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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.”


Corrections & Amplifications 

Robert St. John’s flagship restaurant Purple Parrot Café boasted 4,000 bottles of wine. An earlier version of this article incorrectly said the restaurant boasted $4,000 bottles of wine. (Corrected on October 10)


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.


NMHC Rent Payment Tracker Finds 90 Percent of Apartment Households Paid Rent as of August 20

The National Multifamily Housing Council (NMHC)’s Rent Payment Tracker found 90 percent of apartment households made a full or partial rent payment by August 20 in its survey of 11.4 million units of professionally managed apartment units across the country.

This is a 2.1-percentage point, or 237,056 -household decrease from the share who paid rent through August 20, 2019 and compares to 91.3 percent that had paid by July 20, 2020. These data encompass a wide variety of market-rate rental properties across the United States, which can vary by size, type and average rental price.

“Lawmakers in Congress and the Administration need to come back to the table and work together on comprehensive legislation that protects and supports tens of millions of American renters by extending unemployment benefits and providing desperately needed rental assistance,” said Doug Bibby, NMHC President. “The industry remains encouraged by the degree residents have prioritized their housing obligations so far, 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, they should act quickly to extend financial assistance to renters.”


Lord & Taylor closing Woodfield, Northbrook Court stores

Eric Peterson                            8/21/2020                                     Daily Herald            

Woodfield Mall in Schaumburg will face the first vacancy among

its anchoring department stores in its 49-year history when the

Lord & Taylor there becomes one of the chain's last two Illinois

locations to shut down.

As Lord & Taylor continues to reorganize under bankruptcy court

protection, it announced both its Woodfield Mall and Northbrook

Court locations have begun store-closing sales.

Information on when both stores will close for good wasn't immediately available Friday.

Schaumburg Economic Development Director Matt Frank said village officials have so far heard very little apart from the fact that Simon Property Group, which owns Woodfield Mall, had been working on a deal to try to get Lord & Taylor to remain.

The anchor stores at Woodfield Mall, which also include Macy's, Sears, JCPenney and Nordstrom, own their properties rather than leasing from Simon.

While the decision about the Woodfield location was made this week, Lord & Taylor had earlier announced plans to shutter its location at Northbrook Court in Northbrook.

Northbrook Court has a bit more history of rebuilding and replacement among its anchor stores, but Tom Poupard, the village of Northbrook's development and planning services director, said the retail industry is in a far different place now than on any previous occasions.

Though the village has been in regular contact with Brookfield Properties, which manages Northbrook Court, there's been no word about an immediate replacement for Lord & Taylor, Poupard said.

"The retail world is evolving so quickly, I think it's a good idea they haven't locked into anything," he said. "I think it's an opportunity in a way. We've all been following the Lord & Taylor saga for the last year. It's no surprise that the other shoe dropped. It's an opportunity, but it's a loss."

Poupard added that the whole philosophy about what draws people to a shopping center is changing.

"There's all these new retail models," he said. "Who would ever think that an Apple store, which is a store inside the mall, would be an anchor there?"

The suburbs lost Lord & Taylor stores at Oakbrook Center in Oak Brook in January 2019 and at Westfield Old Orchard Mall in Skokie in April 2018. Lord & Taylor's corporate office did not respond to a request for comment Friday.

The Woodfield and Northbrook Court locations jointly stated online that they are no longer able to accept returns from in-store purchases and can no longer honor coupons, mall certificates, Lord & Taylor Reward/Award cards or prices offered at any other Lord & Taylor in the country remaining open.

The Northbrook Court store stopped accepting online returns Aug. 14 while the Woodfield store has set that deadline for Aug. 31, according to the website.

JSO  Comment

While Woodfield Mall maybe somewhat insulated not so for Northbrook Court.  The mall which has always regarded itself as a high-end retail center has lost Macy's, Neiman Marcus and now Lord and Taylor (retail) and the AMC theaters are also closed.  In a recent walk through the mall, approximately 50% of the stores were vacant or simply closed on that day.  Starbucks for example was closed.  That was a first for me.  As much bravado as the owners and brokers like to portray, this is a very bad situation for this shopping center.  

Frankly, it's extremely hard to see a path forward.  While Macy's has been demolished and is been redeveloped with townhomes and apartments, what about the other two retail anchors and there draw to the mall.  

Do many of the in-line tenants have exit clauses tied to the anchors being present?  What is the Cook County Assessor going to do?  This has turned out to be a clueless office, and I am quite sure they are at a loss to develop a value from a real estate taxation point of view.  Another worry for the property managers Brookfield Properties.

Will this have an effect on other  retailing anchors throughout the Chicago metropolitan area?

Only time will tell.


London office rents predicted to plummet 40%


By Mitchell Labiak                        17 August 2020                         Property Week


Office rents in London are predicted to plummet by as much as 40% over the next year and a half, according to new data from Society of Industrial & Office Realtors (SIOR) and McCalmont-Woods Real Estate.

The research suggested that overall West End office rents are could nosedive from £94.88 sq/ft at the end of 2019 to £56.22 sq/ft by the end of 2021 – a 40.7% drop.

The prime West End office market is expected to fare slightly better, though rents are still expected to crash 38.9% from £115 sq/ft at the end of 2019 to £70.3 sq/ft by the end of 2021.

Overall City office rents over the same period are predicted to slump 34.35% from £58.81 sq/ft to £39.26 sq/ft while overall Midtown office rents are predicted to fall by 24% from £68.06 sq/ft to £51.62 sq/ft.

Overall office rent and prime office rent in the Docklands and South Bank market are also forecast to decline.

Nick McCalmont-Woods, chief executive of McCalmont-Woods Real Estate, said: “As occupiers adjust to the impact of Covid-19 on their businesses and scale back, delay or even shelve some office requirements altogether, we expect the pattern of rental decline from the 2008/2009 great financial crash to repeat itself and, if anything, it may be exacerbated further in the event that significantly more tenant/occupier controlled space is released back on to the market as businesses adopt new working practices in the long-term.”

Paul Danks, director at DeVono Cresa and president-elect of SIOR Europe, said: “As a result of the ongoing pandemic, we expect the lettings market to remain subdued compared with historical levels mixed with increased appreciation for flexible office space. This sudden increase in availability is already prompting a swing in the balance of power back towards the tenant.”




JSO Comment:

Clearly this is across the Pond, and there are other issues such as the pending Brexit, but this is a cautionary tail of a possible rental collapses in some of the major US cities.  As we saw in the prior article from CBRE, there has been a seismic shift in leasing.   





U.S. MarketFlash:
Office Lease Concessions Rising
In Tenant-Favorable Market

August 13, 2020                           CBRE

Office lease concessions in the form of free rent and tenant improvement allowances rose sharply in Q2 2020 as U.S. office demand fell by its biggest amount since 2009. Amid reduced leasing activity, base rents for office space in the 15 largest U.S. markets generally remained stable. Instead, property owners provided more favorable concessions to tenants, causing net effective rents to fall.

Figure 1 shows this divergence, with base rents declining by only 1.1% in Q2 from one year ago, while net effective rents fell by 6.6% over the same period. Rent changes in the 15 largest markets were more severe than the national average due to the COVID-19 crisis affecting big cities more acutely.



Longer periods of free rent primarily drove net effective rents lower in Q2. Figure 2 shows the spike in free rent offered in Q2 as a four-quarter average. For Q2 alone, free rent averaged 10 months, up by 13.7% from Q1.

Tenant improvement allowances rose by 5.1% quarter-over-quarter in Q2 to $75.57 per sq. ft. The increase in these allowances may have been limited by declines in construction pricing, as evidenced by the Q2 drop in the Turner Building Cost Index for the first since 2010.

Office market fundamentals will remain challenged in the near term and likely will fuel further concessions. Even though a low level of transactions may hinder efficient price discovery for a while, occupiers are potentially positioned to secure very advantageous terms right now. However, the U.S. economic recovery is ongoing and if a vaccine for COVID-19 is found by the end of the year, these tenant-favorable conditions may not last long.




National Council of Real Estate Investment Fiduciaries 

Commercial Real Estate Returns Turn Negative with Historical Drop in Rent 

CHICAGO, IL, July 24, 2020 – The National Council of Real Estate Investment Fiduciaries (NCREIF) has released second quarter 2020 results for the NCREIF Property Index (NPI). The NPI reflects investment performance for 8,652 commercial properties, totaling $696 billion of market value. The returns are detailed in the attached Snapshot Report. 

The total return was -0.99% in the second quarter which was a decrease from the 0.71% return for the prior quarter. This is the lowest return since the fourth quarter of 2009 which was the midst of the financial crisis that lead to the Great Recession. This is an unleveraged return for what is primarily “core” real estate held by institutional investors throughout the US. The leveraged returns for those properties in the index that have leverage was -2.76% for the quarter because the properties were earning less than the cost of debt.

NPI Unleveraged Total Quarterly Returns Since Great Recession


















The total return turned negative for the quarter because the capital return (change in value net of any capital expenditures) of -2.00% offset the net operating income (NOI) return of 1.01%.

Rent and NOI at Historic Lows 
Both rent and NOI growth rates were the largest decline since NCREIF started collecting data which goes back to 1978 for NOI and 2001 for Rents. Not surprising, hotels had the greatest rent decline of 48.73% due to the impact of COVID-19 followed by retail with a 12.68% decline.

2nd Quarter 2020 Change in Rents by Property Sector


Returns Drop for all Sectors

Total returns were lower for all property sectors this quarter and they were negative for all property types except industrial which had a negative capital return but the income return offset that to deliver a positive 1.02% return. 

NPI Total Quarterly Unleveraged Returns by Property Sector


Transactions Plummet 
While NCREIF members are long-term investors for most of the funds, there are typically between 100 and 200 sales of properties each quarter. This quarter the number of sales dropped to 30 properties. The lack of transactions in the overall commercial real estate market has made price discovery challenging for appraisers and resulted in less liquidity for investors.

About the NCREIF Property Index The NPI consists of 8,652 investment-grade, income-producing properties with a market value of $696 billion. The market value breakdown by property type is about 35.6% office, 25.4% apartment, 20% retail, 18.7% industrial and .3% hotel properties. 

The NPI includes property data covering over 100 CBSAs. In addition, within each property type, data are further stratified by sub-type. These data enhance the ability of institutional investors to evaluate the risk and return of commercial real estate across the United States.

Also read....

NFI-ODCE records a negative total return for 2020q2, a first since 2009 4th quarter.

CHICAGO, IL, July 30, 2020

U.S. Economy Contracted at Record Rate Last Quarter; Jobless Claims Rise to 1.43 Million


The Commerce Department’s initial estimate of U.S. gross domestic product in the second quarter is the steepest drop in records dating to 1947

By: Harriet Torry                    July 30, 2020                                          The Wall Street Journal

The U.S. economy contracted at a record rate last quarter and weekly jobless claims rose for the second straight week, amid signs of a slowing recovery as the country continues to struggle with the coronavirus pandemic.

The Commerce Department said U.S. gross domestic product—the value of all goods and services produced across the economy—fell at a 32.9% annual rate in the second quarter, or a 9.5% drop compared with the same quarter a year ago. Both figures were the steepest in records dating to 1947.

The contraction came as states imposed lockdowns across the country to contain the coronavirus pandemic and then lifted restrictions. Many economists think the economy resumed growth in the third quarter, which began on July 1.

“The key caveat is that it will be a lot less better than we were expecting a few months ago,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said about the third quarter, citing the pickup in coronavirus cases.

Separately, the Labor Department said applications for weekly unemployment benefits rose by 12,000 to 1.43 million in the week ended July 25, and the number of people receiving unemployment benefits increased by 867,000 to 17 million in the week ended July 18, signs the jobs recovery is losing momentum.

The increased number of people receiving benefits, known as continuing claims, had been declining in recent weeks. Jim O’Sullivan, a strategist at TD Securities, said the reversal “could feed into fears that the economy” is weakening again.


A surge in virus infections since mid-June appears to be slowing the recovery in some states, according to some private-sector real-time data. 

JPMorgan Chase & Co.’s tracker of credit and debit-card transactions, for instance, showed that spending rose in May and early June before stalling and remaining broadly flat through last week. Data by Facteus, which tracks transactions by 15 million debit and credit card holders, also suggest restaurant spending was increasing in June and has largely flattened since. 

The U.S. Census Bureau said in its latest weekly Household Pulse Survey that 51.1% of households experienced a loss of employment income in the week ended July 21, up from 48.3% four weeks ago. 

The decline in GDP in the second quarter reflected the deep hit to consumer and business spending from lockdowns, social distancing and other initiatives aimed at containing the virus. Consumer spending fell at a 34.6% annual rate, amid sharp decreases in services spending like health care and lower spending on goods. Business spending on software, research and development, equipment and structures fell at a 27% annual rate. Both exports and imports plummeted. 

States in May started reopening their economies—leading to partial rebounds in jobs and spending—though a number of them have put fresh restrictions in place because of the infection increase.

U.S. Is About to Unveil the Ugliest GDP Report Ever Recorded


By:   Reade Pickert                      July 29, 2020                   Bloomberg News

The U.S. economy ground to a halt for almost the entirety of April. Now the world is about to find out the depth of that contraction.

Data due Thursday are forecast to show U.S. gross domestic product plummeted an annualized 34.8% in the second quarter, the most in records dating back to the 1940s, after the spread of Covid-19 prompted Americans to stay home and states to order widespread lockdowns.

Even though economic activity picked up in May and June as stay-at-home orders lifted, the scale of the decline in April likely far outweighed any gains later in the quarter.

Here are some questions and answers about the report:

Did the U.S. economy actually shrink by one-third?

No. The Bureau of Economic Analysis, the government agency that compiles the GDP figures, has historically reported the headline numbers as an annualized rate. That shows what the quarterly change would be if it lasted a full year.

Before the crisis, the economy was usually growing by a few tenths of a percentage point each quarter, resulting in an annualized pace typically ranging from 2% to 3%.

This means the main number Thursday will look much worse than reality. A 35% contraction on an annual basis actually means the economy was about 10% smaller in the second quarter than it was in the first quarter.

Even so, that would still be far beyond the record quarterly decline on an annual basis -- 10% in the first quarter of 1958, which coincided with a global flu pandemic.

The latest figure, which is the first of three estimates, may be revised in the next two months and also in coming years like all GDP reports, and revisions could be bigger than usual.


What drove the second-quarter contraction?

Mostly a collapse in consumer spending, which typically accounts for about two-thirds of GDP, as Americans stayed home -- erasing spending on dining out, physical retail and travel. Personal consumption is projected to have plummeted an annualized 34.5% in the quarter, which would also be a record.

Michael Gapen, chief U.S. economist at Barclays Plc, projects a 36% drop in second-quarter consumer spending. That translates to about 25 percentage points of the projected 35-point annualized decline in GDP.

What Our Economists Say

“Lockdowns enforced in March through April led to a plunge in consumer spending. As restrictions lifted, the initial recovery was rapid, but will remain partial amid a resurgence of virus cases and orders to pause or reverse reopening plans.”

-- Andrew Husby, Eliza Winger and Yelena Shulyatyeva

It’s not just personal consumption, though. A 40% decline in residential investment and a 50% drop in equipment spending, as well as drags from net exports and inventories, all likely contributed. The only major category Gapen expects will be positive is government consumption and investment, though it will add less than a percentage point to growth.

Wells Fargo & Co., though, expects government outlays to be negative despite enormous federal stimulus. Why? Lower spending by state and local governments that have seen plunging tax revenues.

Won’t the economy come back strongly in the second half?

Yes, but activity may remain below pre-pandemic levels for several years, and the recovery is already showing signs of stalling.

The economy is expected to grow an annualized 18% in the third quarter, according to a Bloomberg survey of economists in early July. That would be just ahead of the record 16.7% pace in the first quarter of 1950.

“The question is, how sustainable is that bounce?” said Michelle Meyer, head of U.S. economics at Bank of America Corp.

