather than supermarket customers. Every 100 restaurant jobs support 50 more at suppliers such as wholesalers and farmers, according to the left-leaning Economic Policy Institute. 


Kate McClendon, co-owner of McClendon’s Select organic farms in Arizona, said 95% of her restaurant orders vanished when the state shut down dine-in restaurant service in March. The family-run farm threw together a boxed-produce program to stay afloat, but a lot of the specialty greens they grow for chefs didn’t translate into demand from home cooks. She said the farm has recouped fewer than 60 of its 90 regular restaurant customers, and that orders are being placed roughly half as often. 

“Independent farms rely on independent restaurants. Big chains don’t buy from local farms,” Ms. McClendon said.

Many independent restaurants are suffering partly because they tend to have smaller physical footprints, especially in higher-cost big cities. Camilla Marcus closed West-bourne cafe in Manhattan’s SoHo neighborhood in September after her landlord declined to offer a break on her rent. West-bourne had no patio, and Ms. Marcus said the return of indoor dining at 25% capacity wouldn’t work at the communal tables in her 1,000-square-foot dining room.












“With just one location, there are just no levers to pull,” said Ms. Marcus, a co-founder of the Independent Restaurant Coalition, which is lobbying Congress to pass a stimulus package backed by House Democrats that would allot $120 billion for the sector. 

Nick Kokonas, co-owner of the Chicago-based Alinea Group of four high-end restaurants, has relied on a rotating to-go menu to keep his operations afloat. Two of his restaurants made money last month, one broke even and one lost $100,000, he said. He is considering closing some of them for the winter to preserve cash.

“We’ll be open through December. Then we don’t know,” Mr. Kokonas said. 

Robert St. John, an owner of restaurants and bars in Hattiesburg, Miss., closed his restaurants in March when the state ended dine-in service, and filed a mass unemployment claim for his 300 employees. 

Banks restructured some of his loans, Mr. St. John said, and he received a PPP loan of roughly $600,000. But with sales down about 70% across the six restaurants, he said, he couldn’t justify bringing back many employees. An attempt at socially distanced dining at his Italian restaurant ended due to insufficient demand. 

“There was no real excitement or fever about us reopening,” Mr. St. John said.


By the summer, Mr. St. John decided to close his flagship Purple Parrot Café, a destination eatery for the area that boasted 4,000 bottles of wine, after 32 years. He said he knows couples that celebrated prom together at Purple Parrot and now have been together for decades.

He has also since closed a cocktail bar and a high-end doughnut shop, as business from Hattiesburg’s University of Southern Mississippi dried up with the school’s shift to virtual learning. Mr. St. John, who described himself as an optimist to a fault, is applying for a $500,000 small-business loan to build a new restaurant with a big patio where he can serve people outdoors.

“It’s scary, I’ll tell you,” he said. “I would refuse to think that I would have to shut down more.”



Manhattan Apartment Rents Dropped 11%

Last Month

 Miriam Hall, Bisnow New York City                        October 8, 2020                                     Bisnow New York City 


Apartment rents in New York City are still falling as the market digests the tectonic shifts brought on by the coronavirus pandemic.

In Manhattan, the median rental price with concessions taken into account was $3,036 in September, an 11% drop from a year earlier, according to figures released by appraisal firm Miller Samuel and brokerage Douglas Elliman.

Over 55% of the new leases signed had some form of concession included, up from 34% last year. The vacancy rate in the borough hit 5.75%, yet another record. Meanwhile, listing inventory tripled from last September. 

In Manhattan, the median price of a studio was $2,350 a 13% drop year-over-year. The decrease at the upper end of the market, the top 10%, was less severe, dipping 3% to hit a price of $8,216.

The outer boroughs also recorded declines. The median rental price in Brooklyn was $2,815, a 3% decline, with 48% of all leases featuring a concession of some sort. In Queens, the median rental went down a massive 12% to reach $2,442, and nearly 63% of leases had some form of concession.

The data further illustrates the impact the pandemic is having on the city, and the adjustments many residential landlords are making to deal with the impact of job losses and people opting to leave — permanently or temporarily.


“It’s the way the pendulum swings,” Joy Construction principal Eli Weiss told Bisnow last week. His company owns multifamily properties in Manhattan, Brooklyn, Queens and the Bronx. “Right now, if you’re a tenant, you’re the one who has all the power.”


Robert Nelson, whose company Nelson Management owns rental properties across the five boroughs, put it more bluntly on a recent Bisnowi webinar: “In Manhattan, there is blood on the streets,” he said. “It’s really, really bad.”

Delayed Stimulus Talks Could Hurt These American Renters


Aly J. Yale, Senior Contributor                                October 7, 2020                               Forbes


President Trump’s recent waffling on potential stimulus efforts could have sweeping effects for American renters. 

According to a new report from public policy think tank the Urban Institute, about 5.3 million renter households are dealing with a job loss. Though state unemployment helps, a whopping 68% of those are still considered rent-burdened—paying more than 30% of their income in rent each month.

Though the additional $600 unemployment stipend offered through the CARES Act put a dent in these burdens initially, that assistance expired in late July. President Trump’s executive order in August provided another $300 in weekly assistance, but because many states have exhausted those funds, his announcement to stop stimulus talks on Tuesday will halt many of those payments as well. 

This puts renters in a bind—especially those in struggling states like Louisiana. Of the state’s renter households with a recent job loss, 71% are rent-burdened without any additional federal assistance. With the $300 payment, about 54% are. 

“Despite the slight economic improvement, the need for rental assistance is more pressing than ever,” Urban Institute researchers wrote. “The $300 federal supplemental assistance authorized through the president’s executive order is ending in some states. Renters who have not regained employment are likely to need longer-term assistance to stay housed, as many jobs are unlikely to return as the economy recovers.”

According to the Institute’s findings, returning to the additional $600 supplement would reduce rent-burdened households considerably. In Louisiana, only about 36% of renters would struggle given this additional payment. Nationally, it’d be just under 40%. 

Fortunately, non-paying renters can’t be evicted just yet. Thanks to an eviction moratorium issued by the Centers for Disease Control in September, renters can’t be evicted due to non-payment until after December 31. 

Once 2021 rolls around, though? There’s no telling.

“The CDC’s eviction moratorium affords most renters a few extra months without the threat of losing their housing,” Urban reported, “but the inability to pay rent puts renters and landlords in precarious financial situations.”

Unless the moratorium is extended, it’s likely many non-paying renters would face eviction in the New Year.

Incremental Improvements in Hotel Profitability Slow

But New Analysis Shows Some Positive Trends

By Raquel Ortiz                                                         October 7, 2020                                STR/CoStar


Balance sheet data for U.S. hotels for August showed no major improvements in profitability, compared to July, according to an analysis by CoStar's hotel research and analytics company STR.

Although gross operating profit per available room (GOPPAR) did remain positive for the second month in a row and August had the lowest demand decline since the pandemic started, revenue improvements were stagnant. For top markets, average total revenue per available room (TRevPAR) declined this month, but average GOPPAR did improve.

Here are five takeaways from STR’s Monthly P&L Report for August.

1. Revenues have been gradually improving, but profits remain weak compared to last year.


TRevPAR for full-service hotels is only 25% of what it was last year in August, and GOPPAR is only 6% of August 2019 levels. Limited-service hotels have been faring somewhat better with TRevPAR at 38% and GOPPAR at 26%, but these are down from last month. Although the indexes are very low compared to last year, they have improved since April. 

2. Beverage continues to outperform food revenue, but lack of business from groups has hurt.


With an average revenue per operating room of $9.46 since April, revenues from alcoholic beverages were closer to the levels of 2019 and have outperformed both food and other related revenues for services that come from groups and banquet business, such as meeting space rental revenue, audiovisual equipment rental and special service charges.

When indexed, beverage revenues per operating room were 69.5% of August 2019 levels, compared to food at 58.8%, and other related revenues at 22.3%. The lack of group business has really affected other food and beverage revenues as they continue to be negative. Additionally, all three departments —beverage, food and related services — realized less revenue per operating room than they did in July.

3. Group- and banquet-related line items realize the lowest revenue levels compared to last year. 


Indexing revenues from the food and beverage department for 2019 and 2020, all line items relating to groups and banquets realized the lowest levels compared to last year’s revenues.

Room rentals are indexed at only 6% of last year’s levels, which is the highest of any group-related line item. All other group- and banquet-related line items, which includes food service charges, food and beverage catering and audiovisual equipment, are indexed between 2% to 4% of 2019 levels. Comparatively, food and beverage venues are indexed at 15% and room service is indexed at 23% of 2019 levels, which are the highest indexes for the entire food and beverage department. 

4. TRevPAR has slowed for top markets, but eight top markets reported positive GOPPAR.


The average TRevPAR for top markets declined from $49.27 in July to $47.80 in August, but average GOPPAR improved from an average of -$6.19 to -$2.92, which points to more markets managing expenses better.

Two additional top markets demonstrated positive GOPPAR this month—Los Angeles with a GOPPAR of $5.97 and San Diego with a GOPPAR of $4.65. While there have been some improvements month over month, the year-over-year changes remain staggering. Average TRevPAR percent change for these top markets is down 77.0%, and average GOPPAR percent change is minus 97.6%, with New York; Washington, D.C.; and Miami realizing the largest GOPPAR declines.

5. Full-service hotels realize higher gross operating profit margin losses in August.


In August 2019, more than 83.4% of full-service hotels and more than 93% of limited-service hotels realized a gross operating profit margin of greater than 20%. Less than 4% of full-service hotels and less than 1% of limited-service hotels realized a gross operating profit margin below 0%.

In August 2020, it’s a much different story as less than 25% of full-service and only 66% of limited-service hotels realized a gross operating profit margin over 20%. Moreover, 37% of full-service hotels and 11% of limited-service hotels have a gross operating profit margin below 0%. For full-service, the highest percent of hotels (20.6%) had an average gross operating profit margin of 4.5%, and 21.2% of limited-service hotels had an average gross operating profit margin of 44.8%.





Raquel Ortiz is assistant director of financial performance at STR, a CoStar hotel research and analytics company.

Student Housing Investment Sales Volume Remains Depressed 

Despite in-person class policies that vary across the country, on paper occupancies at many off campus student housing properties remains high. That's not helping deals go through, however. 

Bendix Anderson                                                        Oct 06, 2020                           National Real Estate Investor

The crisis caused by the coronavirus has wreaked havoc upon the plans of educators and students for the fall semester. That’s complicated the outlook for off-campus, privately-owned student housing properties.

And on the investment side, things have not been much better. Despite lagging fundamentals at some properties, potential sellers are not willing to accept discounts, which has contributed to an overall slowdown in deal volume.  

Most owners will only consider selling at prices that recognize the operating income currently earned by the property—most are fully-leased, even if not all the students have moved in. The few properties being sold are top-tier assets receiving prices as high as they might have earned before the crisis, relative to income.

“Cap rates in general aren’t changing,” says Dorothy Jackman, executive managing director of the National Student Housing Group for Colliers International, working from the firm's Tampa, Fla., office. She estimates that deal volume is down 40 percent to 50 percent compared to a year ago.

Analysts chart an even steeper decline in the volume of sales over the spring and summer. Investors bought 27 properties with more than 100 beds apiece in the second and third quarters of 2020, according to a count kept by CoStar. That’s a fraction of the 101 student housing properties that traded over the same period in 2019.

“Investment sales activity has slowed to a practical standstill since the onset of the pandemic in March—like most commercial real estate sectors,” says Pierce. “The number of student housing listings has most certainly picked up since the start of the fall semester, however we anticipate that the volume of listings and related closings in the fourth quarter will be much smaller than in recent years.”