Amid a surge in new virus cases in the South and West, many states have paused or even reversed reopening plans, and measures of mobility and restaurant bookings have plateaued. Lawmakers are in the midst of debating another round of fiscal stimulus, with the supplemental $600 in weekly unemployment benefits about to expire.

If the economy starts to deteriorate, the fourth quarter could show a contraction, said Gapen.

What does it all mean for the election?

American voters will decide in three months whether to re-elect President Donald Trump to a second term against a backdrop of a virus-induced recession and his response to the health crisis.

Before the pandemic, Trump’s goal was for a sustained pace of 3% economic growth. Now, the coronavirus has left its own mark on Trump’s economic legacy -- with the declaration of a recession and likely the worst quarterly GDP decline on record.

The GDP figures for the third quarter -- the anticipated rebound -- are due Oct. 29, just five days before Election Day. Trump is well aware of the timing.

“We’re going to have a great third quarter,” he said in an interview with Fox News’s Sean Hannity last week. “And the nice thing about the third quarter is the results are going to come out before the election.”

While the results may in theory sway some last-minute deciders, many of those who mail in ballots will have already made their choice -- - especially if mail-in ballots happen in greater numbers this year as a result of Covid-19 concerns.


Fed Sticks to Whatever It Takes With No Sign of Virus Easing

By:     Matthew Boesler  and   Catarina Saraiva             July 29, 2020,          Bloomberg News

The Federal Reserve left interest rates near zero and vowed to use all its tools to support the recovery from an economic downturn that Chair Jerome Powell called the most severe “in our lifetime.”

“The path forward for the economy is extraordinarily uncertain, and will depend in large part on our success in keeping the virus in check,” he told reporters in a virtual press conference Wednesday after the Fed left interest rates near zero. He sounded a dour tone about how long a road is ahead to get back to where the country was only months ago and notedthat more fallout from the virus still lies ahead.

“Even if the reopening goes well -- and many, many people go back to work -- it is still going to take a fairly long time for parts of the economy that involve lots of people getting together in close proximity” to recover, he said. “Those people are going to need support.”

Powell said that not all sectors of the economy were weakening, citing the housing sector as one bright spot. But on balance it looks like the data “are pointing to a slowing in the pace of the recovery,” he said, though it was too soon to say how large -- or sustained -- this pause would last.

Summer Spike

“I think many FOMC [Federal Open Market Committee] members were discouraged by the resurgence in Covid-19 across much of the Sun Belt this summer and the subsequent pullback in economic activity,” said Mark Vitner, senior economist at Wells Fargo & Co. “This summer’s resurgence in Covid-19 showed how vulnerable the economy is and how difficult it is to make economic policy when we do not know what the virus will do next.”

High-frequency economic indicators are pointing to a stall in the rebound as consumers hold back from activities like dining out and air travel, which had started to bounce back when the earlier wave of outbreaks dissipated.

In its statement announcing the policy decision, the Federal Open Market Committee repeated that the coronavirus pandemic “poses considerable risks to the economic outlook over the medium term” and that the federal funds rate would remain near zero “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

Market Reaction

That indication that the Fed could be a near zero rates for a long time to come buoyed markets Wednesday.

The dollar extended its decline Wednesday, while U.S. stocks maintained their gains and gold remained buoyant. The 10-year Treasury yield was steady on the day around 0.57% as the U.S. bond curve steepened.

Five-year yields chalked up a series of record lows in the space of just four hours during the session, a further sign that investors fully expect the Fed to hold rates neat zero for an extended period.

Fiscal Aid

The chair told reporters that supporting the recovery would need help from both monetary and fiscal policy, in a nod to ongoing negotiations among lawmakers and the Trump administration in Washington to refresh taxpayer support before current assistance runs out.

“I see Congress negotiating now over a new package and I think that’s a good thing,” he said.

“Powell’s press conference was very much a moment of truth,” said Gregory Daco, chief U.S. economist at Oxford Economics. “I struggle to recall a time at which Powell, or any recent Fed chair, was as direct and candid about the urgency of fiscal stimulus to support the recovery and prevent a double-dip recession.”

FOMC United

The vote, to leave the federal funds target rate in a range of 0% to 0.25%, was unanimous. The FOMC also reiterated its pledge to increase its holdings of Treasuries and mortgage-backed securities “at least at the current pace” over coming months.

In a separate statement Wednesday, the Fed said it extended its dollar liquidity swap lines and the temporary repurchase agreement facility for foreign and international monetary authorities through March 31, 2021.

Powell and his FOMC colleagues have kept their benchmark rate pinned near zero since the pandemic’s onset in March and rolled out several emergency lending programs geared toward fostering liquid trading conditions in financial markets.

That aggressive action has helped to calm investors. But progress toward recovery has been complicated in recent weeks by a new wave of coronavirus outbreaks across major states in the South and West including Texas, Florida, California and Arizona​


Investors have remained relatively optimistic despite renewed signs of weakness in the economy, thanks in large part to rising hopes that researchers will soon succeed in developing a vaccine.

Before Wednesday’s decision, the S&P 500 index of U.S. stocks was within about 4% of the record high set in mid-February after losing more than a third of its value in the early days of the pandemic.

Still, Powell made clear that the Fed was not pinning its hopes on a medical breakthrough.

“Our job is not to plan for the upside case. The upside case -- we’ve got that covered,” he said. Rather, the Fed will “hope for the best and plan for the worst.”


Read more:

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%.




COVID-19 Battered the Investment Sales Market During the Second Quarter


Uncertainty is contributing to considerable challenges in underwriting future income streams and accurately assessing property values and pricing. 


Beth Mattson-Teig                                          Jul 28, 2020                          National Real Estate Investor

Investment sales volumes in the commercial real estate sector fell nearly 70 percent as the massive economic disruption from the COVID-19 pandemic ground deal making activity nearly to a halt. Data from CoStar and Real Capital Analytics showed a similar drop in magnitude although the latest price indices show only a slight decline in values, evidence that a mass repricing of assets has yet to take place.  

Preliminary data from CoStar shows $35.5 billion in closed transactions during second quarter, which is down 69 percent compared to the $113.7 billion in sales during the same period in 2019. Meanwhile, Real Capital Analytics reported a similar 68 percent drop although at a slightly higher volume of $44.7 billion in total sales. The biggest impediment to investment sales is general uncertainty due to COVID-19, including the course it’s taking and impact on the economy, consumer behavior and demand for space. That uncertainty is contributing to considerable challenges in underwriting future income streams and accurately assessing property values and pricing.

“Deal flow continues to fall, and I don’t think it’s going to turn around anytime soon, in part because pricing has only just started to adjust,” says Jim Costello, a senior vice president at Real Capital Analytics. Buyers and sellers have different expectations of where the market is at, and until owners are willing to accept bids that are severely lower than they were pre-COVID-19, there is not going to be many properties trading, he says. Capital also is sitting on the sidelines waiting for discounted distressed assets to emerge.

“We do think there is a bid-ask gap for buyers and sellers, and that feeds into the challenges on pinpointing values,” agrees Andrew Rybczynski, a managing consultant at the CoStar Group. Industry forecasts generally agree on the significant weakness ahead in rental growth across property sectors. However, the dearth of transactions is making it difficult to gauge how property values have shifted.

Another factor contributing to the decline in transaction volume is that owners are simply reluctant to bring properties to market in the current climate. Some properties will be forced to the market by distress. However, any seller in a strong enough position will likely choose to ride out the current downturn rather than attempting a sale, which is contributing to a decline in the amount of for-sale properties on the market, says Rybczynski. Overall, the number of listings added to the market in the first half of the year dipped about 15 percent with retail and office listings diminishing more than industrial or multifamily, according to CoStar.

Some property sectors and geographic markets are proving to be more resilient than others. “Although there is a bid-ask gap on certain assets and in certain markets depending on how properties performed through second quarter, there also are many assets that have done very well and proven their investment thesis on design, location and execution,” notes Matthew Lawton, an executive managing director at JLL Capital Markets in Atlanta. Proven performance, along with new record-low borrowing rates, has resulted in very little price erosion, he says. “You have to be careful when painting certain markets with a broad brush as supply remains an issue near term but is very submarket driven,” he adds.



According to CoStar, hotels saw the biggest drop in transactions, falling by 94 percent to $274.6 million, while industrial fared the best with a 42 percent decline to $8.9 billion. Most industry participants tend to agree that industrial has seen the least disruption from COVID-19. Self-storage is another property type that is holding up better amid COVID-19 pressures as transition, such as job losses that result in moves or college students moving in with parents, tends to drive demand for storage.


Prices for yield-producing self-storage properties have not changed significantly post-COVID-19, notes Ryan Clark, director of investment sales at Skyview Advisors. “We have experienced some bid-ask gaps on deals, but it is not an overwhelming trend in the deals we are marketing,” he says. However, COVID-19 has helped to create a more bifurcated market. Stabilized deals with management value add opportunities continue to receive intense interest as buyers hunt for predictable and stable yield. In contrast, newly developed properties with lease-up risk are seeing a shrinking bidder pool, he says.

Investment sales volumes in the commercial real estate sector fell nearly 70 percent as the massive economic disruption from the COVID-19 pandemic ground deal making activity nearly to a halt. Data from CoStar and Real Capital Analytics showed a similar drop in magnitude although the latest price indices show only a slight decline in values, evidence that a mass repricing of assets has yet to take place.  

Preliminary data from CoStar shows $35.5 billion in closed transactions during second quarter, which is down 69 percent compared to the $113.7 billion in sales during the same period in 2019. Meanwhile, Real Capital Analytics reported a similar 68 percent drop although at a slightly higher volume of $44.7 billion in total sales. The biggest impediment to investment sales is general uncertainty due to COVID-19, including the course it’s taking and impact on the economy, consumer behavior and demand for space. That uncertainty is contributing to considerable challenges in underwriting future income streams and accurately assessing property values and pricing.

“Deal flow continues to fall, and I don’t think it’s going to turn around anytime soon, in part because pricing has only just started to adjust,” says Jim Costello, a senior vice president at Real Capital Analytics. Buyers and sellers have different expectations of where the market is at, and until owners are willing to accept bids that are severely lower than they were pre-COVID-19, there is not going to be many properties trading, he says. Capital also is sitting on the sidelines waiting for discounted distressed assets to emerge.

“We do think there is a bid-ask gap for buyers and sellers, and that feeds into the challenges on pinpointing values,” agrees Andrew Rybczynski, a managing consultant at the CoStar Group. Industry forecasts generally agree on the significant weakness ahead in rental growth across property sectors. However, the dearth of transactions is making it difficult to gauge how property values have shifted.

Another factor contributing to the decline in transaction volume is that owners are simply reluctant to bring properties to market in the current climate. Some properties will be forced to the market by distress. However, any seller in a strong enough position will likely choose to ride out the current downturn rather than attempting a sale, which is contributing to a decline in the amount of for-sale properties on the market, says Rybczynski. Overall, the number of listings added to the market in the first half of the year dipped about 15 percent with retail and office listings diminishing more than industrial or multifamily, according to CoStar.

Searching for bright spots

Some property sectors and geographic markets are proving to be more resilient than others. “Although there is a bid-ask gap on certain assets and in certain markets depending on how properties performed through second quarter, there also are many assets that have done very well and proven their investment thesis on design, location and execution,” notes Matthew Lawton, an executive managing director at JLL Capital Markets in Atlanta. Proven performance, along with new record-low borrowing rates, has resulted in very little price erosion, he says. “You have to be careful when painting certain markets with a broad brush as supply remains an issue near term but is very submarket driven,” he adds.

According to CoStar, hotels saw the biggest drop in transactions, falling by 94 percent to $274.6 million, while industrial fared the best with a 42 percent decline to $8.9 billion. Most industry participants tend to agree that industrial has seen the least disruption from COVID-19. Self-storage is another property type that is holding up better amid COVID-19 pressures as transition, such as job losses that result in moves or college students moving in with parents, tends to drive demand for storage.

Prices for yield-producing self-storage properties have not changed significantly post-COVID-19, notes Ryan Clark, director of investment sales at Skyview Advisors. “We have experienced some bid-ask gaps on deals, but it is not an overwhelming trend in the deals we are marketing,” he says. However, COVID-19 has helped to create a more bifurcated market. Stabilized deals with management value add opportunities continue to receive intense interest as buyers hunt for predictable and stable yield. In contrast, newly developed properties with lease-up risk are seeing a shrinking bidder pool, he says.

And while storage deals are still getting done, in many cases, it is more difficult to get them across the finish line. “Every deal closed post-COVID-19 has required an increased level of advocacy and problem solving on behalf of our clients in order to get from marketing through closing,” says Clark. In addition, difficulty obtaining financing and travel restrictions during second quarter created added challenges and lengthened the overall process to get deals done, he adds.

Notably, multifamily, which has been a hotly pursued sector in recent years, saw a sharp drop in investment sales volume in second quarter—76 percent for CoStar and 70 percent per RCA data. Although unemployment insurance, government stimulus checks and moratoriums on renter evictions have helped to provide a buffer for occupancies and rent collections, there is some concern regarding the negative impact looming once that support disappears. Investors also may be nervous about the active development pipeline that is set to deliver even more supply to the market and the emerge of flat or negative rent growth.


Waiting for pricing discovery

Aside from a proven coronavirus vaccine, one of the keys to kickstarting investment sales will be pricing discovery that helps to bridge the bid-ask gap. Sales that were in the pipeline pre-COVID-19 that proceeded to close in second quarter have helped prop up pricing averages. However, CoStar’s second quarter data is indicating some early pricing weakness, and the firm is forecasting a further erosion in values with the nadir or low point of the cycle likely to hit sometime in mid-2021, says Rybczynski

RCA also is reporting some slight downward movement in prices. The decline is more noticeable in hotels, with pricing that had started to adjust pre-COVID-19 due to oversupply in some markets. Hotels saw the biggest decline of -1.0 percent compared to first quarter and a year-over-year pricing drop of -5.4 percent, whereas industrial continued to post gains of 1.7 percent over the previous quarter and 7.6 percent year-over-year.

For all property types, the RCA CPPI was relatively flat in second quarter, up a slight 10 basis points compared to first quarter and rising 3.6 percent compared to the same period in 2019. “The pricing shift is not huge given the nature of the economic dislocation, but it is sort of a death by a thousand cuts that we’re going to go through as it could be up to a year of this steady decline in prices,” says Costello.

Unable to Make Loan Payments, Texas Hotelier Loses Stake in Nine US Hotels


Ashford Discloses Details on Loss of W Hotel Minneapolis and Other Hotels

By Candace Carlisle                                    July 24, 2020                                  CoStar News


The 148-room Homewood Suites Pittsburgh Southpointe hotel is one of the limited service hotels in a portfolio in default. (CoStar)

Ashford Hospitality Trust, a real estate investment trust hit hard financially by the pandemic, told investors it is losing its ownership stake in nine hotels, including a W hotel in a high-profile Art Deco skyscraper in Minneapolis and eight U.S. limited service hotels.

The Dallas-based REIT, seeking to deleverage itself as U.S. travel industry demand has declined dramatically with no end in sight as the pandemic wears on this summer in spots throughout the country, has been working with its lenders after defaulting on nearly all its loan agreements beginning April 1.

Ashford did not immediately return an emailed interview request Friday from CoStar News regarding the nine hotels, which was reported in a Securities and Exchange Commission filing. The publicly traded REIT could give investors further information at its second-quarter earnings call July 30.

The SEC filing shows lenders are taking action to protect their interests in the borrowing entity behind the hotel properties, said Stacy Stack, a founding partner of the recently launched Goodwin Advisors, a real estate advisory firm based in Dallas.

"They seem to be looking for investors who want to strategically step into the borrower's role," Stack said in an interview. "It will be interesting to see what the entities sell for at auction, but it hasn't changed the value of the senior debt on the deal. This could be an unofficial call for strategy by the lenders to see who wants to play in the market."

It's too early for investors to yet know how the pandemic will impact the hospitality industry, but Stack said she's seeing a wide delta between what sellers want to price hotel properties at and what investors are willing to pay. While not yet seeing hotel auctions as a result of defaults or unraveling commercial mortgage-backed securities loans, Stack said the public auction could give lenders an additional data point on how to proceed in uncertain times. 

Prior to the pandemic, Ashford Hospitality owned 116 hotels and nearly 25,000 rooms throughout the United States. By losing its stake in the W hotel in Minneapolis, a 229-room hotel in a historic Minneapolis skyscraper, reported by CoStar News earlier this week, and the eight U.S. limited service hotels in one of its portfolios, the REIT will be down nine hotels and 1,283 rooms. 

Loans tied to the W hotel are scheduled to be sold at a public sale on Aug. 6, according to the SEC filing. Loans tied to the eight-hotel limited service portfolio with a principal amount of nearly $144.2 million matured on July 9. The senior mezzanine lender on the portfolio, called the Rockbridge Portfolio, previously sent the company a notice of Uniform Commercial Code sale, giving the lender the ability to sell the Ashford subsidiaries that own the hotels at a public auction. 

On the senior mezzanine loan tied to the limited service hotel portfolio, there's an outstanding balance of $16.5 million, according to the filing. The portfolio, with hotels in Arizona, Kansas, Massachusetts, Ohio, Oklahoma, and Pennsylvania, include:

  • Courtyard Billerica, a 210-room hotel at 270 Concord Road in Billerica, Massachusetts

  • Hampton Inn Columbus Easton, a 145-room hotel at 4150 Stelzer Road in Columbus, Ohio

  • Hampton Inn Phoenix Airport, a 106-room hotel at 601 N. 44th St. in Phoenix, Arizona

  • Homewood Suites Pittsburgh Southpointe, a 148-room hotel at 3000 Horizon Vue Drive in Canonsburg, Pennsylvania

  • Hampton Inn Pittsburgh Waterfront, a 113-room hotel at 301 W. Waterfront Drive in Homestead, Pennsylvania

  • Hampton Inn Pittsburgh Washington, a 103-room hotel at 475 Johnson Road in Washington, Pennsylvania

  • Residence Inn Stillwater, a 101-room hotel at 800 S. Murphy St. in Stillwater, Oklahoma

  • Courtyard Wichita, a 128-room hotel at 820 E. 2nd St. in Wichita, Kansas


Ashford purchased the hotel portfolio, which originally included another full-service hotel in Michigan, more than five years ago, in a deal totaling $224 million, or about $179,000 per room. At the time of the deal, Ashford Chairman and CEO Monty Bennett said the portfolio gave the REIT the opportunity to expand its geographic footprint. 

In a separate deal, Ashford reworked agreements with lenders recently to keep a portfolio of 19 hotels spanning 13 states. The reworked deal represents one of Ashford's largest loan pools, which positions the REIT to "survive the pandemic crisis and thrive after it has passed," according to a spokeswoman. Of Ashford's $4.1 billion in property level debt outstanding as of March 31, the REIT has reworked loans for about $1 billion of that debt.

Forenote:   It is not just in this country that there is stress in commercial real estate.  Department stores in particular have been hit hard, with the demise of Sears a few years ago, to Neiman Marcus, JC Penny and of course the trouble that Macy's has found itself for several years.  The level of debt already outstanding plus the additional debt being taken to try to secure a survivability for the next few years which is now unsecured by real estate continues to grow.  Below is more not so great news from London.

Debenhams up for sale in last-ditch bid to avoid liquidation


Julia Kollewe                        July 27, 2020                            The Guardian

Debenhams has put itself up for sale in a last-ditch attempt to prevent a fall into liquidation.

The 242-year-old department store chain this weekend appointed investment bank Lazard to oversee the sale process and hopes to secure a buyer before the end of September.

The struggling retail group called in administrators in April, for the second time in a year. The restructuring firm FRP Advisory is working alongside its management under a “light touch” administration.

This means directors are running the business rather than handing it over to the administrators. The chain has already shut 18 stores, with the loss of more than 1,000 jobs in shops and at the headquarters in London.

After lease negotiations with landlords, 124 stores are still trading. They reopened on 15 June after the government allowed non-essential retailers to open again following the Covid-19 lockdown.

“Now that Debenhams has 124 stores in the UK open and is trading ahead of expectations, the administrators of Debenhams Retail Ltd have initiated a process to assess ways for the business to exit its protective administration,” the company said on Sunday.

“There are a range of possible outcomes which could include the current owners retaining the business, potential new joint venture arrangements (with existing and potential new investors) or a sale to a third party, and the administrators will be guided by what delivers the best outcome for creditors.”

Like other retailers, Debenhams has been badly hit by the coronavirus lockdown, but was already struggling with a £600m debt pile. It previously went into administration in April 2019, which wiped out its shareholders and transferred ownership to a group of financial investors including US hedge funds managed by Silver Point Capital and GoldenTree Asset Management. Debenhams then underwent a company voluntary arrangement, an insolvency procedure that allowed it to close stores and renegotiate rents.

Debenhams’ Irish chain has been placed into liquidation, but a liquidation of the main group is unlikely and would only happen once all other options have been exhausted. Debenhams also owns the Magasin du Nord chain in Denmark.

Rival John Lewis plans to close eight of its 50 stores putting 1,300 jobs at risk, while Marks & Spencer is cutting 950 jobs as part of a £500m cost-saving drive.

Office Space Demand Expected to Drop 10-15% as More People Work From Home

The expected reduction in office demand may be offset by de-densification, another new trend.


By Angela Morris                                          July 27, 2020               

A new report suggests the office real estate sector, especially in gateway cities like New York, San Francisco and Washington, DC, will feel the pain for years from the pandemic-led work from home trend.

“The notion that a well-located office building full of highly paid workers in or near a dense, expensive city is the best way to operate a successful firm has been challenged by the acceptance of remote work,” said the report by Green Street Advisors, a real estate research company. ”Coupled with an increase in individuals who no longer regularly go into the office, many more may consider moving further away from coastal city centers.”

Overall, the need for office space will decline by 10-15% because so many people are working from home, and the trend could become a permanent employment benefit after the pandemic has passed, wrote Danny Ismail, lead office analyst of Green Street.

The reason that working from home may become permanent is because it’s been widely successful. Remote employees or just as productive—sometimes more so—and they like not commuting and having scheduling flexibility, the report said. In the future, some employees will still go to the office every day, but others may not go daily.

Ismail wrote that he did not expect a fully work-from-home world. Companies’ success depends too much on factors like organizational culture, corporate communication and employee retention, he explained.

The expected 10-15% reduction in office demand may be offset by another trend, however. In the past decade, companies squeezed more employees into the same office space. The need for social distancing could undo this densification trend, the report said.

“A shift toward de-densification could prove a boon to office demand and potentially offset the impact” of working from home, wrote Ismail. “Investors should remain open-minded about a de-densification trend as this reversal could have material positives for the office sector.”

The report also noted that Green Street expects for the need for office space to shift geographically away from gateway markets, which are large international cities that serve as entry points into the country. Smaller cities are not so economically sensitive and offer a lower cost of living and better fiscal health, said the report.

For example, the top five cities that will be “winners” as the work from home rate accelerates are: Raleigh, North Carolina; Denver, Colorado; Charlotte, North Carolina; Austin, Texas; and Phoenix, Arizona.

In contrast, the five cities that may benefit the least from the trend are: San Jose, California; New York City; Washington, D.C.; Boston, Massachusetts; and Houston, Texas.

“Employers and employees see more of their income lost due to taxes in gateway markets compared to Sun Belt markets, which has partially driven the recent large net migration towards the Southeastern United States,” wrote Ismail. “Less expensive locales with nice weather will attract talent from high cost and high tax markets.”

Rise in Weekly Unemployment Claims Points to Faltering Jobs Recovery


Initial claims climb for first time in nearly four months to 1.4 million amid uptick in coronavirus cases


By:  Eric Morath                                     July 23, 2020                        The Wall Street Journal

Filings for weekly unemployment benefits rose for the first time in nearly four months as some states rolled back reopenings because of the coronavirus pandemic, a sign the jobs recovery could be faltering.

Initial unemployment claims rose by a seasonally adjusted 109,000 to 1.4 million for the week ended July 18, the Labor Department said Thursday, halting what had been a steady descent from a peak of 6.9 million in late March, when the pandemic and business closures shut down parts of the U.S. economy. 


The increase followed a period where claims had settled around 1.3 million a week, well above the pre-pandemic record of 695,000 in 1982.

New applications for jobless benefitsSource: U.S. Employment and TrainingAdministration via St. Louis FedNote: Seasonally adjusted.


The data also show that unemployment rolls have shrunk in recent weeks. Taken together, claims and benefits totals suggest new layoffs are being offset by hiring and employers recalling workers, though at a slower pace than a few weeks ago.

“The reopening across the country has been very bumpy,” said Michelle Holder, an economist at John Jay College in New York, before Thursday’s data. “I think unemployment applications are going to be sticky at this level because many states are seeing a reassertion of the virus.”

Last week’s increase in applications came after several states imposed new restrictions on businesses such as bars and restaurants when coronavirus cases rose.

The number of people receiving benefits through regular state programs, which cover the majority of workers, decreased by 1.1 million to 16.2 million for the week ended July 11. The decline extends the recent trend, with the number receiving benefits the lowest reading since the week ended April 11. Those so-called continuing claims are reported with a week lag

Employers added a combined 7.5 million jobs in May and June after shedding 21 million jobs in March and April, separate Labor Department data showed.

On an unadjusted basis, the level of claims was mixed across states last week, falling in some states where virus cases have risen, including in Florida and Texas, and rising in others, including California and Louisiana.

The elevated level of claims indicate many workers are being laid off, perhaps for a second time, and that parents who want to work are unable to access child care, Ms. Holder said. 


California is among the states that imposed new restrictions to deal with a surge in cases of the new coronavirus. The latest restrictions caused Jessica Jenkins, a 30-year-old stylist, to lose her job last week for the second time this year.

Ms. Jenkins, an independent contractor who rents a booth at Bloom Salon in downtown Napa, had been back at work for five weeks, following a monthslong shutdown that began in mid-March. Being out of work again “is definitely uncomfortable,” Ms. Jenkins said. “I don’t know how long [this shutdown] is going to be or how much it’s going to affect my business.”

Ms. Jenkins said coronavirus precautions, which required that stylists space out customers and disinfect chairs and other equipment after every use, meant before the second shutdown she was working longer hours and making about half the money she was before the pandemic. 

The self-employed, gig workers, parents who can’t find child care and others who qualify under special pandemic programs are able to tap unemployment benefits under a law passed in March, even if they don’t qualify under regular state programs. 

Last week, 975,000 workers applied for benefits through the new Pandemic Unemployment Assistance program, a modest increase from the prior week. But the number receiving payments through the program fell by nearly 800,000 in the July 4 week to 13.2 million, according to the latest available data, which isn’t adjusted for seasonality. Economists caution that accounting for the new program is inconsistent across states. 

A decreasing number of Americans receiving benefits indicates that recalls and new hiring are outpacing fresh layoffs—suggesting U.S. employers are likely to add jobs to total payrolls for the third straight month in July.

Greystone Lodge on the River in Gatlinburg, Tenn., temporarily shut its doors on April 1, but didn’t lay off employees. General Manager Jackie Leatherwood said the 241-room hotel wanted to be loyal to longtime employees and avoid a scramble for staff before its busy summer season. 

Greystone reopened on May 1, and since hired four additional employees, including a front-desk clerk and a laundry attendant, and has several openings, Ms. Leatherwood said. Business picked up in June as visitors returned to the nearby Great Smoky Mountains National Park. She said July so far “looks really good.”

Other businesses are facing renewed challenges with a rising number of virus cases.

The Midnight Cowboy cocktail bar in Austin, Texas, had to close its doors and put five employees back on furlough when the state ordered bars to shut down for a second time in late June. Another four employees have been on furlough since mid-March. Bill Norris, co-owner at the bar, said that during the weeks it was open, revenue was about half of what it was during a comparable period last year.

“We were scraping by,” Mr. Norris said. He said he expects the bar will eventually reopen, when state rules allow it to and when customers are ready to come back. But he said he worries about furloughed employees.

“To know that you can’t support people who’ve been the heartbeat of your business is crushing,” Mr. Norris said.

The tens of millions of workers covered by a range of unemployment insurance programs face the prospect of a significant reduction in benefits at the end of this month, when a $600 weekly benefits enhancement is set to expire. Lawmakers are negotiating over whether and how to extend those benefits, with the possibility of passing a temporary extension while talks continue over a longer term solution. State programs alone pay about $350 a week, on average.

The federal government paid $18.3 billion in enhanced compensation for the week ended July 18, the Labor Department said. That is the equivalent of 30.5 million $600 payments, though some of the total amount could reflect back payments.

University of Michigan labor economist Don Grimes said if the amount offered under unemployment insurance is reduced, the number of Americans receiving benefits is likely to decline, but not necessarily the number of new applications.

“The $600 additional weekly payment may have encouraged people to stay on unemployment,” he said. “But if someone loses their job they will file for unemployment benefits whether the value of those benefits is $300 a week or $900 a week.”

The coronavirus exposes the perils of profit in seniors’ housing

Martine August                                                                                   The Conversation

Assistant Professor,

School of Planning

University of Waterloo


In May 2020, Orchard Villa, a long-term care home in Pickering, Ont., made headlines for a bad COVID-19 outbreak.  Just two months into Ontario’s lockdown, 77 patients in the 233-bed home had died.

A report by Canada’s military revealed horrifying conditions, short staffing and neglect. Some family members blamed for-profit ownership, arguing that COVID-19 had simply exposed, in tragic fashion, the impact of prioritizing profits in the operation of seniors housing.

Notably, Orchard Villa had been purchased in 2015 by private equity firm Southbridge Capital, adding it to Canada’s growing stock of “financialized” seniors’ housing — bought by financial firms as an investment product. 

This has followed the trend of what’s known as financialization in the global economy, in which finance has come to dominate in the operations of capitalism, prioritizing investor profits over social, environmental and other goals. In seniors’ housing, financialization has arguably intensified the profit-seeking approach of private owners, with harmful outcomes for residents and workers alike.


Grey wave

Seniors’ housing includes both government-subsidized long-term care (LTC) homes (nursing homes), and “private-pay” retirement living. Canada’s population is aging, with a so-called grey wave predicted to require 240,000 new spaces by 2046.

Industry experts call this “a rising tide that can’t be denied.” Investors are rushing to get on board, both with LTCs, where long waiting lists and government funding ensure steady income, and with retirement living — where hospitality services (housekeeping, laundry, meals) and private-pay health-care services can drive rents as high as $7,000 a month.

Financial operators have spent two decades consolidating ownership of Canadian seniors housing. These operators include Real Estate Investment Trusts (REITs), institutional investors and private equity firms. 

In 1997, the first seniors housing REIT launched with 12 homes. What followed was a consolidation frenzy and the rise of financial firms like Chartwell, Sienna, Revera, Extendicare, Amica, Verve and others. By 2020, financial firms controlled about 28 per cent of seniors housing in Canada, including 17 per cent of LTCs and 38 per cent of retirement homes.

American owners

Ownership has also become international. Today, Canada’s biggest owners are the largest health-care REITS in the United States.


Ventas REIT and Welltower REIT entered Canada in 2007 and 2012, and have amassed major interests in 36,792 suites (225 homes). Canada has also seen a surge in U.S.-based private equity ownership by firms that recognize similarities between our private-pay retirement sector and privatized health care south of the border.


They are eager to capitalize on the growing number of seniors on LTC waiting lists who require care and are forced into private-pay retirement living.

Why should it matter if financial firms own seniors housing? 

Researchers have found that for-profit facilities have lower staffing levels, lower quality of care and poorer resident outcomes, in both the U.S. and Canada. 