At many properties, most beds are full and most students are paying their rent, despite the COVID-19 crisis. The average property is fully-leased—nearly 90 percent of student housing beds are occupied, according to RealPage, Inc., even if some of those students have not yet arrived.

A number of schools changed their plans for the current academic year, sometimes at the last minute. Some universities are holding more—or all—of their classes online. Others moved the starting date for their classes forwards or backwards—changing the move-in dates for students at those schools


“Kids that have signed leases have not moved in—in some cases. How do you count that?” says Jackman. “Because of the moving target that is the September start to the school year, sellers are not comfortable putting properties on the market.”

Some deals have closed with income guarantees, in which sellers agree to modify the purchase price if a certain number of students who have signed leases cancel. So far, however, nearly all of the students who signed leases for fall 2020 have continued to pay rent. “Collections last spring and this fall are all in the 90 percent range,” says Jackman.

The potential sellers of student housing properties this fall also include some who planned to sell before the pandemic, but put those plans on hold until this fall.  “Many of those would-be sellers are testing the waters this fall, but I don’t expect most to sell at a discount,” says Frederick W. Pierce, IV, president and CEO of Pierce Education Properties. “Rather, they will hold those assets unless they receive fair value or there are other compelling factors.”

A good loan is hard to find


Potential buyers also have problems because of the pandemic. “Getting debt financing at attractive leverage levels and rates is challenging right now,” says James Jago, principal at Pebb Capital.

Currently, a typical student housing loan from a Freddie Mac or Fannie Mae lender might cover 65 percent of the value of the property, down from 75 percent last year. Borrowers may also have put into escrow enough funds to pay principal and interest on the loan for a year.

“Many lenders require higher debt service and operating carry reserves from borrowers, which creates a drag on equity returns,” according to Jago.


These changes have a direct effect on the prices equity investors are willing to pay for student housing properties.

“It makes transactions a bit more difficult to get to the finish line,” says Jackman. “Debt markets need to thaw for us to get back to our normal velocity of deals.”

Skeptical buyers worry about the future


Investors are especially skeptical about student housing properties the serve smaller colleges or universities that might potentially suffer from declining enrollments or cuts in the funding they receive from state governments.

“Investors are shying away from smaller, tertiary, budget-constrained institutions, and public schools dependent on state funding in cash-strapped states,” says Jago. The budgets of these public universities may be vulnerable to cuts if their states are already struggling with expensive problems like opioid addiction and liabilities like unfunded obligations to pension plans in addition to the crisis caused by the coronavirus.

However, neither buyers or sellers are discounting the operating income that properties are likely to be able to earn a year from now, in fall 2021. “No one is ready to accept this situation is going to linger that long,” says Jago. “They can’t because it would imply university failures and budget issues that create existential threat to many schools and assets.”

U.S. Home Sales Extended Powerful Rebound Into August

Sales rose 10.5% on annual basis, putting the summer’s housing market well ahead of last year’s sales levels

By:Will Parker                                                                  Sept. 22, 2020                   Wall Street Journal

Home sales rose in August for the third consecutive month, fueled by robust demand for luxury homes and a pickup in Northeast sales that kept the housing market hot. 

Sales of previously owned homes rose 2.4% from a month earlier to a seasonally adjusted annual rate of six million, the National Association of Realtors said Tuesday. That built on a 24.7% surge in July home sales, which was the strongest monthly gain ever recorded, going back to 1968. 

Home buyers have returned in force since late spring, when lockdowns related to the coronavirus pandemic eased, open houses resumed and ultralow mortgage rates helped spur sales. With many Americans working from home, buyers are seeking more space and accelerating plans to leave crowded cities for the suburbs or for more-rural areas, real estate agents say. Other home buyers have moved to live closer to family members. 

Economists and housing experts expect sales to stay strong through the end of the year. The Federal Reserve has signaled it expects to hold rates near zero for at least three more years, and mortgage rates are also expected to stay low. Many companies have indicated that large numbers of Americans will continue working from home even after a coronavirus vaccine is developed, which could continue to boost home purchases. 

“Sales volume could begin to taper in late 2020, but given current conditions, it’s unlikely to diminish too much,” said Matthew Speakman, economist at Zillow.

That is good news for the U.S. economy, which has struggled during the pandemic. The housing market has been one of the few signs of strength, and home sales can also help if consumers spend more on home goods and renovations.

On an annual basis, sales rose 10.5% in August, putting this summer’s housing market well ahead of last year’s sales levels. The boom in sales was most pronounced at the upper end of the market. Sales of homes priced at more than $1 million rose 44% nationally and were up 63.1% in the South.

“The luxury housing sector is just simply taking off,” said Lawrence Yun, chief economist of NAR.

Larger and more expensive homes are in demand as wealthier buyers seek as much room as possible to work from home and in case their children have remote learning this school year. Because home prices have continued to rise during the pandemic, some existing homeowners are taking advantage by selling at a profit and putting the equity directly into bigger and more expensive houses, said Odeta Kushi, deputy chief economist at First American Financial Corporation.


Sales were strongest in the Northeast region during August, increasing 13.8%. That was followed by the Midwest, where total sales rose just 1.4%. The pickup in parts of the Northeast reflected pent-up buyer demand after pandemic-related restrictions began easing in some markets. 

Mortgage rates are also near historic lows. As of Sept. 17, the average interest rate on a 30-year fixed rate mortgage was 2.87%, according to Freddie Mac.

The dearth of lower-cost homes available for sale continues to push up prices, making it difficult for first-time home buyers with more modest incomes to enter the market. The median sales price of an existing home in August was $310,600, 11.4% higher than in the same month last year. 

The lower-priced part of the housing market didn’t enjoy the same price gains. Sales of homes priced at less than $100,000 fell more than 20% compared with a year earlier, according to NAR. And sales of homes priced $100,000 to $250,000 fell 8.9%. Inventory is shrinking for most price points, but this was especially a problem for lower-price homes. “The lower the price point the greater decline in inventory,” Mr. Yun said.

As in July, homes sold at an unusually fast pace in August. The average number of days a home sat on the market before selling was 22, down from 31 a year earlier.

News Corp. , owner of The Wall Street Journal, operates under license from the National Association of Realtors.


Home sales rise most in 7 years

Chicago-area buyers took advantage of super-low interest rates to trade up to the extra space they want in the COVID era.


Dennis Rodkin                                                       September 22, 2020                  Crain's Chicago Business

Home sales soared last month in the Chicago area, as did home prices, according to data released this morning by trade group Illinois Realtors. 

The increases in both prices and sales volume result from two things: low interest rates and households looking for homes that meet the space needs of their COVID era lifestyle that includes working and schooling at home. 

“The Chicago market was hot in August as homebuyers took advantage of record-low mortgage rates,” Maurice Hampton, president of the Chicago Association of Realtors and owner of Centered International Realty in Beverly, said in prepared comments that accompanied the data. “The spike in sales reflects increasing desires for greater space as a result of the ongoing pandemic.”

In the nine-county metropolitan area, 13,360 homes sold in August, an increase of 19.6 percent from August 2019. 

It’s the second month of double-digit increases over last year and the biggest spike in home sales since September 2013, when Chicago-area home sales were up almost 28 percent. September 2013 was the last in a run of 20 months of home sale increases of 20 percent or more, as the Chicago-area home market accelerated out of the recession that followed the mid-2000s economic meltdown. 

In August, 2,813 homes sold in Chicago, up 8.2 percent from the same time last year. It was not a record increase—home sales rose by more in December and January. Chicago figures are included in the data for the nine-county metro area. 

“The housing market continued its summer surge in August,” Sue Miller, president of Illinois Realtors and designated managing broker of Coldwell Banker Real Estate Group in McHenry, said in prepared comments with the data. Some of the increase in sales are purchases that were delayed by the shutdowns of the first few months of the crisis. 

Nationwide, home sales were up 2.4 percent from a year ago, the National Association of Realtors reportedly separately this morning. 

Local home prices also rose sharply.


The median price of a home sold in Chicago in August was $335,000, up 15.6 percent from the same time a year ago, according to the Illinois Realtors report. That’s the biggest year-over-year-increase since March 2014, when prices were up almost 26 percent in the 12th of what would be a 14-month stretch of double-digit price increases. 

In the nine-county metro area, the median sale price last month was $280,000, up 11.6 percent from August 2019. It’s the biggest year-over-year increase since February 2017, when prices were up 11.7 percent. 

The price increase here was in lines with the nationwide increase. The median price of homes sold across the country in August was up 11.4 percent from a year ago. 

US housing supply reaches nearly 40-year low


Increased demand is driving home prices up

September 21, 2020                                                 The Real Deal                                    Staff Contrubition/No Byline

The coronavirus pandemic has exacerbated the severe housing supply shortage in the U.S., with the number of homes on the market reaching historic lows.

At the end of July, the National Association of Realtors found that there were 1.3 million single-family homes on the market, the lowest figure for any July since 1982, the Wall Street Journal reported. And in the week ending Sept. 12, the number of available homes was down 29.4 percent from the same time last year, according to Zillow Group.

​“Every year we think, ‘We’re hitting new record lows, it can’t get worse,’ but then it does,” said Danielle Hale, chief economist for

The shortage has led housing prices to spike: In July, the median price for existing homes jumped past $300,000, an 8.5 percent increase from a year ago, according to NAR. That’s a hindrance for buyers who were lured to the market by lower interest rates, but may be put off by higher prices.

The post-pandemic shortage is a case of supply and demand: There are more buyers looking for homes, and fewer sellers listing them. The high demand for contractors, painters and other home-improvement workers has led to delays in getting homes ready to sell, said Beth Traverso, managing broker at Re/Max Northwest Realtors. Once homes list in her Seattle suburbs market, they find buyers quickly, she told the Journal.

But the lack of homes for resale has led to increased demand for new-build homes. Single-family housing starts were up 4.1 percent in August, according to the Commerce Department. [WSJ] — Akiko Matsuda

The case for single-story office properties

The Daily Herald                                                                        9/18/2020                                                  (no byline)​

Commentary by JSO

There is no doubt this this is your typical nightmare article, its advertising, complete with inaccuracies and taken by the newspaper most likely as a filler.  There was no independent background checking done.  There is also no byline, and frankly that is the very first giveaway. 


There is a reason that these smaller one story building are not cataloged, the vast majority are low cost Class C buildings, lease to under capitalized tenants, short leases, very little tenant improvement offered, and minimal concessions.  


It’s true a Class A building in Chicago or in Indianapolis maybe a look at differently.  But what exactly is a Class A office structure.  Parameters typically used are age, technological capabilities (such as touch-less elevators, state of the art internet access, personalized HVAC control), state of the art HVAC and power supply, elevators, interior infrastructure.  These buildings possess state-of-the-art everything.  Many are built to the US Green Building Council environmental standards.  While they may not be LEED rated, they have been constructed with a low carbon footprint that is advantageous to all into the future.  As the buildings age, they may drop-down class as technology over takes them.  Class A buildings tend to attract the most significant tenants within the city.  They tend to offer large open space 30,000- to 50,000-square feet and more per floor.  There is a certain “wow” factor, and this is accompanied by well-capitalized tenants, strong tenant finishes (TIs), etc.   This particular property in the article is very far from a wow factor.  


One story office buildings have a at least one thing in common and that is their construction technology.  As a general rule they are “stick and brick” buildings.  A few have some steel, but there are typically I-beams tied into the roof but supported by the brick and concrete block walls.  Each unit has a separate entrance and within the unit are bathrooms, at lease one.  Two is not guaranteed.   Sometimes there is a kitchen, mainly there are none. There walks scores as a general rule are low and these buildings are almost 100% car dependent. 


There is simply no way to look at this article other then owners and brokers (NAI Hiffman) acting more like roosters trying to fool general public that they have a one-story Class A building.  This is not uncommon.