Among for-profits, corporate chains are worse than independent operators. 

Financialization, meanwhile, is like private ownership on steroids. In other sectors, financial firms view homes as assets for generating profit, and their large scale, sophistication and access to capital enable them to pursue it more aggressively. 

In seniors housing, REITs are clear about prioritizing share value, growth and monthly investor distributions. But there are no objectives to deliver better care, dignified environments or good workplaces, which should be paramount in the operation of seniors housing.

Fatalities higher in ‘financialized’ homes

Pandemic mortality rates are highlighting the serious problems with financialization in the sector. Using data compiled by writer Nora Loreto on COVID-19 deaths in Ontario long-term care facilities as of June 23 and my own original database on seniors housing ownership, I found worse fatalities in for-profit homes.

In Ontario, for-profits own 54 per cent of beds, but had 73 per cent of deaths. Public homes, by contrast, include 20 per cent of beds, but had only had 6 per cent of deaths. Financial operators (REITs, private equity and institutions) had higher death rates than other for-profits, with 30 per cent of beds and 48 per cent of Ontario LTC deaths.

There were 875 deaths in Ontario’s nearly 24,000 financialized long-term care beds, or a 3.7 per cent rate of deaths per total beds. This is 1.5 times higher than other for-profits (at 2.5 per cent), and five times higher than the rate in public homes (at 0.7 per cent). 

While more detailed studies are needed to compare features of the homes and their residents, this trend appears to support what researchers suggest — that financial operators may pursue profits at the expense of nursing home quality.

Orchard Villa was not the only private equity-owned property to experience crisis. Southbridge Capital had outbreaks in nine of its 26 Ontario homes, and a 7.4 per cent death rate — more than 10 times that seen in public facilities. 

Investors in Southbridge Care Homes are promised a yield-based investment with “upside market gain.” While those profits roll in, 176 people have lost their lives to COVID-19 in the firm’s investment properties.

These numbers underscore the need for transformative changein the seniors housing sector. All seniors deserve the right to affordable and safe housing, high-quality health care and a dignified environment. Staff deserve safe, well-paying and rewarding jobs. The pandemic has revealed the devastating mistake we’ve made in allowing homes to be treated as financial assets for investor gain.

Banks Facing Potential Hefty Volume of Troubled CRE Loans

With forbearance periods still underway, visibility has not yet emerged on how much distress sits on bank balance sheets.

By: Beth Mattson-Teig                    Jul 21, 2020                               National Real Estate Investor

Snowballing distress in commercial real estate loans are threatening to become an avalanche that could overwhelm banks.

Getting a glimpse behind the curtain on how bank loans are performing isn’t easy. “It’s amazing that we have gone from the great financial crisis to now and still have no better transparency into the banks at a granular level as we do with CMBS,” says K.C. Conway, director of research and corporate engagement at the University of Alabama’s Alabama Center for Real Estate (ACRE) and chief economist for the CCIM Institute. Some banks are more transparent than others and there is definitely a lag in the data, he says.

In addition, the FDIC is allowing banks to forbear on loans and not have to report them as troubled loans for up to 180 days. “We’re not going to see anything big show up in the numbers until this deferral period expires,” says Johannes Moller, director in North American banks, at Fitch Ratings. The next big question is how the Federal Reserve is going to act and whether there will be further forbearance, which will help to determine when clarity on defaults on loans held by banks will be revealed, he says. (According to the Mortgage Bankers Association, commercial banks currently holding 39 percent of the $3.7 trillion in commercial/multifamily outstanding mortgage debt outstanding in the U.S.)

The COVID-19 related economic downturn is widely expected to cause a surge in loan defaults and delinquencies in some property sectors, and there is some data emerging that is providing insight into the potential stress ahead. For example, Trepp has analyzed a diverse portfolio of 13,000 commercial real estate balance sheet loans held by commercial banks. Trepp is forecasting that the cumulative default rate for that dataset will rise from its current 0.5 percent default rate to 6.5 percent. Notably, the hardest hit sectors are expected to be lodging, with a cumulative default rate of 21 percent and retail at 9 percent. Other major real estate sectors analyzed will experience more moderate increases in distress with multifamily at 4.7 percent, office at 4.5 percent and industrial at 2.4 percent, according to Trepp.

Although Fitch Ratings anticipates asset quality deterioration and rising defaults, the rating agency’s view is that banks started the current crisis with relatively good financial strength, liquidity, earnings and credit quality, says Moller. Fitch has put a number of banks on “negative outlook,” but the agency has not yet made any downgrades. “We do think underwriting standards are quite robust for the banks, especially for the large ones,” he says.

Some banks likely face more exposure than others. Some of the key points that Fitch highlighted in a recent report on commercial real estate loan risk among banks include:

  • Construction lending is the category with the highest inherent risk as evidenced by the loss history relative to other commercial real estate loan types.

  • Exposure risk is greater among smaller banks and those that have higher concentrations of commercial real estate loans. Small banks with between $10 million and $100 million in assets have gained market share in commercial real estate lending since the Great Recession. Smaller banks also tend to have less diversification than larger banks.

  • There are long-term implications of the pandemic on commercial real estate that bear watching in terms of how demand will be affected across property sectors.


Fed stress tests highlight liquidity concerns


The Fed released the results of its 2020 stress tests in late June with the addition of special sensitivity analyses that were conducted in light of the coronavirus pandemic. Analysis was performed on 34 banks, each with more than $100 billion in assets. The stress test included three downside scenarios for a V-shaped recession and recovery; a slower, U-shaped recession and recovery; or a W-shaped, double-dip recession.

In aggregate, loan losses for the 34 banks ranged between $560 billion and $700 billion in the sensitivity analysis. Under the more dire U-shaped and W-shaped scenarios, most of the banks remained well capitalized but several would approach minimum capital levels. In light of the results, the Fed took several steps to help banks preserve capital and remain resilient. Notably, the Fed suspended bank stock buyback programs and put temporary limits on the dividends banks could distribute to shareholders.

The stress tests are drawing mixed reviews. A recent opinion article in Bloomberg described them as “confusing and vague.” Others view the results as worrisome if the COVID-19 crisis worsens. A public health crisis of this magnitude wasn’t appropriately modeled in the bank stress tests, notes Conway. Even under the Fed’s worst case scenario, things could get worse, which is why the Fed put a temporary cap on dividends and a moratorium on buyback programs, he adds. The problem is that those limits also make it harder for publicly-traded banks to raise additional capital. “Who is going to invest or buy a new offering if you don’t know when or how much dividend they can pay?” he asks.

This year’s stress tests were unique with a lot of different moving parts coming together, including the implementation of the stress capital buffer, adoption of new Current Expected Credit Loss (CECL) accounting rules and a new dividend cap for the banks, notes Christopher Wolfe, managing director and head of North American Banks at Fitch Ratings. “But there was nothing that came out of it that changed our views on how we are looking at anything,” he says.

Gauging risk exposure

There are some notable differences that exist in the current market versus prior to the financial crisis a decade ago that may help banks weather the current storm. Banks have less exposure to loans outside of their geographic footprints, which got some banks into trouble in the last recession, notes Wolfe. In addition, concentration risks are different today. Banks have put limits on development and construction risk, for example, he says. Banks as a group also appear to have good diversification across property type. Based on data from fiscal year 2019, the biggest concentration for national banks is in the office sector, at 32 percent, whereas regional/local banks have the biggest exposure to apartments, at 27 percent, according to Real Capital Analytics.

Yet the concentration of commercial real estate debt held by banks is concerning, and what is more worrisome is added exposure risk to commercial and industrial (C&I) loans, says Conway. One way that banks were able to lower commercial real estate loan concentration numbers is to structure real estate loans to operating businesses, such as seniors housing, hotels, restaurants and auto dealership as C&I loans with a lien on the real estate. “I think we are going to find as we peel back the C&I onion that there is a lot of real estate classified as C&I loans in the banks,” he says.

According to the FDIC, nearly 500 banks failed during and immediately following the Great Financial Crisis. “I think we could easily end up over the next 18 to 24 months breaking bank closure records. It’s going to be pretty severe, particularly when you look downstream at community banks,” says Conway.

The level of stress is going to depend heavily on what property types and regions that banks are invested in. Those that got more aggressive in lodging, retail and C&I lending to seniors housing and restaurants could get hurt very badly, says Conway. Another question that remains is whether the Fed will allow banks to operate at lower capital ratios and give them time to work through problem loans, or if they are going to do another Troubled Asset Relief Program (TARP) bailout to pump money directly into the banks as they did in the financial crisis with an injection of about $700 billion, he adds.

Summer Rise in Covid-19 Hot Spots Derailing Hotel Recovery 

Swelling coronavirus cases in some popular states for tourism are spoiling near-term hopes for hoteliers

By:  Peter Grant                     July 21, 2020                    The Wall Street Journal


Just when many owners of hotels in Florida, Texas, Arizona and California thought the worst of the pandemic was behind them, a surge of Covid-19 cases in those states is spoiling any near-term recovery hopes.

Demand in 12 of 13 Florida markets, gauged by the number of room nights purchased, weakened for the week that ended July 11 compared with the week that ended June 27, according to data firm STR. Overall demand was down 7.4% in Florida for the period.

“We saw a nosedive in our reservation trend,” said Heiko Dobrikow, general manager of the 231-room Riverside Hotel in downtown Fort Lauderdale. “The customers are saying: ‘Why should I leave where I am to go somewhere there is an influx of Covid?’”

In Arizona, demand fell 9.9% and it was down in Texas, too, said the data firm, which compared the last week in June with the second week in July to exclude the effect of the July 4 weekend.
























Total U.S. hotel rooms purchased, change from previous week Source: STR

Until the recent rise in Covid-19 cases, markets in Phoenix and some parts of Florida and Texas were strong compared with other U.S. markets, according to Richard Hightower, an analyst with Evercore ISI. “There was pent-up demand on the leisure side. People just wanted to get out of the house,” he said.

People still feel that way but they also want to avoid areas that are recording spikes in Covid-19. Given that most leisure travel is being done by car these days, many families keep an eye on the news and simply head in a different direction than the outbreaks, analysts say.

Travellers can show up at the last minute and get a room because hotels are operating at such high vacancy rates compared with normal times.

“There’s plenty of availability,” said Andreas Ioannou, chief executive of hotel owner Orchestra Hotels + Resorts, whose properties include the Hilton Fort Lauderdale Beach Resort. “People know they can walk in and get a room, whereas in normal circumstances they would not be able to do that.”

The poor performances of the hotel markets in the states that suffered new outbreaks helped drag down the U.S. lodging industry, which has been one of the hardest-hit commercial-property types. National demand was rising at an average clip of 8.3% a week between the week that ended April 18 and the one that ended June 13, STR said.

Between the weeks that ended June 20 and July 11, demand rose only an average of 2.9% a week. “Where the media reported on an uptick in cases, consumers voted with their wallets,” said Jan Freitag, senior vice president of STR.

California also has been hard hit according to a report last week by Baird Equity Research. Of the 21 top metropolitan areas Baird tracks, 10 logged weaker growth in revenue per available room, a common industry metric. Seven of the 10 were in hot-spot states such as Arizona, California, Florida and Texas, Baird said.

California Gov. Gavin Newsom last week rolled back that state’s reopening because of its surge in Covid-19 cases, putting new restrictions on a range of public places and activities. Hotels weren’t on the long list of closures, which included malls and indoor activities at wineries, bars and entertainment centers. Still “we believe the appeal of leisure travel to California has certainly taken a hit,” the Baird report said.

Some small markets reachable by car and not recording a rise in Covid-19 cases are benefiting from the outbreaks in other parts of their state, said Michael Bellisario, a Baird senior research analyst. He included markets such as Panama City, Fla., Sedona, Ariz., and Corpus Christi, Texas.

“You’re going to make a decision Wednesday or Thursday on where you’re going Friday,” he said. He added that hotel guests are driving up to eight hours depending on “how many kids you have and how long you want to tolerate them in the car.”

The Hilton Fort Lauderdale has 374 rooms and suites. Mr. Ioannou said occupancy rose steadily in June from about 5% in the first week after the property reopened. “Within two weeks the momentum went to occupancy in the 30s on weekdays and over 50% on weekends. We were building up to 80% on July 4 and we were saying, ‘Oh my God, this is great,’” he said.

But then there was a jump in infections. “That caused hundreds of cancellations and occupancies dipped down again,” he said.

A note of caution regarding the following article from the JSO web manager

This is an article from the CoStar Group that completely omits the fact that there is a bifurcation of the industrial market not just in the Chicago metropolitan area but throughout most major metropolitan areas in the country.  The sale at just short of $150 per square foot, is for a Class A industrial property that is in high demand at the current time, and while vacant we believe will be populated quickly.  But at what rent is still an unanswered question.  What the article omits to mention, are the many industrial buildings that are struggling through out Cook and the Collar Counties for various reasons.  One of course is the high level of taxation within the Chicago area, especially Cook County where there is a new Assessor with no real estate back-ground what so ever. Most people would might concur that the industrial sector in Chicago has weathered the Coronavirus better that other sectors of real estate, but that would be in inverted comas! Retail has been gutted, the office sector is very mixed but showing rents trending alarmingly south, and the residential market is in flux with a significant bifurcation between Classes A and B and Class C. Did someone mention Senior Housing? There is simply no need to mention the hospitality sector.  More importantly, there is serious talk about pending bank failures where the numbers may well edge out the nearly 500 banks that failed immediately following the Great Financial Crisis - yes that one in 2008-09!   The article is included as it is news worthy, but it also skews the overall direction of the market in general.  It’s nice but right now its only trivia.

Denver Firm Pays $24 Million for Warehouse Near O’Hare Airport


Sale of Project in Final Construction Stages Underscores Chicago Area's Industrial Market Strength

By Jennifer Waters                         July 21, 2020                          CoStar News

In the latest testament to the strength of the industrial sector in the greater Chicago area, a Denver-based real estate investment management firm paid top dollar for a vacant warehouse near O’Hare International Airport.

Black Creek Group forked over $23.6 million for a 159,100-square-foot building in suburban Wood Dale, Illinois, that is in the final stages of construction. Developed by Crow Holdings Capital, the property at 640 N. Central Ave. sits on nearly 10 acres only 18 minutes away from O’Hare and 36 minutes from Midway International Airport on Chicago’s South Side.

The sale is among a handful of industrial deals completed during the pandemic that has put much of the commercial real estate industry on hold. It also comes at a time when there is about 18 million square feet of space under construction in greater Chicago with several large speculative projects racing toward completion, according to CoStar research. The market is set to see another supply-heavy year in 2020.

“This is just another example of how the industrial sector has weathered the coronavirus storm better than other property types,” said Denes Juhasz, senior market analyst in CoStar’s Chicago office. “It’s a fully vacant building that sold for one of the highest prices we’ve witnessed on a price-per-square-foot basis, at nearly $148 per square foot. And during the pandemic, too.”

The property has easy access to Interstate 290 that wraps north and south around the suburbs on the east side of the city. It’s also near quick routes to air cargo facilities that have been improved in recent years as demand for moving products through Chicago has swelled.

“Central Avenue represents the well-located Class A distribution warehouses that Black Creek Group prefers for our holdings,” Marty Edmondson, senior vice president of the company’s North Central region, said in an email. 

“We saw this acquisition as a unique opportunity for the firm to grow our presence in the Chicago area, particularly in Wood Dale the O’Hare submarket, which is a land-constrained location with low vacancy rates,” he added. CBRE’s Zachary Graham is handling the leasing on the property that Edmondson said already has “seen strong leasing interest.” 

Edmondson said the property is a good fit for warehousing and distribution tenants or manufacturing tenants. “We have seen a lot of interest in the property but do not have any deals we can discuss at this time,” he said.