There are very few Class A office buildings in the suburbs.  There is an inherent risk in their construction as they reduce the geographic area in which to attract employees.   Rosemont is a good example of where several good Class B buildings are located.  Schaumburg as another office center.  But Schaumburg has struggled really since the last recession and has been suffering from chronic vacancy issues. 


Finally, this is a complex that has done an excellent self-promotion, case in point this article. There is so much smoke and mirrors but their job is to lease space.  The truth is not really that important, paying tenants is what maters. 

The hierarchal class system that exists in the office markets across Chicago and the suburbs needs to change.


For decades, commercial real estate brokers, developers, investors and, to a lesser extent, tenants have designated office buildings according to a Class system. Depending on variables, buildings are considered class A, B or C. The newer the building, the better its location and the greater the mix of amenities, the higher the building class.

According to CoStar, the inventory of 3,128 office buildings in the Chicago area totals 284.7 million square feet, including downtown and suburban properties. Of that total, 470 buildings totaling 157 million square feet are considered to be class A properties.

Not one is a single-story building.

Some would argue there is a bias against single-story office properties. By definition they aren't considered class A. They don't typically have amenities like a fitness center, shared conference rooms and/or coworking spaces. The perception is that these buildings are for back offices and local businesses, not satellite offices of Fortune 500 firms.

The hierarchal building class system has served the market well, until today. Tenants increasingly are looking for an experience that is both first class and safe. In today's changing work environment there is increased life safety and security that comes with the lack of a common lobby, shared elevators and public restrooms.


As owner of Concourse Chicago, a 165,000-square-foot office complex in the O'Hare office market, I understand it may be a losing battle to classify a single-story building/complex class A. The more compelling argument is that a single-story office building can more easily achieve the status of first class by the overall experience and value it provides to those who matter most, its tenants.

Concourse Chicago along with our other single-story properties seek to provide a first-class experience and compete directly with the neighboring class A multistory buildings. At Concourse Chicago there are 12 buildings spread across seven acres, with plenty of green spaces that have been populated with picnic tables, fire pits, public art and even an outdoor conference room.

Concourse also offers tenants free use of multiple conference rooms and coworking spaces, a fitness center with private showers, a shared bicycle program and a complimentary coffee bar.

Another element that generally works against single-story office buildings is a perception of being old and outdated. Yet it is clearly possible, with planning and an appropriate investment, to replicate some of the experiential offerings found in class A multistory buildings.

And what is commonly overlooked is that single-story buildings are in the same markets -- even the same block -- as class A buildings. Single-story buildings share the same area amenities such as access to shopping centers and restaurants, expressways and public transportation ... but at a price 20-40% lower than class A competitors.


In addition to emulating those amenities, single-story office buildings, like Concourse, offer a number of other unique features that tenants find beneficial and class A multistory buildings can't provide. We call these features the SAFE experience:

  • Safety: As we navigate through COVID-19 and beyond, there is an increased awareness of the significant risk and inconvenience that comes with navigating through a common lobby, shared elevators and shared public restrooms. It is a distinct health-safety advantage to have private and exclusive 24/7 control over HVAC systems. Finally, the private entry to each suite provides quick access from the well-lit open-air parking lots. Simply put, single-story properties offer tenants of multistory buildings a safer and easier way to social distance and go back to the office.

  • Affordability: Single-story properties such as Concourse Chicago (at a rental rate of $27-$30 PSF gross) are more affordable than neighboring class A buildings (such as Presidents Plaza at a rental rate of $45-$50 PSF gross).

  • Features: Single-story buildings offer tenants several unique features such as operating windows, internal skylights, private bathrooms and solar panels. Often they also offer walkability and access to green space right out the front door -- something even more important today.

  • Efficiency: In a typical class A or Class B office building there is a common area loss factor that averages 10-20 percent. The common areas include lobby and amenity space, common corridors, public restrooms, elevators and stairways. In contrast, in a complex such as Concourse Chicago the loss factor at 3% is only a fraction of class A buildings.

These characteristics often don't even make the list of class A amenities.

As companies look to offer a safer experience for their employees while wanting to have more control and flexible options within their office space, a single-story office environment is getting a new look from companies.

COVID-19, like 9/11, will significantly change the office market landscape along with the perception and value of the single-story experience. As it does, it may help to change the hierarchal class system that exists.


The first-class experience provided at upgraded single-story properties like Concourse Chicago is every bit, if not more, the experience tenants now desire. That first-class experience is available more economically, and more safely, than ever before in a first-class single-story property and not a Class A building.


Jonathan Berger is the founder of Berger Asset Management, the owner of Concourse Chicago, a series of 12 single-story office buildings in the suburban O'Hare marketplace.

A $700 Million CMBS Portfolio Is On the Brink as Malls Collapse


The bond’s performance shows how rapidly the pandemic is deepening losses in a sector. 

By Adam Tempkin                                                 September 18, 2020                                    Bloomberg


Bond investors who wagered on a group of malls owned by Barry Sternlicht’s Starwood Capital Group are starting to take losses after the Covid-19 pandemic shuttered stores and wiped out emergency cash reserves that had been keeping interest payments flowing.

The commercial-property bond, known as Starwood Retail Property Trust 2014-STAR, is backed by an almost $700 million defaulted loan. It’s cutting interest payouts to investors for a second time, after a reserve account dried up in June and a sharply lower property valuation led to the servicer holding back some funds.

The bond’s performance shows how rapidly the pandemic is deepening losses in a sector that was already getting crushed by online shopping. Even the part of the bond deal that was once rated AAA -- meaning bond raters saw virtually no risk of taking losses just two months ago -- have now been cut deep into junk territory.

“The experience of the mall CMBS from Starwood is certainly symptomatic of the larger narrative,” said Christopher Sullivan, chief investment officer of United Nations Federal Credit Union. Weakening mall asset fundamentals and fewer willing investors “will present ongoing financing problems.”

S&P Global Ratings in July downgraded the entire Starwood commercial mortgage-backed security to speculative grade after a reappraisal of the four regional malls backing the debt valued them 66% lower than when the bond was issued.

And while the servicer on the loan, Wells Fargo & Co., and borrower hope to restructure or modify the loan, the pandemic has put those plans on ice for now, according to a commentary by Wells.

Cutting Back

The servicer began slashing interest payments since June because the sharply lower appraisal triggered a CMBS protection mechanism known as an appraisal reduction amount. With the valuation so much lower, the ARA limits the amount of interest servicers have to advance on loans where the underlying collateral has declined in value.

The idea is that the servicer will hold onto funds longer to safeguard senior bondholders.

“Because of the appraisal reduction amount in place, the servicer is only advancing on a portion of the mortgage loan,” said Dennis Sim, a CMBS analyst at S&P.

The Starwood loan defaulted at maturity last November when the borrower was unable to refinance, but the servicer paid investors out of a dwindling reserve account until June. Wells Fargo is now advancing smaller stopgap payments out of its own pocket.

Total debt on the properties is $682 million. It’s tied to shopping malls anchored by struggling or bankrupt department chains including Nordstrom Inc. and J.C. Penney Co.

The bond included debt linked to regional malls including The Mall at Wellington Green in Wellington, Florida, The Mall at Partridge Creek in Clinton Township, Michigan, and MacArthur Center in Norfolk, Virginia. Struggling collateral anchor Nordstrom shuttered stores at all three locations, according to Trepp.

The slice of the CMBS originally rated AAA was last quoted at 69 cents on the dollar, according to Bloomberg data.

The percentage of overall CMBS loans assumed by special workout servicers is increasing, going from 9.49% in July to 10.04% in August, according to Trepp. About 17.3% of retail loans were in special servicing in August, up from 16% in July, Trepp data show.

Banks see CRE loans delinquencies

hit 5-year high


Rate of 0.59% still well below post-2008 levels

By Kevin Sun                                                        September 17, 2020                        The Real Deal, National                                    

The delinquency rate on bank’s commercial real estate loans is at its highest point since 2015.

The overall delinquency rate on bank CRE loans rose to 0.59 percent at the end of the second quarter, up 65 percent from the prior quarter, according to a report from Trepp. While the figure is far below the peak of 9 percent at the height of the financial crisis, the uptick could indicate an impending “wave of foreclosures” over the next year or so.

Trepp used its Anonymized Loan Level Repository data feed, which covers $146 billion in outstanding loans on participating banks’ balance sheets, to shed light on this more opaque sector of CRE finance.

The delinquency rate for bank loans is well below that of commercial-mortgage backed securities, which peaked at 10.32 percent at the end of June before easing to just over 9 percent in August.  (Many CMBS lenders have offered forbearance to struggling borrowers during the downturn. When loans enter forbearance, their status is changed to “current” from “delinquent,” even if the borrower cannot pay on time. Given the surge in such arrangements, the delinquency rate does not reflect commercial real estate distress as well as it once did.)  As more relationship-driven lenders, banks have proved much more willing to provide relief to borrowers in these uncertain times, compared to the special servicers responsible for CMBS trusts.

At the same time, the sectoral distribution of distress in bank loans parallels the situation in CMBS, with retail the hardest hit, followed by hotels. Office and industrial assets have held firm.

The delinquency rate on smaller bank CRE loans is also noticeably higher than that of large loans, the report finds, which “supports the narrative that smaller businesses are being more directly impacted by the pandemic related economic shutdown.” But there’s one interesting wrinkle in that data.

Among bank CRE loans maturing within the next five quarters, loans of $25 million and above account for a disproportionate amount of the delinquent loan balance. Meanwhile, for loans maturing in the more distant future, these large loans make up 0 percent of the delinquent balance.


“While the data is not able to determine borrower intent or motives, it does make a strong case that a significant number of borrowers with large balance loans have made the decision to stop making payments in advance of an expected default at maturity when they are unable to refinance or extend their current loan,” Trepp analysts write.

Larger, more sophisticated borrowers are less likely to be restricted by recourse or guarantees on their loans, making “strategic default” a more rational move — and one that “will likely result in large number of foreclosures and new REOs on bank balance sheets” as these loans come due, the report concludes.

Mall of America Is Facing a Complicated Debt Situation. But It Might Be Too Big to Fail.


The mall’s owners entered into an agreement with lenders to avoid foreclosure. Now what? 


Liz Wolf                                                                          Sep 16, 2020                       National Real Estate Investor

Like many U.S. malls, the massive, 5.6-million-sq.-ft. Mall of America in Bloomington, Minn.—the nation’s largest mall—was forced to temporarily shut down in March to help slow the spread of the coronavirus.

While the mega-mall has gradually been reopening since June, foot traffic is down and the owners are grappling to collect rent from retailers, restaurants and entertainment venues at the property.


Entertainment concepts at the Mall of America include the indoor Nickelodeon Universe theme park, which reopened in August and is operating at a reduced capacity due to COVID-19 restrictions.

The mammoth complex boasts more than 500 stores, roughly 60 restaurants and other attractions, including the Sea Life Aquarium, the LEGO Store, FlyOver America and CMX movie theaters.  

According to an August report by data firm Trepp, payments on the mall’s $1.4-billion mortgage were made through April, but were delinquent for the next three months. (Trepp’s September data rolls out on Sept. 17).

The mall’s landlord is Canadian-based Triple Five Group, which is owned by the Ghermezian family.  Triple Five entered into a forbearance agreement with the special servicer on its loan that would provide it with enough cash to avoid foreclosure. A Mall of America representative declined to comment on the missed mortgage payments or the servicing process.

Trepp also reported that the mall’s collateral value has taken a hit, falling from $2.3 billion in 2014 to $1.9 billion in 2020.

Tenant rent collections increased from 33 percent in April to 50 percent in July, Trepp reported, as more retailers and restaurants reopened. The Star Tribune reported that in August roughly 85 percent of the mall’s retailers had reopened. The property is under pressure with the reduced number of shoppers during the health crisis. On a normal day, the mall says it averages 100,000 to 150,000 visitors.

Far from alone

Malls across the country are dealing are with reduced rent collections and significantly less foot traffic. They’re also struggling with bankruptcies of department stores and apparel retailers as more consumers are shopping online. E-commerce activity picked up steam when the pandemic began and stores temporarily closed. As stores have reopened, many shoppers are still avoiding crowds.

“Of all the retail types that have been whacked, malls are right on the top of the list for the biggest impact just because it’s a bunch of people,” says Deb Carlson, a director in the Twin Cities office of real estate services firm Cushman & Wakefield. “A mall is an event. And we’re not going to events anymore—whether it’s concerts or malls. Traffic at all of the malls is quieter, and certainly, you’re going to see that even more so at Mall of America.”

One big ball


The Ghermezians own three of the four largest malls in North America. In addition to Mall of America, the other two are West Edmonton Mall in Alberta, Canada, and the struggling American Dream mega-mall in the New Jersey Meadowlands outside of New York City.

The Ghermezians offer experiential retail and entertainment destinations, which many believed were internet-proof. Then the pandemic hit, consumers became anxious over the spread of COVID-19, and even “internet-proof” malls began losing out to online competition.

This dynamic is taking its toll. Mall of America said it plans to lay off 211 people as of Sept. 30 and might have to extend the furloughs of up to 178 others.

“When the year began, no one could have predicted the enormous challenges we would face as a business, a community and as a nation,” the Mall of America spokesman said in an emailed statement. “While we continue to make progress at Mall of America, the road to recovery is going to be slow.”

The mall’s finances are complex


To make matters more complicated, Triple Five pledged a 49 percent stake in the Mall of America and a similar stake in the West Edmonton Mall as collateral when it secured financing for American Dream, linking the properties.

American Dream finally got built after nearly two decades of delays, bankruptcies and lawsuits. The mega-mall was less than a week away from opening its retail wing when the state closed down due to the health crisis.

On Sept. 1, Triple Five partially reopened the 3.2-million-sq.-ft. mega-entertainment complex, which features an indoor ski slope.

“American Dream adds a whole other wrinkle,” says Manus Clancy, senior managing director and the leader of applied data, research, and pricing departments at Trepp.

“It never really opened in full in earnest. Just when it was set to open 12 years ago, we got hit with a great financial crisis when borrowers defaulted. Twelve years later, they’re ready to open, and we got hit with a pandemic and the pandemic closes them. And not only does it close them, but it takes some of their would-be tenants.”

Bankrupt Lord & Taylor and Barney’s, for example, were both slated to fill the American Dream’s retail section.

“And of all things, one of their big attractions was a water slide park. (It’s DreamWorks Water Park, which mall owners say is the nation’s largest indoor water park). Nobody wants to be near that. Terrible timing. Terrible luck,” Clancy adds.

Mall of America works with lenders


Despite challenges, retail experts anticipate that lenders will continue working with Triple Five on a solution for the Mall of America. They say the forbearance agreement gives the mall owners some breathing room to build back up the property’s finances as rent payments begin to return. It effectively places the mortgage in a stand-still arrangement, according to Nick Egelanian, retail consultant and founder/president of SiteWorks Retail Real Estate Services.

“Given the complexities of the three malls’ ownership and financing, along with the cross collateralization of the Mall of America with American Dream, I suspect that the Ghermezians are in negotiations with multiple lenders, bondholders and equity holders regarding the various properties and loans in question,” Egelanian says.

“It’s anyone’s guess how this will end up, but I am willing to bet that Triple Five will end up in control of all three malls when the dust settles, perhaps, with some change of terms and even some transfer of ownership interests.”

“As I have said before, the only thing worse for the lenders than having the loans in default would be not having the Ghermezians to operate the properties,” Egelanian adds.

‘Too big to fail’

The Mall of America generates nearly $2 billion in economic activity annually, according to Triple Five.

“I think it’s one of those assets that for the state of Minnesota, it’s too big to fail,” Carlson says. “When it gets to it, probably a combination of the state and the county and the city will have to help. [The mall] asked for assistance and didn’t get it, but it’s not the last ask.”

The mall’s owners requested tax relief due to the pandemic, but state legislators were divided on the issue and it wasn’t granted.

Much of the responsibility, however, falls on the mall, Carlson points out.

“They’re going to have to make some accommodations,” she notes. “They can’t continue on the way they are and expect assistance to come in. They’re going to have to do what they need to do to make that mall full and successful to whatever extent they can and hold up their end.”

For example, Carlson says the mall has a very high rent structure, and she believes it’s going to have to be creative with its economic structure and offer tenants rent deals to attract and retain them. That’s because the “bar has been lowered” for a while on what kinds of sales retailers can achieve.

“They’re going to have to pull down some of their rents,” Carlson notes. “They’re going to have to cut deals with retailers to get them in. Deals as in free rent. Creative tenant improvement packages.”

Carlson adds that that the mega-mall had some vacancies pre-COVID-19 and the pandemic “simply exasperated it.”

‘Doing everything in their power’


“Mall of America is doing everything in their power to stay open and would be a great loss to the Twin Cities if they don’t,” says Kim Sovell, a professor of marketing at the University of St. Thomas in the Twin Cities.

Other malls and retailers are doing the same while consumer behavior is rapidly changing, she notes. “Pivoting to meet consumers’ needs takes time and retailers and malls do not have the luxury of time right now.”

Malls were in flux prior to the pandemic and temporary closures. Ones that had taken strides to offer more than shopping were better prepared for changes in consumer demand, but not for closures, she notes.

“Being an entertainment destination when entertainment has dropped in value for consumers has made the situation more tenuous,” Sovell points out. “When we finally get ahead of this virus, it will be interesting to see who’s still standing and what they did to remain vital.”


Announced Store Closures on Pace

to Set Record


Fallout Not Felt Equally Across the Retail Sector

By: Kevin Cody                                                    September 11, 2020                 CoStar Advisory Services

Retailers have now endured an arduous six-month stretch during which a global pandemic led to widespread lockdowns and an ensuing recession. For most, it has been a very bumpy ride. With more than three months remaining in the year, announced store closures for 2020 have already surpassed last year’s level and are now on pace to reach an all-time high. 

While the pandemic will continue to have a significant impact on the retail market, digging deeper into this year’s announcements shows that the impact will not be felt equally across retail tenant sizes or center types.

Year to date, retailers have announced plans to close nearly 130 million square feet of store space. In addition, more than half of this space can be chalked up to five traditional retailers: J.C. Penney, Macy’s, Stein Mart, Bed Bath & Beyond and Pier 1 Imports. 

Traditional retail, which is largely composed of apparel and department stores, has been struggling for years as e-commerce growth has siphoned sales from the sector’s brick-and-mortar locations. The coronavirus pandemic has only accelerated this trend.

Conversely, over the past several years, experiential retail, such as restaurants, gyms and movie theaters, had proven to be a key source of growth because of its relatively low exposure to e-commerce competition.

However, experiential retail has also been severely disrupted by the pandemic, and some major tenants in this sector have recently announced closures as well, including 24 Hour Fitness, Gold’s Gym, Chuck E. Cheese and many restaurants.

As these announced closures go into effect, investors may want to begin thinking about what type of retail space is most at-risk. Additionally, as an opposing measure, announced store openings can shed light on the potential ability to backfill vacated space.

Following 2018, a year in which large anchor tenants drove announced store closures, and 2019, a year in which smaller inline tenants were the key culprits, 2020 has fallen somewhere in between. However, one characteristic shared between all three years is that mid-size tenants have been the least impacted. This is especially apparent after layering in announced store openings.

Since the start of 2018, mid-size tenants, those with store sizes of 10,000 to 25,000 square feet, have announced plans to open about 60 million square feet and close less than 30 million square feet, accounting for a 32 million-square-foot surplus. 

Over the same period, small tenants, those leasing under 10,000 square feet, were at a 12 million-square-foot deficit and large tenants that leased more than 25,000 square feet were at a 256 million-square-foot deficit.


Mid-size space may be better positioned to withstand the current disruption in the retail market and, if a closure does occur, there should be relatively more demand from other mid-size retailers to backfill it. 


One caveat with announced store openings to be aware of is that discount stores have been a key driver in recent years. In 2020 alone, Dollar General, Dollar Tree, Family Dollar and Five Below have announced opening plans for more than 1,600 stores combined, and discount grocers Food Lion, Lidl and Aldi will be opening more than 180 stores combined. 


Why is this is an important consideration for retail property investors? Because discount stores tend to target lower buying power trade areas and are less likely to lease space in large shopping centers such as malls.

Further analysis of store closure data suggests that malls will experience an outsized share of move-outs in the near term, while neighborhood centers should hold up relatively well. The mall sector has been hit particularly hard largely because, on average, they have a high share of space leased to traditional tenants, specifically big-box anchor tenants such as JCPenney, Macy’s and Lord & Taylor. Roughly half of brick-and-mortar space operated by retailers that made closing announcements in 2020 is located within malls.

Power centers and community centers are also expected to receive more than their fair share of closures, though to a much lower degree. Meanwhile, neighborhood centers, which are typically grocery-anchored, are positioned to be relatively less impacted.


Over the next 12 months, an increase in retail vacancy will ultimately be driven by pandemic-related closures, which is why mall vacancies are expected to expand by more than double that of the next highest center type. Mall vacancies are forecast to rise from the middle of the pack, at about 5.6% in the second quarter of 2020, to the highest level for all center types, at 9.3% just 12 months later. 

Seeing how announced store closures are disproportionately located in malls and not neighborhood centers, one might expect them to fare better. In our forecast, neighborhood centers are expected to experience relatively limited vacancy expansion of less than 1 percent over the same period. The forecast for power and community centers falls between the two, with average vacancy expected to increase by about 1 to 2 percent.

Retail vacancies across all center types had been trending up heading into 2020, and the pandemic will certainly accelerate that expansion over the near-term. The fact that little new retail space was being added over the past several years will help limit the impact on retail vacancy and rents overall, but investors should navigate the market with care, as store closures continue to pile up and rent collection levels remain suppressed.

As always, future retail resiliency and productivity of any given retail asset will also depend on its specific location. Research suggests that suburban retail will hold up better in the short term, but centers located in high-quality trade areas will outperform over the long term.

As a forward-looking measure, announced store closures can help put the coronavirus impact into perspective. Although 2020 is already one of the worst years on record for closure announcements, some segments of the market are positioned to better withstand this period of disruption. 

Demand appears to be weak for small and large vacated spaces, which may make them especially challenging to backfill, while demand for midsize space appears to be strong enough to offset a substantial portion of its move-outs. And even as malls may face an outsize share of tenant move-outs, neighborhood centers should be relatively less impacted by store closures, which is reflected in CoStar’s forecast vacancy expansion.

After Missing Payments, Starwood Forced To Relinquish $1.6B Mall Portfolio

Dees Stribling,                                                       September 10, 2020               Bisnow National - National Retail


Commentary by JSO

This really short article is loaded.  The bolding below is mine and it is referring to what I would call something sinister and potentially downright dishonest.  Bloomberg on August 24 referred to this and it really didn’t register with me immediately.  The coronavirus has devalued some real estate, and definitely some more others.  But it does appear that many of the REITs are skipping payments yet amassing billions of dollars to purchase properties resulting in significant and actual losses.  Many of the players could without doubt still cover the note, but it does appear there is a significant “wink and a nod” taking place.  Brookfield Properties are basically repurchasing their own properties at significant discounts.  Their Chief Executive Officer Brian Kingston believes this is a perfectly okay.  So for all those single-family properties got have fallen into foreclosure, why can’t these owners re-buy properties at significant discounts.   If Mr. Kingston believes this is good, it should be good for everybody.  Frankly, to me it looks like fraud.