Aldi's Launch of 70-Store Expansion Pushes an Atypical Real Estate Strategy

German Grocery Brand Aims to Become Nation's Third Largest Chain

By: Cara Smith-Tenta                        July 21, 2020                        CoStar News


Discount grocer Aldi's launch of a significant nationwide expansion, including plans for a Gulf Coast regional office and distribution center, marks its latest push to position itself among the few biggest U.S. grocery store chains partly by using a different real estate strategy.

The German company said it plans to open 70 more U.S. stores by the end of the year, after recently hitting its 2,000 U.S store milestone. The company expects to become the nation's third-largest grocery chain by store count by 2022. The company did not disclose how many stores it expects to open by then but in 2017, it projected that it could have at least 2,500 stores in 2022.

Among the planned locations this year, the company expects to make its first entry into Arizona, its 37th state, with four Phoenix stores, and to continue its expansion into the Gulf Coast including Louisiana, Alabama and the Florida Panhandle next year. Plans include building a 564,000 square-foot distribution center and office in Loxley, Alabama. 

The expansion is part of Aldi’s more than $5 billion initiative, launched about five years ago, to massively grow its physical footprint in the United States, revamp its existing U.S. stores and beef up its fresh food selection by 40% with an emphasis on fresh produce, meat and organic foods. 

That the company is still moving forward on those plans now stand in contrast to the state of the national retail industry where closings and reductions in property footprints have been increasing amid challenges presented by the coronavirus pandemic. But it comes as other companies, including e-commerce giant Amazon, launch their own brick-and-mortar grocery store expansion plans to capitalize on the demand for food, which consumers still largely prefer to buy in-person instead of online. 

Aldi is an unusual grocer in the industry in terms of real estate, and that could allow it move into less conventional commercial property than a typical grocer. Aldi's stores average about 16,000 square feet, smaller than the average supermarket, which come in at around 40,000 square feet. 

Its interiors appear low-cost and simple with an industrial-chic feeling and not draped in the warm lighting or higher-end finishes popular with chains such as Whole Foods or Kroger. Rather, Aldi says its focused on staying well-stocked with affordable basics and fresh produce.

Aldi’s emphasis on affordability may be part of its appeal. As the U.S. unemployment rate continues to sit at some of its highest historical levels in the pandemic, consumers are drawn more than ever to saving money.

“In fact, as food costs are rising across the country, we're lowering prices on hundreds of items to meet our customers' increased need for savings,” Jason Hart, CEO of Aldi U.S., said in a statement. 

The company said it has been one of the fastest growing grocery chains in the nation. It's unclear whether its 2017 projection to hit 2,500 stores by 2022 still holds. However, the chain maintains it could be the third larger grocer by store count in the nation in two years. 

Excluding big-box retailers such as Walmart, Kroger is America's largest grocery chain by store count with 2,796 stores, according to a disclosure to investors on its website. It is followed by Albertsons with 2,252 stores and Publix with 1,252 locations, according to those companies' respective financial filings.

Aldi has been buying up locations of some competitors that have closed or gone out of business as some of its organic-focused and pricier peers, such as Lucky’s Market, have not fared as well. In January, Boulder, Colorado-based Lucky’s Market filed for bankruptcy protection. Aldi wound up buying five Lucky’s Market stores and one of the company’s corporate-owned properties. In April, the Asheville, North Carolina-based natural foods grocer Earth Fare sold off several of its stores as part of its Chapter 11 bankruptcy case. Aldi bought one of those stores. 

Other peers in that category struggle to compete with deep-pocketed chains such as Whole Foods and Kroger, which can afford to strike up lucrative partnerships with curbside pickup services and adapt their strategies to best compete amid the pandemic. But Aldi said it has expanded its own online services. 

In May, it announced that it would accelerate the rolling out of its curbside pickup service to almost 600 stores by the end of this month. 

Aldi said it is also plans on breaking ground in 2021 on a 564,000-square-foot regional headquarters and adjacent distribution center in Loxley, Alabama, which will serve Aldi’s new stores in the Gulf Coast region. 

Those developments in Loxley are poised to infuse $100 million in capital investments in the community and create 200 jobs throughout the region, according to a separate statement from the company. Loxley sits in the southern tip of Alabama, around 21 miles east of Mobile and just a short drive to the state’s southernmost coast line. 

Aldi bought 160 acres in Loxley in the city’s industrial and warehousing district, just north of Interstate 10 at exit 44.

Men's Wearhouse and Jos. A. Bank are closing hundreds of stores

By Jordan Valinsky           July 21, 2020        CNN Business


New York (CNN Business)

Tailored Brands, which owns suit sellers Men's Wearhouse and Jos. A. Bank, is shuttering hundreds of stores and drastically reducing its corporate workforce as the coronavirus pandemic continues to decimate the retail industry. 

The company has identified 500 stores for closures and said it's cutting 20% of its corporate positions in hopes of strengthening its "financial position and enable it to compete more effectively in the challenging retail environment," according to a release. The company has around 1,500 stores in the United States, with about half operating under the Men's Wearhouse name.

"Unfortunately, due to the Covid-19 pandemic and its significant impact on our business, further actions are needed to help us strengthen our financial position so we can navigate our current realities," said Tailored Brands CEO Dinesh Lathi. 

The store closures and resulting layoffs will cost the company $6 million in severance payments and other termination costs, Tailored Brands said. The stores will close "over time" and it has not "yet quantified the expense savings and costs related to potential store closures."

Other companies facing the risk of bankruptcy include Ascena Retail Group (ASNA), owner of clothing chains Lane Bryant, Justice, Ann Taylor and Dress Barn, which recently warned there is "substantial doubt" about its ability to remain in business.

Tailored Brands disclosed it is at risk of bankruptcy or even shutting down operations because of the Covid-19 crisis in a filing Wednesday evening.

"If the effects of the Covid-19 pandemic are protracted and we are unable to increase liquidity and/or effectively address our debt position, we may be forced to scale back or terminate operations and/or seek protection under applicable bankruptcy laws," the filing said. The company said it had no comment beyond the filing.

The company suspended rent payments for April and May when most of its locations were shut. It said it has been able to negotiate rent deferrals for a significant number of its stores, with repayment at later dates, beginning at the end of 2020 into 2021. It also furloughed or laid off 95% of its 19,000 employees. 

But things have not gone well at the 44% of Tailored Brands stores that reopened in early May. For the week ended June 5, sales at locations open for at least one week fell 65% at its Men's Wearhouse and were down 78% at Jos. A. Bank and 40% at K&G.

Sales declined 60% in its fiscal first quarter, which ended May 2. All of its stores were closed for about half the quarter, and its online operations halted for two weeks in March. But Tailored Brands has delayed reporting its complete results -- the Securities and Exchange Commission allows companies to postpone reporting during the pandemic.

One reason for the delay is that it is weighing how large a charge it must take to write down the value of various assets, including the goodwill it carries on its books -- a measure of the value of a company's brands and reputation. The charge will be purely an accounting move that involves no cash, but it could raise the cost of borrowing money the company needs to get through the crisis. 

Tailored Brands had $201 million in unrestricted cash on hand as of June 5, but that was primarily because it drew down $310 million on existing credit lines during the first quarter. That left it with only $89 million of borrowing available under those lines. 

The company has about 1,400 stores in the United States and Canada, with about half under the Men's Wearhouse name. It will probably have to close a significant percentage of them whatever happens with its reorganization efforts, said Basu.

"This is the company that has the legs it needs to possibly turn things around," she said. "But consumers' tastes and demand are going to change. They're going to emerge from bankruptcy with a much smaller footprint."

Early-Stage Mortgage Delinquencies Exceed Great Recession Levels in U.S.

By Michael Gerrity |     Residential News » Irvine Edition |     July 14, 2020      World Property Journal

According to CoreLogic's latest Loan Performance Insights Report for April 2020, 6.1 percent of U.S. mortgages were in some stage of delinquency (30 days or more past due, including those in foreclosure). This represents a 2.5-percentage point increase in the overall delinquency rate compared to March 2020, when it was 3.6 percent.

To gain an accurate view of the mortgage market and loan performance health, CoreLogic examines all stages of delinquency, including the share that transition from current to 30 days past due. In April 2020, the U.S. delinquency and transition rates, and their year-over-year changes, were as follows:

  • Early-Stage Delinquencies (30 to 59 days past due): 4.2 percent, up from 1.7 percent in April 2019.

  • Adverse Delinquency (60 to 89 days past due): 0.7 percent, up from 0.6 percent in April 2019.

  • Serious Delinquency (90 days or more past due, including loans in foreclosure): 1.2 percent, down from 1.3 percent in April 2019. For the fifth consecutive month, the serious delinquency rate remained at its lowest level since June 2000.

  • Foreclosure Inventory Rate (the share of mortgages in some stage of the foreclosure process): 0.3 percent, down from 0.4 percent in April 2019. This is the lowest foreclosure rate for any month since at least January 1999.

  • Transition Rate (the share of mortgages that transitioned from current to 30 days past due): 3.4 percent, up from 0.7percent in April 2019. This marks the highest transition rate since at least January 1999. In January 2007, just before the start of the financial crisis, the current- to 30-day transition rate was 1.2 percent, while it peaked in November 2008 at 2 percent.


In the months leading up to the coronavirus (COVID-19) pandemic, U.S. mortgage performance was showing sustained improvement. As of March, the nation's overall delinquency rate had declined for 27 consecutive months, and serious delinquency and foreclosure rates stood at record lows. However, unemployment reached its highest level in more than 80 years in April, reducing affected homeowners' ability to make monthly mortgage payments.

The CARES Act provided forbearance for borrowers with federally backed mortgage loans who were economically impacted by the pandemic. Borrowers in a forbearance program who have missed a mortgage payment are included in the CoreLogic delinquency statistics, even if the loan servicer has not reported the loan as delinquent to credit repositories. Early-stage delinquencies (30-59 days past due) reached its highest level in at least 21 years in April. With home prices expected to drop 6.6percent by May 2021, thus depleting home equity buffers for borrowers, we can expect to see an increase in later-stage delinquency and foreclosure rates in the coming months.

"The resurgence of COVID-19 infections across the country has created economic uncertainty and leaves those who are unemployed concerned with their ability to make monthly mortgage payments," said Dr. Frank Nothaft, chief economist at CoreLogic. "The latest forecast from the CoreLogic Home Price Index predicts prices declining in all states through May 2021, erasing some home equity and increasing foreclosure risk."

All states logged increases in overall delinquency rates in April. New York and New Jersey were both hot spots for the virus and experienced the largest overall delinquency gains of 4.7 and 4.6 percentage points respectively in April, compared to one year earlier. Nevada, Florida and Hawaii were hit hard by the collapse in business travel and tourism, posting spikes of 4.5, 4.0 and 3.7 percentage points, respectively.

On the metro level, tourism destinations such as Miami, Florida (up 6.7 percentage points); Kahului, Hawaii (up 6.2 percentage points); New York, New York (up 5.5 percentage points); Atlantic City, New Jersey (up 5.4 percentage points) and Las Vegas, Nevada (up 5.3 percentage points), led the nation in overall delinquency gains.

"Despite the scale and suddenness of the pandemic, mortgage delinquency has yet to emerge as a major issue, thanks to government COVID-19 relief programs and other housing finance industry efforts," said Frank Martell, president and CEO of CoreLogic. "As the true impact of the economic shutdown during the second quarter of 2020 becomes clearer, we can expect to see a rise delinquencies in the next 12-18 months -- especially as forbearance periods under the CARES Act come to a close."

An indicator that presaged the housing crisis is flashing red again


By: Andrew Van Dam             July 14, 2020    Washington Post

New mortgage delinquencies hit a record in April, well above anything seen during the Great Recession.

Some 3.4 percent of Americans became at least 30 days delinquent on their mortgage in April, according to an analysis from CoreLogic. The real estate data firm’s figures include about three of four U.S. mortgages, going back to 1999.

Mortgage delinquencies were among the first signs of the housing crisis and can signal underlying weakness in the housing market. But does the surge in delinquency mean a second housing crisis looms with a wave of foreclosures?

Probably not. As with most data released during this coronavirus period, these figures come wrapped in caveats and uncertainty.

For starters, the new delinquency figure includes an unknown number of households that are late on their payments because their loans are in forbearance, said Frank Nothaft, CoreLogic’s chief economist. On March 27, President Trump signed the Cares Act, which made it easy for qualified homeowners to request a total of 12 months of mortgage forbearance. That leaves a small window in which the first homeowners who applied for forbearance could show up in the April data.

The forbearance program has been wildly popular. The Mortgage Bankers Association reports 4.1 million households were in forbearance as of July 5. To be sure, many applied after the April period measured here, and not all who apply for loan deferrals will actually fall behind on their payments. The program was broad, and many homeowners took advantage of the loan reprieve as a precautionary measure.

Millions of Americans who didn’t have a loan backed by the federal government weren’t eligible for the program. “There are some loans that are not in forbearance that are going right into delinquency,” Nothaft said.

There are endless reasons to fall behind on your payments right now. About 33 million people have lost their jobs and are receiving jobless benefits, Labor Department data show. The unemployment rate in April was at its highest since the Great Depression, plunging millions into dire financial situations, and the Federal Reserve projects unemployment will remain near double digits through the end of the year.

Even excluding mortgage loan deferrals, a Census Bureau survey shows that as of June 30, about 8.4 million households missed a mortgage payment in the past month. That’s up from the end of April, when it stood at about 5 percent.

“I do think we’re going to see further increases in delinquency rates,” Nothaft said. And a year from now, if the economy hasn’t improved substantially by the time forbearance runs out, “you could be looking at a prospect where the lender begins foreclosure proceedings.”

Delinquencies are concentrated in the Northeast and South, often in states harder hit in the earlier stages of the pandemic.

If delinquencies continue to follow the virus, they could become a national phenomenon in the months to come. CoreLogic’s models forecast serious delinquency rates will quadruple during the next 18 to 24 months, meaning about 3 million borrowers could be at risk of losing their homes.

That’s not to say the coronavirus crisis will be a repeat of the Great Recession. Almost 4 million homes were lost to foreclosure between 2007 and 2010, according to an analysis from the Federal Reserve Bank of Chicago, but the housing market is much healthier now. Subprime mortgages are rare, and homeowners have far more equity in homes. That leaves them in a much better position to weather a downturn and less likely to walk away from their homes when things go south.

“Right now, there isn’t any risky behavior that’s resulting in a big rise in delinquencies,” said Redfin lead economist Taylor Marr.

The housing market looks strong for now. There were 22 percent fewer homes for sale during the week ending July 4 than there were at the same time last year, according to Zillow, and ultralow interest rates have ensured steady demand from buyers. Low supply and high demand have had a predictable effect: Home prices are still climbing.

That may change next year. If delinquencies lead to foreclosures, as the forbearance time period expires, we could see an increase in the number of properties on the market. It may be compounded by other stressed buyers, who need to cash out of their home to pay bills as the recession continues. The supply glut could increase further if shutdowns are lifted and homeowners who held off on selling during a pandemic suddenly flood the market. On the demand side, there are fears buyers could pull back as stimulus fades and unemployment remains high.

Nothaft estimates home prices will fall about 6.6 percent from this May to the next. Mortgage giant Freddie Mac forecasts flat home prices next June. Redfin’s Marr, while optimistic, also says falling home prices are possible. However, he said, the supply glut could be alleviated by the long-awaited influx of first-time millennial home buyers, as well as the myriad forces that have prevented home builders from fully meeting demand.

Like so many things right now, the future of the housing market ultimately depends on how quickly the novel coronavirus can be contained and whether the government’s stimulus programs will be extended as the pandemic drags on.

“I would say the risk of a massive wave of foreclosures is pretty low,” Marr said. “I have high hopes that the government and other agencies will do what they can to keep people in their homes.”

Borrowers Begin to Walk Away From Troubled Loans


Growing Number of Hotel, Retail Properties Are Likely to End up in Lenders’ Hands



By Mark Heschmeyer                July 9, 2020                    CoStar News

A growing number of borrowers large and small are willingly opting to give their properties over to lenders. They can potentially write off the loss and reduce their outstanding debt.