Starwood Capital Group has surrendered control of seven U.S. shopping centers to a partnership between Pacific Retail Capital Partners and Golden East Investors after it defaulted on debt associated with the properties.

Starwood, which acquired the malls in 2013 for $1.6B, issued CMBS bonds in Israel related to the properties, and began defaulting on the bonds earlier this year. A ratings firm downgraded the debt, thus enabling bondholders to seize the assets under the terms of an accelerated payment clause, The Wall Street Journal reports.

A bidding contest followed, with Pacific Retail and Golden East winning for an unspecified price. The malls are in California, Indiana, Ohio and Washington state, with JCPenney and Sears as anchors of many of them.

The new owners say they will reposition the properties into mixed use. "There is great familiarity with these assets and we see value,” Pacific Retail Managing Principal Steve Plenge told the WSJ.

The pattern of delinquency on real estate debt among investors who presumably have the wherewithal to stay current is increasingly common in the retail sector, as well as in the hospitality sector. It appears to be a tactical retreat from those sectors, which have been the hardest hit by the coronavirus pandemic, to focus resources on more lucrative properties.

"I think you'll see us stick to our knitting with some fairly conservative product types and probably not doing much, if anything, in retail, which we haven't done in the last few years, or other sectors that could be considered a little bit more volatile," Starwood Property Trust President Jeff DiModica said during the company's most recent earnings call in August.

As of late August, Starwood Group, which has about $60B in assets under management, including other malls, was behind on payments for more than half of the 30 malls it owned at the time, representing about $2B in CMBS debt, even as the company amassed an $11B war chest for other investments.

Likewise, Blackstone Group had put together $46B for real estate as of the end of June, while behind on payments on a $274M mortgage associated with four Club Quarters hotels, and Colony Capital has quit paying on many of its hotel bonds while amassing $6B to buy data centers and cellphone towers.

What Concessions Are Office Landlords Offering to Hold Onto Tenants as Demand Falters?

Recent reports have shown office landlords have been more willing to offer tenants additional perks to get them to commit. 

Sebastian Obando                                                 Sep 03, 2020                         National Real Estate Investor

Leasing concessions are increasing in the office sector, but how far landlords are willing to go to secure tenants amid a pandemic depends on the office product.

Office lease concessions in the form of free rent and tenant improvement (TI) allowances rose sharply in the second quarter of 2020 as U.S. office demand fell the most since 2009, according to a report from real estate services firm CBRE. Net effective rents for office space dropped by 6.6 percent from the second quarter of last year.

During the second quarter alone, the period of free rent on office leases averaged 10 months, up by 13.7 percent from the first quarter of the year, prior to the pandemic’s peak and widespread stay-at-home orders, according to the CBRE report. Long-term leases on class-A space in New York have seen average free rent increase to 15 months in the second quarter, with TI allowances averaging $115.00 per sq. ft., says Sarah Dreyer, head of Americas research at real estate services firm Savills. For comparison, in the second quarter of 2019 those figured totaled 11.5 months of free rent and $103.00 per sq. ft. in TI.

“I really think traditionally you have two main types [of concessions]. First is rent relief in the form of ‘free rent,’ then the second is…TI, which is, I’d say, changes made to the office space,” says Omar Eltorai, market analyst at real estate data firm Reonomy. “Those are the classic two and those are very much still on the table. I would think that rent relief is the one that’s requested most because that’s the most immediate. However, TIs could also be in play for any sort of health concerns where the landlord or the property owner might need to reconfigure the office so that the tenant feels safer in that space.”

Tenants are also likely to see increased flexibility regarding term length and options, says Dreyer. In addition, opt-out clauses are becoming more of a trend now, says Jonathan Stravitz, principal at SVN | BIOC commercial real estate.

Declines in net effective rents were more severe in the 15 largest office markets than the national average, according to CBRE, due to the COVID-19 crisis affecting big cities more acutely in the initial stages of the pandemic. But not all office markets are seeing a vast increase in concessions for tenants, says Arnold Siegmund, principal at real estate services firm Avison Young who represens landlords in the Raleigh-Durham, N.C. area.

“In our market, which is the triangle Raleigh-Durham Chapel Hill market, we honestly have not had a significant amount of requests for concessions on existing leases since the pandemic,” says Siegmund. “Most of the activity or lack thereof is with delays in decisions from new deals. If those companies had near-term expiration dates, they’ve been getting short-term renewals, one to two years, and those typically include concessions on short-term transactions.”

Leasing activity fell in the Raleigh-Durham area by 56 percent year-over-year in the second quarter of 2020 to reach the lowest level registered since early 2007, according to an Avison Young report. Total U.S. office leasing volume declined by 42 percent from the first quarter to the second quarter of 2020, with at least 10 markets seeing a decline of 45 percent or more, says Dreyer. Markets that saw the most significant declines include Chicago, San Francisco and New York City.

“Though we expect to see some uptick in activity in the third quarter and the fourth quarter, markets will continue to soften in the face of the pandemic downturn,” says Dreyer. “Rising availability presents tenants with more options in the market and a flux of sublease spaces competing with direct [space] will eventually put downward pressure on base rents.”

Jobless Claims Ease, Showing Slowly Improving Labor Market

Payments from state programs down, but more people are tapping pandemic benefits

By: Eric Morath                                                       Sept. 3, 2020                   Wall Street Journal

The number of people seeking and receiving state unemployment benefits fell at the end of August, signs of a slow improvement in a U.S. labor market still deeply damaged by the coronavirus pandemic. 

Weekly initial claims for jobless benefits fell by 130,000 to a seasonally adjusted 881,000 in the week ended Aug. 29, the Labor Department said Thursday. The number of people collecting unemployment benefits through regular state programs, which cover most workers, decreased by 1.24 million to about 13.3 million for the week ended Aug. 22.

The latest figures on jobless benefits are part of a mixed picture about the labor market, which remains in a deep hole because of economic disruptions from the pandemic. About 29 million people were receiving assistance from state and federal programs as of mid-August, Labor Department data showed. The number of people seeking assistance through some pandemic-related programs also has increased in recent weeks. 

Moreover, the Labor Department changed how it calculates seasonal adjustments for regular state claims starting with Thursday’s release, a move meant to better align the adjusted figures with raw numbers because of coronavirus-related distortions.

The bulk of last week’s decline in new applications for state benefits reflects the methodology change, said Aneta Markowska, chief economist at Jefferies LLC. 

“Last week’s decrease is a catch up to the improvement that has been happening,” she said. “The labor market is healing, but the rate improvement is slowing and will continue to slow.”

Thursday’s report showed applications to a separate unemployment program created in March, pandemic unemployment assistance, rose solidly for a second straight week, and nearly matched applications to regular state programs, which cover about 90% of workers. Figures on pandemic programs can be volatile because they rely on reporting from states about new programs put in place since the pandemic started. 

The pandemic assistance covers gig workers, the self employed and those with special circumstances, such as being unable to report to work due to lack of child care. That program, which is less generous than regular state programs, paid benefits to 13.6 million recipients during the week of Aug. 15, the latest available data. The figure also nearly matched those paid by state programs.

“This is seriously worrying evidence that contractors,

entrepreneurs and self-employed workers are losing

their income, and in some cases closing up shop for

good,” said Patrick Anderson, chief executive of the

Anderson Economic Group consulting firm. 

Weekly applications to state programs, data with a

half-century record, are down from a peak of more

than six million in late March, but the recent level

remains well above the roughly 200,000 claims filed

weekly in February. Before this year, the most claims

filed in a single week was 695,000 in 1982.

Seasonal adjustments are meant to account for

regular swings in layoffs that occur during certain

times of the year, such as around holidays. The

coronavirus, however, didn’t align with historical

patterns and likely led seasonal adjustments to overstate the actual number of weekly unemployment claims, economists say.

The Labor Department didn’t revise previously published data Thursday. Forecasting firm IHS Markit estimates that if the Labor Department had changed its data methodology at the beginning of the pandemic, the cumulative number of seasonally adjusted jobless claims could be about four million lower since mid-March.

While that would be a significant revision, it doesn’t change the overall narrative: The pandemic and related shutdowns caused layoffs to soar to levels not previously recorded in data back to the 1960s, and the amount is still likely to remain near levels associated with recessions in the near term.


Ms. Markowska expects job growth to ease this fall as

most workers who were temporarily laid off are

recalled and business closures and downsizing result

in about seven million permanent job losses. 

U.S. employers shed 22 million jobs in March and April

and replaced 9 million of those the following three

months. Economists surveyed by The Wall Street

Journal forecast the August jobs report, to be released

Friday, will show employers added 1.3 million jobs,

reflecting still strong but easing job growth.

Construction and manufacturing, buoyed by a hot

housing market, should add jobs at a strong rate,

Ms. Markowska said, while service-sector gains should

come at a slower pace, and government jobs, including

at public schools, could decline in August.

Private-sector measures show the number of open

jobs has plateaued and the growth in worker shifts

has slowed from the spring. And several large

employers have warned of job cuts. United Airlines Holdings Inc. said Wednesday it planned to cut 16,370 staff amid a pandemic-driven slump in passenger demand, Ford Motor Co. is offering buyouts to salaried employees with the aim of cutting 1,400 workers, and cities have said they are contemplating staff cuts.


Kimberly Blevins, 37 years old, of Wilmington, Del., said she was laid off from her housekeeping job at a Holiday Inn in March, and hasn’t been able to find a job to support herself and her 3-year-old son.

“It’s flipped our world upside down,” she said. “I’ve put in applications left and right, but most companies haven’t even hired back all their old people yet.”

Ms. Blevins is receiving unemployment benefits, but after the $600 federal enhancement to benefits expired at the end of July, her weekly payment fell to $69, she said. She broke her apartment lease and moved in with her mother.

“I’m hurting my mom financially,” Ms. Blevins said. “She can’t afford to take care of us on her Social Security.”

President Trump signed an executive action last month allowing states to tap disaster-relief funds to pay for a $300 a week in enhanced aid on top of state benefits. More than 40 states have received federal approval to distribute the extra payments, according to the Federal Emergency Management Agency. Some states, including Arizona and Louisiana, have already started delivering the money to individuals.

The Labor Department estimates it could take an average of three weeks for states to disburse the supplemental assistance. The money to fund the extra payments is limited, and could be exhausted in five or six weeks, depending on the number who qualify for such funds.

There are jobs available for unemployed workers in fields such as manufacturing, warehousing and logistics, said Deb Thorpe, president of Troy, Mich., staffing firm Kelly Professional & Industrial.

But it is hard for firms to fill such jobs, which range in pay from $13 to $17 an hour, despite a historically high unemployment rate, she said. Workers remain concerned about safety and school closures mean many don’t have child care. Until recently, enhanced benefits meant many workers received more from benefits than they would receive in work pay. Ms. Thorpe said the no-show rate for new hires fell to about 20% after the enhanced benefits expired, from 40%, but the rate remains more than double a year ago.

“We are seeing moderate demand for workers,” she said. “And more people are coming back to work because they want financial stability—they have bills to pay.”



US Hotel Occupancy Falls Two Straight Weeks Heading Into Labor Day Weekend

Demand May Remain Weak Because Business Travel Tends to Be Low in Week After Holiday

JSO Comment

As a general rule CoStar produce well balanced articles but there are times when there are items in the articles that are simply missed or overlooked or slightly confusing as to their inclusion or exclusion.  I would propose that just briefly touching what is the occupancy need today for simple breakeven for these hotels is fairly important.  Let’s say moment 60%.  If hotels are running between 40% to 50% occupancy, this is potentially significant.  Clearly there is continued stress in the hospitality industry.  The author touched on both the business traveler and TSA daily numbers.  They however were never actually connected together.  The primary source of revenue/occupancy for most hotels (not all) is the business traveler.  Consultants where on the grueling Monday night arriving back at their home town on Thursday evening.  They were the backbone of many occupancy rates.  Finally, toward the end of the article got very confusing… are the conversion some hotels to COVID words included in the occupancy numbers or excluded…  

By Richard Lawson                                            September 3, 2020                                              CoStar News

Hotel occupancy rose in certain areas of the United States as thousands fled Hurricane Laura, but it wasn't enough to prevent the national average from dropping for a second straight week heading into the Labor Day holiday weekend.

Hotel occupancy slipped to 48.2% last week from 48.8% the previous week, according to the latest report from industry research firm STR, which is owned by CoStar Group, the publisher of CoStar News.

When occupancy drops, the average daily rate and revenue per available room, two other key metrics for the hotel industry, follow. The average daily rate dipped to $98.39 for the week ended Aug. 29 from $100.08 the prior week, while revenue per available room declined to $47.38 from $48.81. The data is used by investors, lenders and owners to value hotel properties.

This slide could extend through the week after Labor Day. Jan Freitag, STR’s senior vice president of lodging insights, said there's typically little corporate demand.  “I wouldn’t be surprised to see something similar” next week, Freitag said.

But the trend of lower occupancy numbers could persist in the fall without the corporate group meetings and conventions that typically drive a lot of business for hotels.

Freitag said, “We’re not sure that those business travel numbers will actually materialize.”

Travelers passing through airports is an indicator. Last week, the Transportation Security Administration showed that the total number of air travelers passing through security dropped by 5.4% from the previous week, STR noted.

Big gains in air travel ended by mid-July. The hotel industry’s performance followed a similar path.

Weekend occupancy would be the bright spot. Occupancy last weekend averaged 54.7%, which has been roughly typical lately. Freitag said travelers may take longer weekends because many children are engaged in online learning.

Beaches and mountain areas, such as the New Jersey shore and mountainous parts of California, remain at the top in popularity for occupancy. But other areas are getting strong occupancy because of government and emergency workers needing a place to stay.

McAllen, Texas, which is at the border with Mexico, topped the list of markets with the highest occupancy, registering 78% for the week. The city became a hot spot for coronavirus cases as Texas numbers began hitting record levels in July. Leigh Wooldridge, director of sales for Visit McAllen, said the state sent nurses into the area to help with the treatment, with the convention center getting converted into an acute care facility.

“At a certain point our hospitals were full,” which meant that the influx of nurses to treat patients needed hotel rooms, Wooldridge said. 

Wooldridge said hotels have been filled by National Guard members who are in the area for various reasons.

Meanwhile, North Louisiana hotels hit 70% occupancy for the week, 77.6% for the weekend, with Hurricane Laura hitting the state and people evacuating to areas in south Louisiana such as Lake Charles. Shreveport is the largest Louisiana city in the northern part of the state.

Evacuees and displaced residents traveled west as they did after Hurricane Katrina hit Louisiana in 2005. Houston’s average hotel occupancy rose to 51% for the week that ended Aug. 29 from 38.9% the previous week, according to STR. That surpassed the national 42% average occupancy for the top 25 largest hotel markets tracked by STR, Freitag said.





How’s the Coronavirus Economy? Great or Awful, Depending on Whom You Ask 


Some people are paying off credit cards and padding savings. Others are going hungry or worried about eviction. Here’s how that divergence happened.

JSO Comment

In reading this article one is hard-pressed to figure out how this relates to real estate.  There are so many articles like this, but there is an important theme, which is these are the people who are the users of real estate in one way or another.   Housing is on top of the list, but there other forms of real estate mentioned. There was a funeral home, restaurants and coffee houses, day-care…  Underlying theme is the underutilization of these properties and the stories behind them.  It’s like putting a real face on a long told story.

By: Ben Eisen                                                       Sept. 2, 2020                           Wall Street Journal

The coronavirus recession has been financially devastating for many Americans. It has been a boon for others.

Many are going hungry or worried about eviction. Others are paying down debt or even buying second homes. What’s left is a confounding picture of U.S. household finances.

The current recession, like any other, has deepened the division between those who can navigate it and those who can’t. But the unusual nature of this downturn has made those differences starker.

The economy collapsed this year at record speed, but the federal government rushed in with additional unemployment benefits, stimulus checks and a moratorium on evictions and foreclosures. Banks allowed customers to pause mortgage and car payments without penalty. As a result, many people who lost their jobs have stayed afloat.

And those with secure jobs, stuck at home with fewer places to spend money, came out ahead. Cutting back on commuting costs and eating out gave them more flexibility to spend on luxuries such as home improvement. Home sales had their biggest monthly gain ever in July, boosted by people looking to escape cities. There has been record demand in second-home destinations, and many are buying with cash, according to John Burns Real Estate Consulting LLC.

The stock market, predominantly owned by the wealthiest Americans, has returned to record levels. Lists of the fastest-selling cars include luxury brands such as Lexus, BMW and Tesla, according to car search engine Sellers of boats, pools and other high-end goods are reporting blockbuster demand.


At the same time, many laid-off workers have encountered outdated state unemployment systems that were slow to adapt to rapidly changing benefits. Some were told they were ineligible for benefits, such as some new college grads who had yet to start jobs.

Kathi Edwards of Rockford, Ill., worked two part-time jobs until she was furloughed from one in July. With her job at a nonprofit gone, she filed for state unemployment benefits but received a letter saying that the $348 a week she still made from her funeral-home job was above the $325 maximum to obtain benefits.



Whenever she calls the state unemployment office, she encounters an automated system and hasn’t heard back. The Illinois Department of Employment Security didn’t answer messages requesting comment.

In the meantime, Ms. Edwards has gotten by with some money she inherited from her mother, who died in June. She picked up groceries from a local church, something she never expected to do.

“I’m just kind of in limbo right now,” she said, “hoping the money holds out.”

The ranks of the struggling are growing. The federal government’s $600 in additional weekly unemployment benefits expired in July. People have largely spent the stimulus checks they received in the spring. Lenders are bracing for more people to fall behind on debt payments. Grocery shoppers are cutting back on spending.

Almost 11% of U.S. households didn’t have enough to eat in the previous seven days, as of July. That number was about 4% in 2018, according to an analysis of federal data by Diane Whitmore Schanzenbach, an economist at Northwestern University.


About a third of renters reported little or no confidence they could make next month’s payment, Census Bureau data from July show, also an elevated level.

President Trump signed an executive order in August that would provide an extra $300 a week in federal unemployment, but the program has run into delays. Another round of stimulus checks has been discussed in Congress, but no agreement has been reached.

Jeffrey Liebman and his students at Harvard University, where he is a professor of public policy, have been interviewing 60 households in the Boston area who recently visited food pantries. A single mother who just finished community college was told she couldn’t get unemployment benefits because she wasn’t working when the pandemic hit. A grandmother received free meals at a child-care center where she volunteered—until the center shut down.

“For the folks who are economically vulnerable, things are still getting worse,” Mr. Liebman said.

Workers without permanent legal status, for example, are ineligible for unemployment. So are many waiters, baristas and other workers who have been called back to work but declined because they were afraid of getting sick.

Elizabeth Ananat, an economics professor at Barnard College, has been surveying about 1,000 Philadelphia-area service workers throughout the pandemic. Just 44% of those laid off got expanded unemployment benefits.

Malaysia Jemison, a single mother in Albany, N.Y., said she had to quit her job at a home-care agency in July because she had no one to take care of her daughter. She applied for unemployment benefits soon after but got radio silence, she said. The online portal she checked each day said, “We are continuing to work on your application.”


Since then, she and her daughter had to move because their home flooded. She paid for medicine and internet service with help from family members, though they are hurting, too. She relied on food stamps even when she was working, but now they are her main lifeline.

“We are waiting and hoping and praying a miracle happens,” she said last week.

After The Wall Street Journal contacted New York state’s labor department, a representative called Ms. Jemison and said her benefits would be released. A spokeswoman said some claims can take longer “where further documentation or adjudication is needed.”

Many of those who got expanded unemployment have been able to stave off the effects of the recession—at least for now.

A majority of workers who lost their jobs but got the extra $600 a week earned more in unemployment for several months than they did at their jobs. They used the cash to pay down debtadd to savings accounts and spend.

Larry McKenzie, a musician who plays under the stage name Wyatt Hurts, struggled when bars and restaurants closed early in the pandemic.

Mr. McKenzie said he filed for unemployment with the state of Florida and heard nothing for weeks. But when it did kick in around the beginning of summer, he was brought current with a lump sum of more than $5,000. He also got a forgivable loan through the Paycheck Protection Program and a $1,200 stimulus check. All of a sudden, he was netting more income than usual, considering expenses he no longer had to pay.

“I have paid off credit cards; my credit score has gone up. I’m actually paying my bills a month ahead now,” he said. He has since gone on and off unemployment as performance gigs have come up. He hasn’t been working since he got sick with Covid-19 recently, he said.

Downtown has huge oversupply

of homes for sale

In a year that has seen life disrupted due to COVID and rioting and looting, there are enough homes on the market to fuel a year of sales.

Dennis Rodkin                                                          August 31, 2020                             Crain's Chicago Business

COVID-19 and episodes of looting and rioting are casting a shadow over the downtown neighborhoods’ housing markets in the form of a huge over-supply of homes for sale.

In the 60601 ZIP code, covering Lakeshore East and the northern part of the Loop, there are enough homes on the market to fuel 15 months of sales, according to Crain’s research using Midwest Real Estate Data’s listings. Immediately across the Chicago River in 60611, Streeterville up to Oak Street Beach, there’s 11.5 months worth of inventory on the market.


That’s compared to 3.1 months of inventory on the market now citywide, and to less than three months in, among others, ZIP codes in Logan Square, Bucktown, Andersonville, Rogers Park and Albany Park. In Lincoln Park and Lakeview ZIP codes, inventory is around three and a half months.

Four to six months of inventory is generally considered a balanced, healthy market.

Matt Laricy, managing partner with Americorp Real Estate, said that in recent weeks, he’s been meeting with five new sellers a day, while he’d usually be seeing one a day in late summer.

“Since the second round of looting, it’s been like the Hoover Dam broke and the water is gushing through,” Laricy said. “My phone does not stop ringing with people who say they love Chicago but they’ve had enough.”

There’s a little more than eight months’ inventory on the market in 60610 (Near North, Gold Coast) and 60654 (River North).

In the neighborhoods immediately west and south of the Loop, the excess of inventory is less pronounced: roughly five months in ZIPs in the West and South Loop.

The data shows that the market has fallen off in the neighborhoods surrounding downtown, where there have been nights of looting and more nights of bridges over the river kept raised to block the flow of traffic, and where the longtime bonus of having a short commute to Loop offices has lost its value as people work from home.

“We don’t know when we’re going to be able to walk to work again, so that convenience is gone,” said Quinn Marcom, who with his wife, Tana Marcom, have their two-bedroom condo on Franklin Street on the market at $589,000. He’s in tech and she works at the Federal Reserve; both have been working at home for months, which means one of them has to use the kitchen counter as an office.

“We need more space and we want more outdoor space than a balcony,” Tana Marcom said. They’re looking to move farther north within the city limits. Both said the looting episodes have had no direct impact on them or their feelings about living downtown.

Amir Fouad, an @properties agent who focuses on Streeterville, said that in his experience, much of the inventory is being put on the market by investors, not live-in homeowners. They may be people with a property portfolio or people who used to live in the unit and have been keeping it as a rental.

Investor-owners, he suggested, are the people who’ve “really lost interest in the city. It’s property taxes first, and everything else that has happened. They’ll put their investment somewhere else.”