The trend, as evidenced in the latest special servicer commentary on loans packaged in commercial mortgage backed-securities, suggests any economic recovery from the coronavirus pandemic could be drawn out, particularly in the hospitality and retail sectors.

More than $1.3 billion in loans is currently in some stage of a mutually agreed-upon transition from borrowers to lenders, according to a CoStar analysis of servicer and bond rating agency reports. Under an action known as deed in lieu of foreclosure, a borrower agrees to sign over the deed to a property to the lender in place of continuing to make loan payments.

“We’re in very unchartered territory here,” Ann Hambly, a 35-year veteran of the CMBS industry and CEO of 1st Service Solutions, which works with borrowers on strategies to pay back loans, told CoStar in an interview. “I’ve had about five deeds-in-lieu over the past 30 days. That’s a big number. I don't think I ever saw that in the 2008, 2009, 2010 downturn because people then would prefer to work it out.”

Instead, borrowers are now saying they have sunk all the money they want to spend on a loan and are ready to walk away, she said.

The prospect of a quick rebound is typically the deciding factor when it comes to holding properties or folding on them, according to Hambly, who gave an example using retail.

Borrowers on properties anchored by necessity retailers such as grocery stores could be OK in the long run and just need some temporary debt relief, she said. But borrowers on properties reliant on department stores and movie theaters — sectors going through potentially permanent changes — may decide now is as good a time as any to walk away.

Most of the deeds in lieu that Hambly is seeing now are in the sector. And CoStar research shows two of the largest loans currently considering a transition over to lenders are for hotels.

Last month, Colony Capital confirmed it was willing to give up control of a portfolio of 48 hotels to a receiver after missing April and May payments on a $780 million loan securing the properties. Colony is 90% owner of the portfolio, which includes the Residence Inn near New Jersey's Newark Liberty International Airport, in a joint venture with Chatham Lodging Trust. Traditionally, receivers are appointed to manage properties and turn over cash flow to the lender pending either a sale or foreclosure.

Also last month, Blackstone Group skipped a payment on a $274 million hotel loan secured by four Club Quarters hotels in Chicago, Philadelphia, Boston and San Francisco that it acquired in 2016.

The New York City private equity firm said it’s considering all options regarding the loan.

“This is a very small investment that had been written down prior to COVID-19 as a result of unique operational challenges,” a Blackstone spokesperson said in an email. “We will continue to work with our lenders and the hotel management company to create the best possible outcome under the circumstances for all parties, including the employees.”

Hotels make up a small portion of Blackstone’s global real estate holdings valued at $324 billion. In the company’s first-quarter earnings call, it noted about 80% of its portfolio comprises logistics, residential assets and high-quality office properties, with logistics being the most dominant theme.

It’s not just hotels showing up as potential deed-in-lieu transfers. Bahrain-based Investcorp International owns a shopping mall and office property that servicers noted could end up with lenders.

A $65 million loan on the Southland Mall in Miami transferred to special servicing in April. According to the servicer’s note, the borrower initially asked for debt relief but has since made the decision that the property would be unsustainable at its current debt level. The servicer is said to be determining the optimal workout strategy that achieves the highest recovery. 

Investcorp officials didn’t return requests for comment on the Southland Mall nor on a $47 million loan on One Westchase Center, a 466,159-square-foot office building in Houston.

The servicer note on that loan said the borrower would like to transition the property to the lender due to pending loan maturity in October and because of COVID-19’s impact on the Houston economy.

Other loans currently identified in servicer notes and bond rating agency reports as potentially going back to lenders were for smaller loan amounts and various property types.

It’s likely, though, that the total amount of such loans could be much larger than indicated as not all servicers provide specific commentary on loan workouts. In addition, the amount could go higher as borrowers face continued disruption from the pandemic.

U.S. Mortgage Rates Fall to Record Low 3.03% for 30-Year Loans


By Craig Giammona           July 9, 2020                       Bloomberg News

Mortgage rates in the U.S. hit a record low for the sixth time since the coronavirus outbreak began roiling financial markets.

The average for a 30-year fixed loan was 3.03%, the lowest in almost 50 years of data-keeping by Freddie Mac. The previous record was 3.07%, which held for a week. Rates have plunged as the Federal Reserve holds its benchmark rate near zero and buys mortgage bonds as part of its plan to stimulate the economy.

Analysts have argued that rates could dip below 3% this year.

Low borrowing costs have fueled demand for homes, even with the pandemic battering the economy. Americans stuck at home have been looking to trade up for more space, while a shortage of available inventory has helped prop up prices.

Social-distancing measures kept some buyers and sellers on the sidelines in recent months, but the market is bouncing back, according to Lawrence Yun, chief economist at the National Association of Realtors.

“The residential market has seen a swift rebound of activity as numerous states have begun to ease mandatory stay-at-home orders,” Yun said in a statement.

See Interest Rates section of this Web Page

Brooks Brothers, Hurt by Casual Fridays and Coronavirus, Files for Bankruptcy


The 202-year-old maker of business suits, and one of the last with U.S. factories, joins other apparel brands in bankruptcy court

By: Suzanne Kapner and Soma Biswas         July 8, 2020     The Wall Street Journal

Brooks Brothers dressed the American business class in pinstripes for more than 200 years and survived two world wars and the shift to casual dressing. But it was no match for the coronavirus pandemic.

The closely held company, which is owned by Italian businessman Claudio Del Vecchio, filed for bankruptcy protection in Wilmington, Del., on Wednesday. One of the few brands to make clothes domestically, it plans to halt manufacturing at its three U.S. factories on Aug. 15 and will use the bankruptcy process to search for a new owner. 

Brooks Brothers joins a parade of U.S. retailers seeking relief in bankruptcy court since March, including Neiman Marcus Group Inc., J.Crew Group Inc. and J.C. Penney Co.JCPNQ -5.73%.  Economic fallout from Covid-19 has also pushed high-profile companies in other industries into bankruptcy, including Hertz Global Holdings Inc. HTZ -1.35% andChesapeake Energy Corp. CHKAQ 

Mr. Del Vecchio blamed the pandemic for the company’s current troubles, saying in an interview on Wednesday that temporarily closing stores during the lockdowns greatly reduced revenue, yet the company still met its contractual obligations to workers, suppliers and other vendors. He said he wished that the government had provided a lifeline to larger retailers the way it did to small businesses.

“Through every era, we had challenges, but we were confident we would be able to manage through them,” he said. “Retailing has been changing a lot in the last four to five years, and we were in the process of adapting to that new environment. When coronavirus came, there was really no way to sustain things.”

While it seeks a buyer and restructures its debts, Brooks Brothers said it has secured a $75 million debtor-in-possession loan from WHP Global. WHP, backed by Oaktree Capital and BlackRock, is a brand-management firm that owns the Anne Klein and Joseph Abboud apparel brands.

Brooks Brothers was facing challenges before the health crisis forced nonessential retailers to temporarily close their stores. The company had about $1 billion in revenue in 2019, and about a quarter of its sales came from ecommerce. It has 500 stores around the world and roughly 200 in North America, after deciding to close about 50 locations because of the pandemic.

Corporate America had turned increasingly casual, and fewer men were buying suits. Once people started sheltering at home, they turned to even more casual attire, such as sweatpants.

As people begin to head back to the office, it isn’t known whether they will return to a more formal way of dressing.

“I’ve seen a growing trend toward more casual dress partly because that’s how our clients are dressing,” said Quyen Ta, a partner in law firm King & Spalding LLP’s San Francisco office. “I’ve met with general counsels of public companies who are in hoodies.”

Brooks Brothers hired the investment bank PJ Solomon last year to explore strategic options, including a possible sale, according to people familiar with the situation. It also received a $20 million loan from liquidation firm Gordon Brothers, these people said. The loan was from the firm’s financing arm, which is separate from the division that handles liquidations, one of the people said.

Brooks Brothers is expected to attract buyers, other people familiar with the situation said. Authentic Brands Group LLC, a licensing company that owns the Barneys New York and Sports Illustrated names, is a potential suitor, they said.

Other sellers of men’s work attire have also struggled since the pandemic. Tailored BrandsInc., TLRD -1.55% parent of Men’s Wearhouse and Jos. A. Bank, said in June that it has taken several steps to conserve cash, such as taking longer to pay landlords and suppliers. The company reported a 60% decline in sales in the quarter ended May 2. Last week, Tailored Brands skipped a bond interest payment.

Founded in 1818, Brooks Brothers, which pioneered ready-made suits, came of age along with the nation. It started selling its clothes before the Erie Canal opened and the California Gold Rush began. Its clothes have been worn by dozens of U.S. presidents, including Abraham Lincoln and Theodore Roosevelt, as well as tycoons ranging from the Astors to the Vanderbilts.

It introduced the first button-down-collar shirt in 1896, an idea a grandson of the founder got from watching a polo match in England. He noticed that the players’ collars didn’t flap in the wind, because they were buttoned down. It popularized other looks such as the reverse-stripe “repp” tie, a take on Britain’s regimental neckwear, as well as Harris Tweed and the Shetland sweater.

Robert Herbst, a 62-year-old lawyer, remembers his father taking him to buy a Brooks Brothers shirt, tie and blue blazer when he was about 7 years old. Later, when he joined the law firm White & Case LLP, he bought his first Brooks Brothers suit.

“It was the uniform,” said Mr. Herbst, who lives in Larchmont, N.Y., and is now the general counsel of several small companies. “Brooks Brothers was a way of life,” he said. “It represented a traditional, old-line way of dressing.”

Mr. Herbst said that although he has a closet full of Brooks Brothers suits he has been dressing more casually in recent years. “I used to wear suits five days a week, and that’s very rare now,” he said.

Even as other retailers moved production overseas, Brooks Brothers continued to manufacture a small portion of its suits, ties and shirts in three U.S. factories—in Haverhill, Mass., Garland, N.C., and Long Island City, N.Y. The factories produce roughly 7% of its finished goods, mainly suits, ties and some shirts.

As the move to dress more informally gained steam through the 1990s and 2000s, Brooks Brothers tried to adapt. In 2016, it introduced Golden Fleece, a line of casual clothes that included sweaters, jackets, sport shirts and slacks. But it faced competition from many upstarts. Today, tailored clothes account for about a fifth of its sales, with casual sportswear making up the rest, according to a spokeswoman.

Brian Ouellette of Clyde Hill, Wash., bought his first Brooks Brothers suit when he entered the PaineWebber & Co. training program in 1995. “My attire today is much more casual,” said the 48-year-old, who started his own company in 2010 that coaches financial advisers. “I’ll wear French cuff shirts with shorts and loafers in the summer.”

Brooks Brothers was acquired by the British retail chain Marks and Spencer GroupMAKSY 1.51% PLC in 1988. It was sold in 2001 to Retail Brand Alliance Inc., which was controlled by Mr. Del Vecchio, whose father founded Luxottica Group SpA, the Italian eyeglass maker. It changed its name to Brooks Brothers Group Inc. in 2011. 

Restoring Brooks Brothers has been a passion of Mr. Del Vecchio, who became enamored of the brand while growing up in Italy, according to a 2015 interview on the company’s website. Brooks Brothers was the first store he visited when he came to the U.S. at the age of 25. “As a frequent customer, I thought there were ways I could improve on quality,” Mr. Del Vecchio said in the interview.

He upgraded the fabrics, overhauled the supply chain and introduced new lines, including Black Fleece, a collection created by avant-garde designer Thom Browne that was discontinued in 2015. He also pushed the company to expand internationally. In 2001, Brooks Brothers’ only international market was Japan. Today, it has a presence in more than 70 countries.

Mr. Del Vecchio said he was unsure what he would do after Brooks Brothers is sold. “For now, I want to ensure a long life for this company.” he said.

Ann Taylor Owner Ascena Prepares Bankruptcy to Cut Debt, Stores

By: Eliza Ronalds-Hannon and  Katherine Doherty       July 7, 2020     Bloomberg News

Ascena Retail Group Inc., the owner of mall brands that occupy almost 3,000 stores in the U.S., is preparing to file for bankruptcy and shutter at least 1,200 of those locations, according to people with knowledge of the plan.

The company, which owns brands such as Ann Taylor and Lane Bryant, could enter Chapter 11 as soon as this week with a creditor agreement in place that eliminates around $700 million of its $1.1 billion debt load. Lenders including Eaton Vance Corp. would assume control of the company, said the people, who asked not to be identified discussing a private matter.

Ascena has experienced years of financial losses amid a boom in online shopping and slowdown in foot traffic at malls. The bankruptcy filing would allow the company to keep some of its brands operating while it shutters or sells others, the people said. Catherines and Justice are among the chains it’s considering to close or sell, they said. The plan is not final and certain details could change.

Mahwah, New Jersey-based Ascena didn’t provide a comment. The company is getting advice from restructuring lawyers at Kirkland & Ellis and investment bank Guggenheim Securities. A representative for Guggenheim declined to comment, while spokespeople for Kirkland and Eaton Vance didn’t immediately return messages seeking comment.

Ascena shut its shops in mid-March as the coronavirus outbreak spread, and began to re-open locations in early May as state authorities lifted restrictions. Customer traffic is much lower than normal at the revived stores, the company said in an update on the impact from Covid-19 on its business.

Like other retailers, the company cited a slump in sales tied to the closures. The company’s earnings and cash flow have been “significantly reduced” despite efforts to preserve liquidity, Carrie Teffner, Ascena’s interim executive chair, said in the update.

Ascena previously failed to sell two of its chains amid the losses and signs that creditors were losing confidence in its prospects. In September management discussed divesting Catherines and Lane Bryant, which specialize in plus-size women’s apparel, Bloomberg reported.

— With assistance by Lauren Coleman-Lochner

WeWork Scrapping Baltimore Lease, Days After Ditching New York Deal, Shows Market Pressure


Co-working Firm Enters Agreement With Armada Hoffler to Terminate 69,000-Square-Foot Accord

By Michael Cobb and Bryce Meyers       July 7, 2020         CoStar Analytics

The June completion of Wills Wharf brought yet another high-quality office building to Baltimore’s waterfront. However, the 12-story property in the growing Harbor Point development is now without its anchor tenant: WeWork.

Armada Hoffler Properties, the owner of the Harbor Point development, said Tuesday it came to a mutual agreement with WeWork to terminate its 69,000-square-foot lease at 1201 Wills St. WeWork had been committed to Wills Wharf for upward of two years. In fact, its deal represented the largest new office lease signed in southeastern Baltimore in the past five years and would have marked WeWork’s first location in the market. 

But the coworking giant has been scaling back its expansion plans as the coronavirus pandemic has largely kept office workers home and in turn pummeled an industry with a communal workspace model that is at odds with the new era of social distancing. That has led WeWork to get out of several lease agreements of late.

Just days ago, WeWork said it reached a deal to terminate its full-building lease with Columbia Property Trust at 149 Madison Ave. in New York. And in early June, the company canceled a lease in Germany that represented one of its largest lease agreements in Europe.

The terminated leases are part of a larger strategy by WeWork to reassess its global real estate footprint after years of relentless expansion. The company grew rapidly using venture capital funding from groups including main investor SoftBank Group Corp., the Tokyo-based firm that spearheaded the round of funding that pushed WeWork's valuation to $47 billion — a record high for a real estate-focused startup. 

The New York company quickly saw its valuation fall, however, after an ill-fated initial public offering last year revealed questionable business practices and a lack of a clear path forward to profitability. The company’s review of its global operations has only accelerated in recent months as efforts to contain the pandemic forced offices to close and raised new questions about the viability of coworking in general.

WeWork's new CEO, Sandeep Mathrani, said in May the company may exit or restructure about 20% of its global leases as it looks to rightsize its business and optimize its portfolio. WeWork declined to comment beyond a statement it issued.

For Baltimore, the canceled WeWork deal means that the emergence of net-new office demand has once again evaded Charm City. This is a trend that has been well documented in recent years, particularly within city limits. 