Debra Dobbs, an @properties agent who specializes in downtown luxury properties, said, “I happen to think the (safety) issue is 70 percent optics and 30 percent reality. There have been problems, but they’re going to be under control.”

“The problems won’t last,” Dobbs said, “and these neighborhoods will still be beautiful places to live.”

Even so, at the moment, these neighborhoods “are slow because of both the supply side and the demand side,” Laricy said. Some of the inventory is new construction, not being offered by homeowners but by developers. In the most log-jammed ZIP code, 60601, the inventory includes 21 units at Cirrus, a 47-story tower that’s under construction. That’s a little more than one month’s inventory for the ZIP code, competing with the homeowners who are selling in the same neighborhood.

The current year’s crises are not the only factors in the slowdown, said Paul Barker, a Baird & Warner agent. Construction of high-priced condo buildings, including One Bennett Park, Vista Tower and No. 9 Walton, has driven people who might like to buy downtown into farther-out neighborhoods, he said.

This year’s crises “have exacerbated the slowdown,” Barker said.


Industrial Market Headed For A Downturn

New Report Finds


By:   Dees Stribling                                                           August 27, 2020                            Bisnow National


For now, industrial real estate is the commercial property asset class most in demand, but its time as a commercial real estate darling will be limited, a new report by NAIOP (Commercial Real Estate Development Association) predicts.

Though industrial has done well in the short run because of a spike in e-commerce, broader economic indicators point to a drop in demand for industrial space during the third quarter of 2020, with a recovery not until mid-2021 or later, the report says.


In fact, NAIOP predicts that net U.S. industrial absorption will be negative in a big way when the Q3 2020 numbers are ultimately crunched: 141M SF. In Q4 2020, the report forecasts net negative industrial absorption of 72M SF, followed by negative absorption of 27M SF in Q1 2021. 


Only in the second quarter of next year will demand for industrial space make some kind of recovery, albeit a weak one. Pre-pandemic absorption levels will not return until at least the beginning of 2022, NAIOP predicts.


In the context of the pandemic-inspired recession, which saw an annualized contraction of the U.S. economy of about 33% during Q2 2020, the e-commerce boost for industrial absorption is thus something like a sugar high. Pronounced but ultimately short-lived.


"Real-time indicators of economic activity, as well as academic forecasts of growth, highlight the headwinds currently facing the U.S. economy,” wrote the authors of the report, Hany Guirguis of Manhattan College and Timothy Savage of New York University.


Besides waning demand for consumer goods, there will be disruptions to global supply chains and trade, the report points out, resulting in less manufacturing and construction, as well as fewer open retail stores needing goods.


For now, however, online retailers have been leasing industrial space with great gusto, especially in their long-standing quest to find last-mile facilities. In suburban Chicago this month, for example, retail giant Amazon inked a deal for two buildings totaling about 600K SF.


" was the difference maker during the second quarter of 2020,” Colliers International reported in its Q2 2020 industrial report for Chicago. “The e-commerce giant committed to an astounding 11M SF in 10 buildings."


The West Coast is seeing large transactions as well, Cushman & Wakefield Executive Director Robin Dodson said. “


Lease renewals were trending towards shorter term at the start of the pandemic, though we are now seeing many companies staying in place with long-term renewals of five to 10 years,” she told Bisnow.


Investors also are still keen on industrial properties. In Dallas this month, a partnership between VEREIT Inc. and Korea Investment & Securities Co. acquired a 2.3M SF distribution and warehouse facility.


Unemployment Claims Remain Historically High

New applications for jobless benefits fell slightly to one million last week

By Sarah Chaney and  Paul Kiernan                Aug. 27, 2020                       Wall Street Journal

Unemployment claims fell slightly last week but remained historically high, signaling layoffs continue as the coronavirus continues to hamper the economic recovery.

New applications for unemployment benefits ticked down to one million in the week ended Aug. 22, the Labor Department said Thursday. Initial unemployment claims remain well below the recent peak of about seven million in March but are far higher than pre-pandemic levels of about 200,000 claims a week.

The number of people collecting unemployment benefits through regular state programs, which cover most workers, edged down to about 14.5 million for the week ended Aug. 15. So-called continuing claims, which are released with a one-week lag, hit a high of nearly 25 million this spring but have declined in recent weeks, a sign companies are bringing back workers. 

“We’re seeing gradual improvement, but we really need to underscore the word ‘gradual’ here. We’re only inching along in terms of the labor market’s recovery,” said Sarah House, senior economist at Wells Fargo Securities. 

In a separate report released Thursday, the Commerce Department revised its estimate of second-quarter economic growth, saying gross domestic product fell at a 31.7% annual rate, slightly less than its earlier estimate of 32.9%, due to the effects of the coronavirus pandemic.

                                                                                                   The second-quarter contraction was the sharpest in                                                                                                        more than 70 years of record-keeping. But the                                                                                                                   annualized figure assumes the economy shrinks at                                                                                                          the same pace for a year, which analysts don’t expect.                                                                                                      Other recent data indicate output is growing in the                                                                                                          third quarter.

                                                                                                   Spending by American consumers drives about two-                                                                                                        thirds of U.S. economic output, and the updated                                                                                                                reading for consumer spending indicated it                                                                                                                        plummeted at a 34.1% annual rate in the second                                                                                                              quarter, slightly less than the 34.6% drop previously                                                                                                        estimated.

A key measure of corporate profits—after taxes, without inventory valuation and capital consumption adjustments—fell at an 11.7% annual pace in the second quarter, the report showed. That was after dropping 13.1% in the first quarter as businesses began shutting down across the country to contain the novel coronavirus. 

Companies cut back on spending as profits plunged. Nonresidential fixed investment—which reflects business spending on software, research and development, equipment and structures—fell at a 26% annual rate in the second quarter from the first.


Among the firms cutting investment plans was Target Corp., which slashed its outlook for capital expenditures this year to between $2.5 billion and $3 billion, from an original plan for $3.5 billion.

“There are many potential challenges on the horizon, including uncertainties surrounding Covid-19, economic headwinds from historically high unemployment, uncertainty surrounding government stimulus and a contentious November election,” Chief Financial Officer Michael Fiddelke said in a conference call last week. 

More recent figures suggest employers have continued to add workers despite a hazy economic outlook. Nonfarm payrolls grew by 1.8 million in July, marking the third consecutive month of hiring. The jobless rate fell last month to 10.2% after peaking near 15% in April. 

The housing market has been a bright spot in the economy recently. The National Association of Realtors’ pending home sales index, which tracks signings for purchases of previously owned homes, rose for the third straight month in July, according to data released Thursday.

Economists expect the road to a full recovery to be long and uneven. Weekly applications for jobless benefits are much higher than the pre-pandemic record of 695,000.

“It’s massively concerning that five months into this crisis we are still seeing those levels,” said AnnElizabeth Konkel, an economist at the job site Indeed. “It’s just really pointing to how much economic pain there is right now, and I don’t really expect that to change anytime soon.”

Job postings on Indeed declined for two consecutive weeks in August, which Ms. Konkel said could point to an economic backslide. Indeed job listings for higher-wage occupations have declined more than for lower- and middle-wage positions. Such a trend could point to long-term uncertainty among employers, as those in higher-wage sectors might plan their head counts based on projections for business demand several quarters into the future, according to Indeed.

Job losses during the economic crisis have been widespread across industries and particularly steep in some services sectors, such as hospitality and tourism, which have been badly hurt by the coronavirus pandemic and lockdowns imposed to curb it.

American Airlines Group Inc. said this week that it would shed 19,000 workers by Oct. 1, a sign of the devastation coming for the airline industry as the summer travel season winds down and government funds run out. Delta Air Lines Inc. said it would furlough 1,941 pilots unless it reaches a deal with their union on other cost reductions.

The July 31 expiration of the separate, federally funded $600-a-week enhanced unemployment aid meant payments to those receiving support through regular state programs fell to levels approved by their states, which average a little more than $300 a week, according to the Labor Department.

President Trump signed an executive order Aug. 8 allowing states to tap disaster-relief funds to pay for a reduced $300 a week in enhanced aid on top of state benefits. More than half of states have now received federal approval to distribute the extra $300 payments. Delivery of the additional money will vary by state, and the Labor Department estimates it could take an average of three weeks before people start receiving the supplemental assistance.


                                                                                                   An index of consumer confidence dropped in August                                                                                                        to its lowest level since 2014, the Conference Board                                                                                                          said Tuesday, which some analysts said could reflect                                                                                                        growing consumer concerns about the diminished                                                                                                            federal aid.



Weaker consumer sentiment also underscored Americans’ souring views about their labor-market prospects. The percentage of consumers in the Conference Board’s survey saying jobs are plentiful dropped to 21.5% in August from 22.3% in July. Meanwhile, those claiming jobs are hard to get rose to 25.2% this month from 20.1%.

Robin Emura, 64 years old, said she had to start economizing when the pandemic hit her freelance graphic-design business earlier this year.

“We used to put a nice dinner on the table every night. Suddenly we were forced to really budget,” she said. “We had to really watch our pennies and still are.”

Business has picked up slightly since the beginning of the pandemic, but the Flowery Branch, Ga., resident said she is bringing in about one-third as much money from her design gigs as she was before the coronavirus struck in March.

“It’s a hard climb getting back to where I was, and I don’t see it happening for probably at least another six months,” Ms. Emura said.

Since the extra $600 in unemployment aid expired at the end of July, Ms. Emura has collected $125 a week in jobless benefits. She expects that an additional federally funded payment of $300, which she sees as a reasonable amount, to provide “a little extra breathing room.”


Houston Leads Nation for Distressed Property Loans as Oil Prices Fall

Pandemic Spurs Spike in CMBS Loan Troubles, With More Expected


By Marissa Luck                              August 25, 2020                                           CoStar News        

Think owning retail real estate can be risky during the pandemic? Try owning a hotel.

Hotels emptied by the coronavirus are pushing commercial mortgage-backed securities loan defaults in Houston, which had the highest percentage of loans transferred to special servicing across the nation’s biggest cities in the second quarter, according to research from the credit rating agency DBRS Morningstar. 

About 8.8% of buildings tied to CMBS loans in Houston were transferred during the quarter to a special servicer, a sign that the building is in distress and in danger of foreclosure or the owner has defaulted on the loan. That was the highest percentage across the six biggest CMBS loan markets in the United States tracked by DBRS Morningstar, which is owned by the financial services firm Morningstar Inc.

Lower oil and gas prices and lack of demand from efforts to curb the spread of the coronavirus has wreaked havoc on Houston, known as the world's energy capital. Houston's hotels have been hammered by canceled global energy conferences including the Offshore Technology Conference and IHS Markit’s CERAWeek, and travel restrictions and fraying U.S.-China relations have slowed an otherwise steady stream of international visitors.

"Houstonians have a love-hate relationship with oil and gas," said a monthly report from the Greater Houston Partnership. When Houston led the nation in job growth, population growth and housing starts between 2010-2014, "no one seemed to mind that the good times were driven by a drilling boom in the Eagle Ford shale," the report said. "Now that energy is shedding jobs, the industry is seen as a liability, especially in light of growing concerns over climate change."

Houston is the base of U.S. operations for most international oil and gas companies such as Saudi Aramco, TechnipFMC, Gazprom and PetroChina, and is a key center for international finance and leads the southwest United States with 16 foreign banks from nine nations, according to the Greater Houston Partnership.

Without these key visitors the hotel industry in Houston relies on, properties could go out of business, according to DBRS Morningstar, and some real estate might be available for a major discount.

Across the country, the CMBS market is seeing soaring rates of loans being transferred to special servicing and the number of CMBS loan delinquencies is expected to climb as the pandemic wears on, said William McClanahan, an analyst at DBRS Morningstar. 

Special Servicers


About 9.49% of U.S. CMBS loans were transferred to special servicers in July, up from 8.28% the month before and 3.25% a year earlier, according to the data firm Trepp. Loans tied to lodging and retail properties logged some of the highest rates among the special servicing transfers, Trepp found. Overall, about 24% of CMBS loans for hospitality and lodging properties and 16% of loans tied to retail properties were transferred to special servicers in July. 

Special servicing is one avenue a borrower can take to seek relief on a loan bundled into a CMBS portfolio, a type of bond deal. Loans are typically transferred to special servicing if an owner is behind on payments, taxes, insurance or loses a big tenant. Special servicers are third-party companies that work with borrowers on negotiating foreclosure alternative applications, such as a loan modification, forbearance plan or deed in lieu of foreclosure.

During the second quarter, Atlanta had a slightly lower percentage of buildings tied to CMBS loans transferred to special servicers than Houston, followed in descending order by Chicago, Dallas, Los Angeles and New York City/Northern New Jersey.

However, Houston trailed just behind Chicago in seeing the highest percentage of delinquencies and the highest percentage of loans watch-listed, a sign that more loans in Chicago may be in danger of defaulting. Overall, DBRS Morningstar found that a range of 4.3% to 5.5% of CMBS loans are delinquent across the top six markets.

Across Houston’s hotel CMBS loan market, 14 borrowers requested forbearance, 16 loans were transferred to a special servicer and 28 loans totaling $548 million were delinquent in the second quarter, according to DBRS Morningstar.

The biggest hotels to default on CMBS loans in Houston in the quarter were the Hilton Houston Post Oak, the DoubleTree Houston Intercontinental Airport and the Sheraton Suites Houston,according to DBRS Morningstar.

The Hilton Houston Post Oak, valued at $126 million, was delinquent on loans for three months before being transferred to special servicing in June, according to DBRS Morningstar. The owners of the Hilton Houston Post Oak and DoubleTree did not immediately respond to emails for comment. The owner of the Sheraton Suites could not be reached to comment.

Houston had a total of 55 loans totaling $3.2 billion go delinquent during the second quarter, according to DBRS Morningstar. Another 38 loans totaling $5.5 billion were transferred to special servicing. Full service hotels and limited service hotels accounted for 58% of total CMBS loan delinquencies in Houston during the second quarter.

Despite the oil downturn and mass lay offs in Houston's energy sector, the type of tenant that dominates multitenant office buildings in Houston, only two office properties tracked by DBRS Morningstar tied to CMBS loans were transferred to special servicing in the second quarter: Cypress Medical Plaza and One Westchase Center, according to DBRS Morningstar. 

Cypress Medical Plaza was transferred to special servicing in April after the building's biggest tenant, 1960 Family Practice, vacated the space before its lease expired in September, according to a note from the special servicer. That pulled the occupancy down to 46% at the 46,380-square-foot property, according to the note that is available in public filings. The owner of Cypress Medical Plaza did not immediately respond for comment. 

Meanwhile, One Westchase Center was bought by Houston-based Nitya Capital in August for an undisclosed price, according to a statement. The building's previous owners, affiliated with Investcorp, had been preparing to hand over the building’s keys to lenders in late June, according to a special servicer note filed with the Securities and Exchange Commission. Investcorp declined to comment about the building. 

More office buildings in Houston could default as the pandemic goes on. One office building tied to a CMBS portfolio, Two Westlake Park, was sold in a foreclosure auction in June. Major energy tenants BP and ConocoPhillips moved out of the building in Houston's Energy Corridor in recent years. Rialto Capital, which did not immediately respond to an email for comment, bought the building for $35 million and JLL is marketing the complex for sale as an investment opportunity, according to CoStar research.

Meanwhile, Houston's retail sector has seen eight properties with CMBS loans transferred to a special servicer, totaling about $119.1 million in debt. The biggest retail properties transferred to special servicers were Vintage Park outdoor plaza in northwest Houston, the North Oaksshopping center in north Houston and Green Crossroads in the Greenspoint area, according to DBRS Morningstar. 

So far the biggest retail property to be foreclosed on during the pandemic was the Almeda Mall in southeast Houston off Interstate 45, which sold at a foreclosure auction in June for $16 million to an entity tied to the New York law firm Reznick Law, according to Harris County Appraisal District records.

Despite Houston's seeming reliance on the energy sector, the city is better insulated from the oil downturn than it may appear on the surface, said McClanahan with DBRS Morningstar.

Houston is home to the world’s largest medical complex, the Texas Medical Center, which is continuing to expand and attract new investments in the biotech and life sciences sector. And as the nation’s fourth most populous city, new residents continue to flock to Houston for its low cost of living, culture and warm climate, McClanahan noted.

"The good news is Houston" has been diversifying from the energy industry, said McClanahan, which could help to soften the economic blow from the pandemic for real estate investors.

Houston hotels transferred to a special servicer in the second quarter, according to DBRS Morningstar:

  • Hilton Houston Post Oak, a 448-room hotel that had two CMBS loans transferred to a special servicer with a total trust balance of $76.4 million.

  • DoubleTree Houston Intercontinental Airport, a 313-room hotel with a trust balance of $41.9 million.

  • Sheraton Suites Houston, a 282-room hotel with a trust balance of $36.6 million.

  • Crowne Plaza Houston Katy Freeway, a 207-room hotel with a trust balance of $29.9 million.

  • Aloft Houston by the Galleria, a 152-room hotel with a trust balance of $30.856 million.

  • Residence Inn – Katy Mills, a 126-room hotel with a trust balance of $14.19 million.

  • Hilton Garden Inn- Houston Bush Airport, a 182-room hotel with a trust balance of $13.7 million.

  • Hilton Garden Inn Houston – a 126-room hotel with a trust balance of $10.3 million.

  • Remaining hotels with a trust balance of under $10 million included: Hilton Garden Inn – Katy, Texas; Holiday Inn Express Baytown; Holiday Inn Houston SW Sugar Land Area; Staybridge Suites Stafford; Homewood Suites Houston Intercontinental; Best Western Fountainview; Hampton Inn- Katy, Texas.

Houston retail properties transferred to special servicing during the quarter, according to DBRS Morningstar: 

  • The upscale outdoor plaza Vintage Park off Highway 249 in northwest; a 341,107 square-foot shopping center with $44 million in trust balance.

  • The North Oak shopping center, a 448,740 square-foot center with $31.4 million in unpaid trust balance.

  • Greens Crossroads, a 148,740 square foot center with $11 million in trust balance.

  • Houston-area retail properties transferred to special servicing with under $10 million in trust balance included Long Meadow Farms; 8350 & 8366 Westheimer; two L.A. Fitness properties, one in Pearland and one in Spring; and the West Crossing Shopping Center.

Seven Takeaways from UBS's Real Estate Outlook Report

Uncertainty looms over the U.S. economy and no property type is immune from the potential financial impact. 



Sebastian Obando                                  Aug 24, 2020                               National Real Estate Investor 

UBS's Asset Management arm has published its latest Real Estate Outlook edition, outlining the impacts of the pandemic on global and U.S.-based real estate investment. As can be expected, the continued prevalence of COVID-19 infections in the U.S. and the uncertainty surrounding the upcoming November elections are given real estate investors pause in striking new deals right now. However, some clear trends have emerged in the commercial real estate market and UBS researchers advise investors to take a long-term view on how the various property sectors are likely to perform. Here are seven takeaways from the report.


  1. The impact of the COVID-19 crisis on private real estate has been most immediately felt in three investment sectors: hotel, retail and new development, where properties and sites have been closed or limited in operations and projects might have been put on hold. Conditions in the office, apartment and industrial sectors have deteriorated in the short term, as expected due to widespread shutdowns, but generally these properties remain open, with some flexibility in being able to adapt to current market conditions.

  2. Apartment supply pipelines are facing delays. But as a sector that remains essential even in the midst of a pandemic, apartment buildings have posted the highest average rent collections of any major property type.

  3. The industrial sector has benefited greatly from fulfilling e-commerce orders as consumers have shifted a lot of their buying, including grocery purchases, from bricks-and-mortar stores to online. Year-over-year rent growth in the sector reached 4.8 percent in the second quarter, slower than during recent quarters, but still showing strength in a downturn. Helping keep industrial fundamental in check going forward could be the fact that new space supply deliveries are expected to slow for the rest of 2020.

  4. Occupancy rates in the office sector have benefited from the prevalence of long, multi-year leases, even while many offices have remain closed and office users considering long-term work from home options.

  5. Office rent collections, however, declined compared to the first quarter figures. Investors will likely adjust expectations on office projects going forward.

  6. The retail sector has both winners and losers at the moment. Some non-essential shops have shuttered, while others are attempting to remain viable by tapping into resources like the Paycheck Protection Act. On the other hand, grocers, pharmacies and other essential services retailers could see record first and second quarter sales.

  7. Overall investment sales volume is stalling out in real time, making it more difficult for investors and appraisers to find comparable sales data and come to an agreement on price discovery. Investment sales volumes dropped off when the pandemic hit the U.S. in March 2020 and have not recovered momentum.

An Estimated 237,000 US Apartment Tenants Fall Behind on Rent for Two Straight Months


Scope of Struggle Prompts Industry Executive Concern About Next Month's NMHC's Data

By: John Doherty                               August 24, 2020                                    CoStar News 

About a quarter-million apartment renters have fallen behind on their rent for the second straight month, a development that has prompted industry concern about the fallout that could come if there's a repeat next month.

The National Multifamily Housing Council industry association reported on Monday that about 2.1% fewer tenants had made some sort of monthly payment by Aug. 20 than at the same time last year. That translates into about 237,000 fewer apartments in the black. 

The decline of about 2% is in line with what happened in July, when 2.1% fewer renters paid than the year before. And those renters most in trouble appear to be in New York City, Los Angeles and San Francisco.

Caitlin Walter, vice president of research for NMHC, (See following article) said those economies, with a preponderance of out-of-work service, retail and hospitality workers, have produced big unemployment numbers that raise concerns about next month.

“You can’t deny the fact that California and New York City in particular have been harder hit than other markets, and their economies have been hit harder,” she said. “I wasn’t shocked by where the numbers came in, at this point. I’m more concerned about what happens in September.”

NMHC has been tracking rent collection rates at more than 11.4 million apartments around the country since the COVID-19 pandemic shut down much of the economy in March. The rate of rent collection has been falling, ever so slowly, in the past few weeks.

And the $600-a-week enhanced unemployment benefits from the federal government that bridged the gap for millions of unemployed apartment renters expired at the end of July, worrying many multifamily owners that mass rent delinquencies were imminent.

But so far, renters have come through. Through Aug. 20, a full 90% of the apartment renters tracked by NMHC have made full or partial payments. That’s down from 91.3% that paid through July 20.

But still, as apartment experts have pointed out, it’s 90%, the vast majority of renters.

“The industry remains encouraged by the degree residents have prioritized their housing obligations so far,” Doug Bibby, NMHC’s president, said in a statement Monday. “But each passing day means more distress for individuals and families, and greater risk for the nation’s housing sector. If policymakers want to prevent a health and economic crisis from quickly evolving into a housing crisis, [Congress] should act quickly to extend financial assistance to renters.”

Even so, the relatively high payment figures from the NMHC have their limits on reflecting the scale of financial struggle among renters, one reason for concern among industry executives when the 90% figure looks on the surface to be positive. The data tends to reflect the biggest apartment owners in the country, which can give a distorted picture, because it captures properties that often can have high numbers of white-collar workers who are able to keep their jobs by working at home in the pandemic. 

And the high percentage of payments may not reflect those tenants who are doubling up with roommates or the units where tenants have moved out of expensive U.S. cities. And it also doesn't reflect an increased household savings rate in the pandemic.