Despite those woes, the Baltimore market’s office vacancy rate is still in good standing, at least when compared with its own historical norms. Yet, asking rents declined last year and have continued to do so year-to-date. Those declines are likely to be further exacerbated in the coming months and quarters as the pandemic affects businesses and corresponding office footprints.

Prior to the termination announcement, the new Wills Wharf building had been about 55% leased to a tenant roster that also included Ernst & Young, Bright Horizons and digital marketing company Jellyfish Group. With the top two floors now back on the market, the 236,000-square-foot building is just over 25% leased.

“With its prime waterfront location in Harbor Point, we are in active negotiations to lease the balance of the building, inclusive of the 69,000 square feet that WeWork was to occupy,” Louis Haddad, president and CEO of Virginia Beach, Virginia-based Armada Hoffler, said in a statement. 

Armada Hoffler developed Wills Wharf as part of Harbor Point, a larger project in the Inner Harbor that includes more than 325,000 square feet of office, retail and a boutique-style Canopy by Hilton hotel. JLL’s team in downtown Baltimore handles leasing at Wills Wharf.

Lender halts funding for Helmut Jahn-designed skyscraper on Michigan Avenue, putting project in doubt

By Ryan Ari         July 7, 2020      The Chicago Tribune


A Helmut Jahn-designed skyscraper along South Michigan Avenue is on hold at least until September and buyers of the luxury units are being offered some of their deposits back, after the project’s lender stopped funding its construction. 









The latest delay, resulting from economic concerns tied to the coronavirus pandemic, raises questions about the viability of the biggest condo project to break ground in Chicago in more than a decade.


At 74 stories and an expected cost of $470 million, the 1000M tower would be difficult to pull off even in the best of times.

It would not be the first audacious project in Chicago to succumb to a case of bad economic timing. The most memorable is the 2,000-foot-tall, Santiago Calatrava-designed Chicago Spire, a project that fell apart after breaking ground and became a global cautionary tale about the fickleness of construction cycles.


Construction lender Goldman Sachs has put the 1000M project on hold until it can be reviewed after a 90-day period ending in September, providing more time to assess the impacts of COVID-19 on real estate demand, according to developers Time Equities, JK Equities and Oak Capitals.

Goldman Sachs is “concerned about economic stability of the market at this particular time due to recent events,” Time Equities chairman and CEO Francis Greenburger said in an email Tuesday.

In recent weeks the virus has rapidly spread in several states, causing concerns about long-term damage to the economy.

The lender could agree to continue funding the project after the three-month wait, and the developer is exploring other ways to finance the project in the meantime, Greenburger said. He declined to say how much construction financing Goldman Sachs had agreed to provide.

“We are hopeful that a solution will be found in the months ahead,” he said.



The project, across from Grant Park, was the first prominent high-rise construction project in Chicago to shut down during the pandemic. The 1000M developers in June said foundation work stopped during the spring to prevent the spread of COVID-19. 

The lender covered the cost of the initial phase of the foundation but has not released additional funds, Greenburger said. “We remain hopeful that this graceful iconic structure will one day help define the skyline of Chicago,” he said.

The 832-foot-tall tower designed by Jahn is the largest condo project in Chicago, by unit count, to begin construction since the last recession. There are contracts to buy 101 of 421 units, and buyers have made 10% down payments, Greenburger said.

The developers recently informed buyers who had signed contracts that construction was being idled, giving them the option to take back half of their earnest money, Greenburger said.

Many buyers declined to take back the 5%, and those who did would need to repay the 5% when construction resumes, he said

During stay-at-home orders issued in March, construction was deemed an essential industry by Gov. J.B. Pritzker.

The devastating impact on the economy and the need to take health precautions such as distancing, staggering work shifts and taking workers’ temperatures has made construction projects challenging. Still, many big projects have continued uninterrupted in recent months.

One of the 1000M developers, New York-based JK Equities, took the rare step of starting work last month on a 42-unit luxury condo project on Chicago’s Near West Side.

Large projects delayed by the pandemic include construction of the massive office space Uber leased in The Old Post Office redevelopment and the planned observatory at the Aon Center, which would include adding an exterior elevator tower and creating a thrill ride atop the city’s third-tallest skyscraper.

Developers and construction contractors are closely watching to see how the pandemic will affect a more than decade-long construction boom, at a time when several megadevelopments are in advanced planning stages.

If completed, 1000M would stand tallest in the iconic row of skyscrapers on South Michigan Avenue.

It also would be the tallest building designed by German architect Jahn in his adopted hometown. Jahn’s prominent Chicago designs include the James R. Thompson Center and the United Airlines terminal at O’Hare International Airport.

1000M is already years in the making. The developers bought the site in the 1000 block of South Michigan Avenue for $17.2 million in 2016. That’s the year the city approved the project after Jahn altered the design, including chopping 200 feet from its height.

It took years before enough units were pre-sold to begin construction.

The Tribune reported in October that 1000M was moving close to the starting line, and later that month the developers held a groundbreaking ceremony.

At the time, Greenburger said the developers were close to finalizing an unspecific amount of financing from Goldman Sachs, with construction expected to take about three years.

Twitter @Ryan_Ori

Fannie, Freddie See Jump in Halted Payments on Senior Housing Loans

Government-Run Mortgage Companies Report Another $3 Billion in Multifamily Forbearances

By: Mark Heschmeyer           July 7, 2020                            CoStar News


Fannie Mae and Freddie Mac have reported reduced or suspended payments on another $3 billion in loans, a sign of intensifying distress in the U.S. multifamily industry related to the coronavirus pandemic.

The two government-sponsored enterprises have now offered this forbearance on about $12.2 billion in loans. Fannie Mae added more than 40 loans to its total in June, while Freddie Mac added more than 175.

Senior housing loans led the increase. The largest single loan in forbearance now is tied to a $1 billion portfolio of senior facilities owned by an affiliate of Blackstone Group, the New York-based private equity giant. Blackstone did not provide comment in response to a query from CoStar.

Senior housing has been related to almost 40% of U.S. coronavirus deaths through the end of May, according to the Kaiser Family Foundation, a national nonprofit group focused on healthcare. Efforts by landlords and operators to minimize the introduction and spread of the coronavirus, including stopping in-person tours and limiting move-ins in an elderly population in which the coronavirus symptoms tend to be more severe, caused occupancies to decline, credit agency Fitch Ratings said last month.

Fannie Mae has about $2 billion in loans tied to senior housing properties, representing 44% of the unpaid principal balance of its loans in forbearance. Of Freddie Mac’s $7.9 billion of forborne loans, 10.4% are backed by senior housing.

“The COVID-19 pandemic continues to have a profound economic impact across the country,” Steve Guggenmos, vice president of research and modeling at Freddie Mac, said in a statement. “At present, all states are in some stage of reopening. Nevertheless, unemployment claims remain high and there is much uncertainty about an economic recovery and — for many tenants and borrowers — concerns around how to make their next rent or loan payment.”

Freddie Mac reported 1,189 forborne loans, roughly 5% of all its mortgages that have been securitized for investors. This equates to about $7.9 billion of its unpaid balance. The average loan balance was about $6.6 million.

A high percentage of Freddie Mac’s forborne loans have small balances, at 75% by loan count, but 30% by unpaid loan balance.

Freddie Mac has a program that offers multifamily loans from $1 million to $7.5 million for properties with as few as five units. At smaller apartment complexes, a single tenant experiencing financial stress can have a significant impact on landlords, which explains why so many have requested forbearances, according to Guggenmos.

Fannie Mae reported 273 loans in forbearance totaling about $4.3 billion, or roughly 1.2% of its securitized loan balance. The average loan in forbearance equaled about $15.6 million.

The Blackstone loan was the largest added to the forbearance list by either mortgage company last month. Fannie Mae granted forbearance on a $536 million loan backed by 60 Brookdale Senior Living facilities totaling about 5,540 units. Blackstone and Brookdale acquired the facilities in a joint venture in March 2017. The loan is in forbearance until the end of August.

Blackstone fully intends to meet its interest obligations on the loan, a person familiar with the forebearance told CoStar. Senior housing makes up less than 1% of Blackstone's global real estate holdings.

Beginning in April, Fannie Mae and Freddie Mac started granting forbearance relief to qualifying multifamily borrowers to defer up to three months of mortgage payments. Those agreements are now coming to an end, even though the national number of coronavirus cases continues to increase. Last week, the federal government agreed to give borrowers the option to extend forbearances another three months.

Apartment Industry Advocates Lobby for New Stimulus Legislation as Senate Goes on Recess

“We are tremendously concerned what happens if those systems are not renewed,” says one insider about expanded unemployment benefits. 

Bendix Anderson       Jul 06, 2020        National Real Estate Investor

The clock is ticking in Washington D.C. In a few weeks, a federal emergency program will stop distributing extra funds to people who lost jobs in the crisis caused by the novel coronavirus. That could cause a huge number of renters to fall behind on their rents and eventually lose their homes.

“There is a threat of a massive wave of evictions,” says David Dworkin, president and CEO of the National Housing Conference, a Washington, D.C.-based non-profit focused on ensuring safe and affordable housing for all Americans. “I am hoping that the impetus for Congress to take action is not when sheriff’s deputies on a large scale start dumping people’s personal effect and children’s toys onto the sidewalk. I don't think it takes a lot of social media to provoke a reaction to that.”

Millions of renters lost jobs in the economic crisis caused by the global pandemic. So far, they have largely been able to pay their rent on time, thanks to a web of government stimulus programs. The largest is now timed to expire at the end of July. Yet while the U.S. House of Representatives has passed the Health and Economic Recovery Omnibus Solutions (HEROES) Act some time ago to offer Americans a new round of stimulus money, the Senate has just gone on a two-week July 4th recess without passing a bill of its own.

For the time being, many property managers have been forbidden from evicting tenants from rental housing in many parts of the U.S. by a patchwork of local laws and federal regulations that are also expiring and, in some municipalities, face lawsuits.

Housing advocates get through to lawmakers

It’s not the first time Congress has waited to act on an important program. “No one is surprised that we are not going to have this done [by the beginning of July],” says Paula Cino, vice president of construction, development and land use policy for the National Multifamily Housing Council (NMHC), a non-profit advocacy group for the apartment industry. However, the delay is still nerve-wracking. “We don’t see any certain timelines.”

Advocates like Dworkin and Cino have been in close contact with legislators and their staffs, despite the crisis caused by the spread of the coronavirus. “Nobody is on the Hill having in-person meetings anymore,” says Cino. “It’s all conference calls and Zoom calls.”

Because of the crisis, advocates can no longer catch the attention of Washington players in the halls of Congress and the offices nearby. However, they can often schedule more substantive conversations.

“Everyone is working from home and they are dying for human contact,” says Dworkin. “If you have something worth talking about, it is easier to get a meeting with a member of Congress.”

The expiration of programs like enhanced unemployment benefits for out-of-work Americans at the end of July has also added urgency to these discussions. “We are already seeing an increased interest in discussion of this issue among Republican staff in some member’s offices,” Dworkin notes.

The U.S. House of Representatives also recently passed a proposal focused just on housing issues, which would postpone evictions and foreclosures for struggling renters and homeowners for a year. The new bill repeats parts of the much larger, $3 trillion HEROES Act that has largely been ignored by the Republican-led Senate since the House passed it in May.

The smaller, new Emergency Housing Protections and Relief Act of 2020 includes many provisions supported by advocates for both renters and property managers—such as $100 billion in emergency rental assistance. “That’s critical—it gets dollars into renters’ hands to keep them from ever missing a rental payment,” says NMHC’s Cino.

The House bill also includes a national, uniform moratorium on evictions for all renters, which is more controversial.

“Rental housing providers cannot alone bear the burden,” says Greg Brown, senior vice president of government affairs for the National Apartment Association, a non-profit trade group for apartment building owners and suppliers. "These policies will inhibit the ability of property owners to manage their communities by interrupting the cash flow necessary to maintain effective operations."

Most renters are still paying


The vast majority of apartment tenants are still writing rent checks for now. By June 20, more than nine out of 10 apartment renter households (92.2 percent) had made a full or partial payment for the month, according to a survey by NMHC, which gathered data on 11.4 million professionally-managed apartments from five leading property management software systems.

That’s more than a quarter of the 43 million rental apartments in the United States.

Millions of Americans have filed new claims for unemployment benefits every week since the COVID-19 crisis began in March. Many have been able to keep paying rent because of trillions of dollars of benefit programs created by the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) in the first weeks of the crisis. That includes direct payments of $1,200 per taxpayer and expanded unemployment benefits that provide recipients an extra $600 per week.

“We are tremendously concerned what happens if those systems are not renewed,” says Cino.

Of these existing programs, expanded unemployment benefits may have helped renters the most. But they have also created the most controversy with legislators. “There are those that believe that it leads to unintended consequences,” says Cino. “It is absolutely one of the top issues and concerns for Senate Republicans.”

Advocates hope that deadlines coming up will motivate Congress to act. “I am very concerned that things are not moving,” says Dworkin. “However, last minute solutions are what Congress does best.”

The Economics (and Nostalgia) of Dead Malls - By Nelson D. Schwartz    New York Times  (2015)

With Department Stores Disappearing, Malls Could Be Next

Brick-and-mortar retail was in the midst of seismic changes even before the pandemic. Analysts say as much as a quarter of America’s malls may close in the next five years.

By: Sapna Maheshwari          July 5, 2020         New York Times

The directory map for the Northfield Square Mall in Bourbonnais, Ill., has three glaring spaces where large department stores once stood. Soon there will be a fourth vacancy, now that J.C. Penney is liquidating stores after filing for bankruptcy.















With so much empty space and brick-and-mortar retail in the midst of seismic changes even before the pandemic hit, the mall’s owners have been talking with local officials about identifying a “higher and better use for the site,” though they have declined to elaborate on what that could be.

“Filling in one anchor space, generally, is doable,” said Elliot Nassim, president of Mason Asset Management, which co-owns the Northfield Square Mall and dozens of other enclosed shopping centers. “But once you get hit by two others and you’re dealing with three anchor closures, that’s usually where we become a little more likely to put it into the bucket of a redevelopment.”

The standard American mall — with its vast parking lots, escalators and air conditioning, and an atmosphere heavy on perfume samples and the scent of Mrs. Fields cookies — was built around department stores. But the pandemic has been devastating for the retail industry and many of those stores are disappearing at a rapid clip. Some chains are unable to pay rent and prominent department store chains including Neiman Marcus, as well as J.C. Penney, have filed for bankruptcy protection. As they close stores, it could cause other tenants to abandon malls at the same time as large specialty chains like Victoria’s Secret are shrinking.

Malls were already facing pressure from online shopping, but analysts now say that hundreds are at risk of closing in the next five years. That has the potential to reshape the suburbs, with many communities already debating whether abandoned malls can be turned into local markets or office space, even affordable housing.

“More companies have gone bankrupt than any of us have ever expected, and I do believe that will accelerate as we move through 2020, unfortunately,” said Deborah Weinswig, founder of Coresight Research, an advisory and research firm that specializes in retail and technology. “And then those who haven’t gone bankrupt are using this as an opportunity to clean up their real estate.”

Ms. Weinswig said the malls that are able to withstand the current turmoil will be healthier — better tenants, more inviting and occupied — but she anticipated that about 25 percent of the country’s nearly 1,200 malls were in danger.

Most retailers that have filed for bankruptcy are closing stores but plan to continue operating.

Department stores account for about 30 percent of the mall square footage in the United States, with 10 percent of that coming from Sears (which filed for bankruptcy in 2018) and J.C. Penney, according to Green Street Advisors, a real estate research firm. J.C. Penney, which declined to comment, has said store closings will start this summer and could eventually number as many as 250. Green Street forecast in April that more than half of all mall-based department stores would close by the end of 2021.

That will have significant effects beyond reduced customer foot traffic. Many small mall retailers have clauses in their leases — so-called co-tenancy clauses — that allow them to pay reduced rent or even break the lease if two or more anchor stores leave a location.

“At a lot of lower-quality malls, where maybe there already is a vacant anchor, where you’ve got the Sears box that closed two years ago and not yet filled it, and now your J.C. Penney box is closed — that is going to cause that mall to likely lose a lot of tenants and possibly even lose its competitive positioning very quickly,” said Vince Tibone, a retail analyst at Green Street.

Mr. Tibone said he was pessimistic about the ability of most malls to fill vacant spaces, especially during the pandemic. Entertainment options like Dave & Buster’s are off the table, for instance.

“The reality is there are going to be dark boxes for some time,” he said.

And then there are customers, who already shop online in huge numbers and may not be all that eager to return to enclosed emporiums where they will be surrounded by other people.

“If there’s a perception out there that people are safer outside and less safe inside, that’s not great,” said Matthew W. Lazenby, chief executive of Whitman Family Development, which manages the luxury open-air Bal Harbour Shops outside Miami.


Even before the pandemic, American shopping malls were seeing their fortunes diverge. While malls in affluent areas with high-end stores and restaurants generally thrived, lower-tier malls, particularly those with competitors nearby, suffered over the years as retailers winnowed their physical stores and filed for bankruptcy. Macy’s, which also owns Bloomingdale’s, said in February that it would close 125 stores in “lower-tier malls” during the next three years, and Nordstrom just recently said it would close 16 of its 116 full-line department stores. While Neiman Marcus, which filed for bankruptcy in May, said it plans to reopen all its stores, landlords are watching warily.

Mr. Lazenby said that his mall was in a good position, but it, too, has been dealing with the decline of department stores. Barneys New York, which finished liquidating this year, was meant to anchor an expansion, and the mall also has a Neiman Marcus.

Brad Schlossman, chief executive of West Acres Development, where he oversees the popular West Acres mall in Fargo, N.D., which was founded by his father, said Sears was the mall’s first tenant and it had a lease that, including renewal options, had a 45-year-term that ran out in 2017.

Since Sears exited, the mall has been trying to redevelop the space, installing a Best Buy and trying to attract restaurants, though those plans may be put on hold depending on which tenants are able to pay rent in the near future.

Mr. Schlossman is optimistic about West Acres, partly because it is the only major mall in an area where the weather favors enclosed spaces. But he anticipates greater struggles in places where there are clusters of malls. “We are it in our community, so we don’t have that same either cannibalization or struggle to attract tenants because we’re competing against another mall,” he said.

As of June, 84 percent of the country’s 1,174 malls were considered healthy, reporting vacancy rates of 10 percent or less, according to the CoStar Group, a data provider for the real estate industry.

But that compares with 94 percent in 2006. And the percentage of healthy malls is expected to drop further as retailers carry out store closings announced this year, accounting for more than 83 million square feet of retail space. A significant percentage of that comes from apparel stores, which represent about 60 percent of occupied mall space.

Major mall operators have started to signal concern. The Simon Property Group, the biggest mall operator in the United States, is trying to terminate its $3.6 billion deal to acquire Taubman Centers, which owns and operates about two dozen high-end shopping centers.

In court filings last month, Simon Property said that Taubman’s malls were mostly enclosed, and that indoor malls “are the last types of retail real estate properties that most consumers will want to visit on a long-term basis after Covid-19.” (Simon Property also owns many enclosed malls.) While Taubman has promoted its wealthy, educated shoppers as an asset, Simon Property said that those consumers, in particular, are now “far more able and likely to use online shopping.” The sides have been ordered to enter mediation but if an agreement isn’t reached by the end of the month, they will go to trial. 

CBL & Associates Properties, which owns and operates roughly 60 malls, outlet stores and open-air shopping centers in the United States, said in filings last month that it was skipping about $30 million in interest payments due in June “to advance discussions with its lenders and explore alternative strategies,” and that there was “substantial doubt” it would continue to operate as a going concern.

Jim Hull, the owner and managing principal of the Hull Property Group in Augusta, Ga., which oversees 30 enclosed malls, expressed frustration about the exit of big national chains from “smaller or tertiary markets.” The result, he said, is that “the majority of people living in the smaller markets will either have to buy from the internet or have to drive 45 miles,” he said.

Already this year, Victoria’s Secret said it would close 250 stores in North America, while the Gap brand is closing at least 170 stores globally. Financial troubles are plaguing mall chain companies like Ascena Retail, which owns Ann Taylor and Loft, and the owner of New York & Company. And bankruptcies since early 2019 have included mall staples like Forever 21, Things Remembered, Payless ShoeSource and GNC. Lucky Brand Dungarees filed for bankruptcy on Friday.

Mr. Hull said that he anticipated making malls more “community-based” in smaller markets, with local and regional businesses. “It’s going to be cooking classes, boutiques, internet businesses that want a physical presence, health care, food choices,” he said.

In Cupertino, Calif., where Apple has its headquarters, the fate of the shuttered Vallco Shopping Mall has become a contentious issue, with impassioned public debates around replacing it with affordable housing, new entertainment and retail options or office space.

In the meantime, it is a partially demolished eyesore, according to Rod Sinks, a member of the Cupertino City Council. “We have a chain-link fence around the whole thing,” he said.

In Los Angeles, the former Westside Pavilion mall, once featured in the movie “Clueless” and Tom Petty’s “Free Fallin’” music video, is turning into office space for Google. Terri Tippit, the 74-year-old chairwoman of the local Westside neighborhood council, lamented the loss of the space and said it “reflected the way our society is changing and going.”

Still, some investors have bought midtier malls in recent years and have already been working on how to repurpose and change spaces — even “de-malling” malls, by flipping store entrances so that they face the street.

“We didn’t buy malls since 2014 thinking that J.C. Penney or Sears or Bon-Ton were going to be in business forever and operate department stores, and if you were, then shame on you,” said Ami Ziff, director of national retail at Time Equities, a real estate firm whose investments include eight enclosed malls. “Is there going to be more distress, vacancy and bankruptcy? Yes. Hopefully, you know what you’re doing so you can pick up the pieces to refill that space.”

By the Numbers...


U.S. Job-Growth Optimism Tempered by Stall in States’ Reopenings


By: Reade Pickert           July 2, 2020            Bloomberg News

The U.S. labor market made greater progress than expected last month digging out of a deep hole, yet optimism over the rebound was tempered by stubbornly high layoffs and a resurgent coronavirus outbreak across the country.

Thursday’s simultaneous release of the monthly employment report and the weekly jobless claims data offered diverging snapshots of the economy: One reflecting a flurry of rehiring -- particularly at restaurants and retailers -- as state economies reopened. The other reflecting a jump in new virus cases, which has led many of those same states to halt or even walk back reopening plans.

While President Donald Trump said the jobs figures proved the economy is “roaring back,” the pace of recovery may slow or even stall if employers grow cautious and delay rehiring workers -- in fact, some have already been laid off a second time.

Paired with the coming expiration of the federal government’s extra $600 in weekly unemployment benefits, the economy could take another hit in the months ahead. Even a decade from now, the jobless rate will still be above pre-pandemic levels, according to Congressional Budget Office projections released Thursday.

“No one should be expecting we’re on a straight trajectory higher,” said Jennifer Lee, senior economist at BMO Capital Markets. Initial jobless claims are the “worrying part” of Thursday’s figures, and “it’s going to be a few steps forward and a couple steps back,” she said.

Payrolls rose by a more-than-expected 4.8 million in June after an upwardly revised 2.7 million gain in the prior month, according to Labor Department figures. The data, which offer a snapshot of mid-month conditions, also showed the unemployment rate fell for a second month to 11.1%. That was a bigger decline than anticipated, but the rate still remains far above the pre-pandemic half-century low of 3.5%.

Meanwhile, a separate weekly report showed initial applications for unemployment benefits in state programs remained extremely elevated last week, falling by less than expected to 1.43 million new applications. Continuing claims -- or claims for ongoing unemployment benefits in state programs -- rose slightly to 19.3 million in the week ended June 20.

U.S. stocks rose following the data, though they pared gains on speculation that a second wave of coronavirus cases could jeopardize an economic rebound.


What Bloomberg’s Economists Say


“The upward surprise in the June jobs report demonstrates that economic fundamentals remain strong enough to facilitate a relatively robust recovery once Covid-19 is under control. However, in the near term, the positive signal somewhat fades given the recent sharp acceleration in new virus cases and the looming income cliff stemming from the expiration of augmented unemployment benefits this month.”

-- Yelena Shulyatyeva, Andrew Husby and Eliza Winger --

The Labor Department’s Bureau of Labor Statistics has largely fixed a problem that resulted in respondents being misclassified as employed when they should have been labeled as unemployed. Adjusted for the errors, the June unemployment rate would have been about 1 percentage point higher than reported -- or 12.3%, compared with an adjusted 16.4% in May. “The degree of misclassification declined considerably in June,” BLS said.

The increase in payrolls was led by leisure and hospitality and retail, illustrating the effect of the easing of business restrictions. Health care also saw increases as doctors’ and dentists’ offices reopened.

It’s a “little more disconcerting that we’re not seeing broad-based gains across industries,” BMO’s Lee said.

Also, state government payrolls fell by another 25,000 -- the fourth straight decline -- as budget situations grew more dire amid falling tax revenues.

Beneath the headline numbers are even bigger underlying trends. About 17.8 million Americans remain unemployed, down from 23.1 million in April, indicating that only about a third of the jobs lost during the pandemic have been recovered.

Another is massive churn: About 12.4 million people were newly employed in June -- about double the pre-pandemic pace -- according to BLS figures compiled by Bloomberg, while the rate of people moving from employed to unemployed was also double last year’s average rate.

White House economic adviser Larry Kudlow, speaking on Bloomberg Television, said the report was “spectacular” and many more people temporarily laid off will return to work.

Trump’s Democratic opponent, Joe Biden, said on a livestream Thursday that the positive jobs report doesn’t compensate for the scale of the health crisis. “There is no victory to be celebrated,” he said. “We’re still down nearly 15 million jobs, and the pandemic is getting worse, not better.”

Key Numbers

Unemployment among minorities and women remained worse than among White Americans and men. The Black unemployment rate fell to 15.4% from 16.8%, while it declined to 10.1% from 12.4% among White Americans. Hispanic unemployment dropped to 14.5% from 17.6%.

Meanwhile, the household survey showed more than 2.8 million Americans permanently lost their job in June, a 588,000 increase from a month earlier that was the biggest since the start of 2009. While the total number is the highest in six years, the figure bears watching for more systemic damage to the labor market caused by the pandemic.

“The first thing I looked at was number of people permanently laid offand that continues to climb, and I think that’s some cause of concern,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics. “Even when this pandemic’s over those people are going to need to find work.”

really comment on the articles in the feed.  I believe that they should stand on their own merit.  But the information over the last several days has been less than inspiring.  When the Federal Reserve pointedly is telling the government what it needs to do, it is a case of the tail wagging the dog - but not in a good way.   The Europeans have abandoned us, we are lumped in the same category as Brazil and Russia and the pandemic appears have no end in sight.  There is no doubt from a real estate point of view, these are troubling omens.   

Fed officials raised concerns in June that U.S. could enter a much worse recession later this year if coronavirus cases continued to surge


The scenario, which officials described as plausible, was revealed in minutes of their June meeting before the surge in cases escalated


By: Rachel Siegel       July 1, 2020         The Washington Post


Federal Reserve officials raised concerns about additional waves of coronavirus infections disrupting an economic recovery and triggering a new spike in unemployment and a worse economic downturn, according to minutes released Wednesday by the central bank about its June 9-10 meeting.

Fed Chair Jerome H. Powell has repeatedly said that the path out of this recession, which began in February, will depend on containing the virus and giving Americans the confidence to resume normal working and spending habits. But the notes from the two-day meeting reveal how interconnected Fed officials view a prolonged economic recession and the pandemic’s continued spread — and why Powell often asserts that lawmakers will need to do more to carry millions of Americans out of this crisis.

“In light of the significant uncertainty and downside risks associated with the pandemic, including how much the economy would weaken and how long it would take to recover, the staff judged that a more pessimistic projection was no less plausible than the baseline forecast,” the minutes read. “In this scenario, a second wave of the coronavirus outbreak, with another round of strict limitations on social interactions and business operations, was assumed to begin later this year, leading to a decrease in real GDP, a jump in the unemployment rate, and renewed downward pressure on inflation next year.”

On June 10, when this Fed meeting concluded, there were 20,456 new coronavirus cases in the United States that day, according to a Washington Post analysis. The situation has deteriorated markedly since then, and 44,474 new cases were reported Tuesday. Anthony S. Fauci, the government’s top infectious-disease specialist, warned this week that the country could soon face 100,000 new coronavirus cases a day “if this does not turn around.”

Notably, the Fed’s discussion about these concerns came before the big surge in coronavirus cases in the past two weeks. The latest surge has forced California, Florida and Texas to reimpose restrictions on restaurants and bars, and nine other states have postponed or scaled back reopening plans. The reversal means that many Americans — including hourly and low-wage service employees — have been kicked out of the workplace for a second time.

That grim reality is colliding with what experts have dubbed a “fiscal cliff,” when the $600-per-week increase in unemployment benefits expires at the end of this month. Congress is facing multiple decisions about how or whether to extend government aid this summer. Powell has often said that more congressional action is likely to be needed to provide direct relief to struggling households and businesses.

Powell and other Fed officials stop short of outlining exactly what they think lawmakers should do in a new stimulus package or other legislation. But the meeting minutes underscore what the central bank’s leaders have said in public, which is that the Fed’s tools can do only so much.

The Fed has propped up many emergency programs to support the markets and extend loans to municipalities and small and midsize businesses. But the central bank only has authority to lend — not spend. Testifying before the House Financial Services Committee on Tuesday, Powell said that for many companies and industries desperate for help, “more debt may not be the answer here."

Among the risks noted by Fed officials at the June meeting: “Fiscal support for households, businesses, and state and local governments might prove to be insufficient.”

Still, those concerns are much different from the forecast the White House has offered, as President Trump has predicted a sharp increase in economic growth. This week, senior White House economist Larry Kudlow said that the “overwhelming” evidence pointed to a V-shaped recovery.



Powell has hesitated to say precisely what type of bounce back — including a V, U or W-shaped recovery — the country could face, and he emphasizes that the situation remains extraordinarily uncertain.

But the Fed has taken steps to incorporate a range of possibilities, including more dire ones, into its emergency response. Last week, the Fed released new data on how the country’s largest banks would fare under those three scenarios and concluded that if there is a slower, U-shaped recovery or a W-shaped scenario, several financial firms “would approach minimum capital levels.”

Others within the central bank have been more direct. In an interview with The Post on Wednesday, Mary C. Daly, president of the San Francisco Federal Reserve Bank, said she “would hesitate to call this a recovery” and specifically said the country was not in a V-shaped rebound.



The Fed’s June meeting took place just weeks after George Floyd, a black man in Minneapolis, died in police custody, spurring nationwide protests against racism and American policing. With the protests came a broader reckoning over racial inequalities that permeate the American economy, especially for communities of color, which are most vulnerable to the current recession.

Powell has frequently been asked whether the Fed should specifically consider the black unemployment rate, or whether the central bank’s programs widen economic disparities rather than repair them. His frequent response is that the Fed’s emergency programs are meant to protect American jobs and that if unemployment can return to its historically low, pre-pandemic levels, minority workers will especially benefit.

“Injustice, prejudice, and the callous disregard for life had led to social unrest and a sense of despair,” the Fed minutes said.

Source:  National Association of Convenience Stores

Weak Demand for Ventas, Healthpeak Senior Housing Bodes Poorly for the Industry

Hundreds of communities halted admissions during the pandemic, leading to lost revenue as pandemic-related costs have soared

By:  Peter Grant                          June 30, 2020                 The Wall Street Journal

The reopening of admissions at senior housing communities owned by companies like Ventas Inc. and Healthpeak Properties Inc. is slowing but failing to end the downward slide in occupan